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44 WAR] WESTPAC v BELL GROUP (No 3) 1

SUPREME COURT OF WESTERN AUSTRALIA (COURT OF APPEAL)

Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3)

[2012] WASCA 157

Lee, Drummond and Carr AJJA


18 April-22 June 2011, 17 August 2012
Agency Implied agency Imputation of knowledge of agent to principal
Syndicate of banks Agency of lead bank Agent for limited purpose
Distinction between imputed knowledge and inferred actual knowledge.
Bankruptcy Statutory claims Disposition, settlement or alienation
of property in insolvency Share mortgages, directions and
authorisations to give mortgages, guarantees and indemnities, fixed and
floating charges, loan agreements, subordination agreements Whether
property Intent to defraud creditors Proof of conscious
wrongdoing not required Good faith Valuable consideration
Whether forbearance to sue was valuable in the circumstances
Bankruptcy Act 1966 (Cth), ss 6, 120, 121.
Bankruptcy Statutory claims Avoidance Date at which avoidance takes
effect Tracing Dissipation of property Effect of Brady v Stapleton
Availability of consequential relief in equity Corporations Act 2001
(Cth), ss 565, 1400, 1401, 1371, Pt 5.7B Whether s 565 available to a
liquidator of foreign company registered after impugned transactions
Property Law Act 1969 (WA), s 89 Imperial Acts (Substituted
Provisions) Act 1986 (ACT), Sch 2, Pt 7 Fraudulent Conveyances Act
1571 (ENG).
Contracts Inferred and implied terms Informal contract of on-loan from
issuer of convertible subordinated corporate bonds to parent company
Whether term subordinating right of repayment was included in on-loan
Burden of proof Objective theory of contract Scope and utility of
extrinsic evidence Relevance of subjective assent Contractual
purpose Rationale for treating debt as equity in financial statements
Who bore responsibility for setting the terms Course of dealing in a
corporate group Turns on own facts Enforceability by third party
beneficiaries Property Law Act 1969 (WA), s 11(2).
Contracts Interpretation of contracts Plain meaning Resort to extrinsic
evidence Utility of post-contractual conduct.
Corporations Knowledge of Aggregation of knowledge of employees and
agents Whether it is necessary to identify a guiding mind.
2 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

Equity Fiduciary duties Duties of company directors Comparison with


duties of trustees Scope and standard of duties to act in the best
interests of the company and for proper purposes Relevance of
directors subjective judgment Relationship with equivalent statutory
duties Relationship with the duty to exercise care and skill Grant of
securities by a corporate group in an insolvency context Effect on
individual companies in the group Role of the interests of creditors
Relevance of directors failure to carry out investigations Relevance of
a group context Utility of the Charterbridge test.
Equity Fiduciary duties Duties of company directors Conflicts of
interest Distinction from duty to act for proper purposes
Non-pecuniary interests.
Equity Knowing receipt of property to which fiduciary obligations attach
First limb of Barnes v Addy Application outside of trust relationship
Scope of property to which fiduciary obligations attach Standard of
knowledge required Relationship with the standard for knowing
assistance Baden categories (iii) and (iv) Deliberate abstention from
inquiry and reckless indifference Proof of conscious wrongdoing not
required Distinction between constructive knowledge and inferred
actual knowledge.
Equity Knowing assistance in breach of fiduciary duties Second limb of
Barnes v Addy Effect of Farah Constructions v Say-Dee Meaning of
dishonest and fraudulent design Proof of conscious wrongdoing not
required.
Equity Equitable fraud Imposition and deceit Fourth limb of Earl of
Chesterfield v Janssen Modern role of Necessity of identifying
offence to public utility Relationship with bankruptcy laws Whether
equal treatment of creditors is required prior to winding-up Scope of
the composition cases Frustration of a restructure available to a
distressed company is not an offence to public utility Not necessary to
establish bad faith Whether necessary to show that creditors were
kept in the dark.
Equity Equitable fraud Unconscientious conduct Necessity of
establishing special disadvantage Extent to which doctrine applies to
commercial entities.
Equity Equitable defences and bars to relief Abandonment Election
Laches Ratification Restitutio in integrum Set-off Corporations
Act 2001 (Cth), s 533C.

Equity Remedies General principles Practical justice Distinction


between disgorgement and compensation Judicial discretion to deny
the right to elect an account of profits Public interest.

Equity Remedies Constructive trust Distinction between institutional


and remedial constructive trusts Tracing impractical on the facts.

Equity Remedies Equitable compensation Appropriate rate and period


44 WAR 1] WESTPAC v BELL GROUP (No 3) 3

of compensatory interest Whether deduction for taxation of


compensatory interest should be made at each rest for calculation of
compound interest.
Equity Remedies Injunction Remedial discretion exercised on the
balance of convenience Rights of non-parties.
Estoppel Estoppel by representation, estoppel by convention, equitable
(promissory) estoppel Continuing relevance of doctrinal divisions
Difference between promissory and proprietary estoppels Promissory
estoppel requires a clear and unambiguous representation Must be
made by party against whom estoppel is sought Failure to show
ongoing reliance.
Evidence Utility of hypothetical evidence Rule in Jones v Dunkel.
Limitation of Actions Trusts and equitable causes of action Whether
claims by beneficiaries of constructive trusts are limited Limitation by
analogy Distinction between fraud in equity and fraud in the common
law Limitation Act 1935 (WA), s 47.
Trade Practices Misleading and deceptive conduct Likely to mislead or
deceive Sophisticated commercial dealing Mutually understood
meaning not deceptive Trade Practices Act 1974 (Cth), ss 52, 80, 87
Competition and Consumer Act 2010 (Cth), Sch 2, s 232.
The Bell Group Ltd (TBGL) and a subsidiary, Bell Group Finance Pty Ltd
(BGF), granted a consortium of 20 banks a comprehensive set of securities over
various publishing assets and over a shareholding in Bell Resources Ltd (BRL).
The primary transaction documents were executed on 26 January 1990 and shortly
thereafter, and certain other securities were executed in the following months until
July 1990. These securities secured repayment of approximately $260 million,
which had previously been advanced by the banks and which was then
immediately due and owing. In April 1991, TBGL was placed into liquidation, and
various external administrations followed for its subsidiaries. The banks enforced
their securities, sold the secured assets and recovered about $283 million.
In 1995, the liquidators of TBGL, related companies in the Bell Group and the
trustee for certain bondholders commenced proceedings seeking to set aside the
securities and to recover the proceeds of realisation for the benefit of unsecured
creditors. At the time when the securities had been granted to the banks, the major
unsecured creditors were holders of various bonds. Their claims totalled
approximately $548 million when the securities were granted. The bondholders
fell into two categories. The largest bond issues had been undertaken by a foreign
subsidiary of TBGL, Bell Group NV (BGNV). The proceeds from the bonds
issued by BGNV had then been lent by BGNV to TBGL or BGF, although no
written loan agreements were ever executed. Other bonds had been issued directly
by TBGL and BGF. Essentially the plaintiffs claimed that the directors of TBGL
and BGF, and the banks, were aware that TBGL and BGF were insolvent when the
securities were granted, and that the banks took the securities to advance their own
position to the detriment of creditors, primarily the bondholders. On the other
hand, the banks claimed that they had engaged in a debt restructuring program for
the Bell Group of companies which provided these companies with time to trade
out of their difficulties, and that the securities were part of that program.
A critical issue for the banks was their claim that the debts due from TBGL and
BGF to the bond issuers were always subordinated to their own claims. After the
4 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

banks obtained their securities, BGNV executed a principal subordination deed


and certain other subordination agreements in July 1990, by which BGNV
subordinated repayment of the debts due in respect of the loans which it had made
from the proceeds of the bond issues, to other creditors of TBGL and BGF
(including the banks). However, the banks contended that this formalised a
position which already existed, by virtue of contract or estoppel. If that was
established, then the taking of securities by the banks did not improve their
unsecured claims over the claims of the bondholders, as the bondholders claims
were already subordinated in any event. The trial judge found that the loans from
BGNV to TBGL were subordinated (as between BGNV and TBGL).
The trial judge held that the Bell Group companies were insolvent on 26
January 1990, that the directors knew that the Bell Group of companies was nearly
insolvent when the securities were granted, and that the banks suspected
insolvency. The trial judge ordered the banks to repay approximately $1.6 billion.
The banks appealed against this judgment on multiple grounds, but did not dispute
the finding that the Bell Group companies were insolvent on 26 January 1990. The
plaintiffs cross-appealed on various grounds.
Held: the appeal be dismissed, and the cross-appeals be allowed in part.
Subordination
(1) (Lee and Drummond AJJA) The evidence did not support the trial judges
finding that the loans from BGNV to TBGL were subordinated. There was no
evidence for a factual finding that BGNV and TBGL jointly intended, or that they
and the banks together intended, that the loans from the proceeds of the bonds
should be subordinated. Consequently, there was no basis for an inferred
subordination contract between BGNV and TBGL, or between BGNV, TBGL and
the banks. As well, there was no basis to imply a subordination agreement, as loan
agreements were not a class of agreement where an implication of subordination
was required by law and there was no business necessity to imply subordination
into the loan arrangements between BGNV and TBGL. Further, there was no
evidence of any representation by BGNV that the loans would be subordinated,
which could found an estoppel or form the basis for any misleading or deceptive
misrepresentation. For analysis of the evidence, see [14]-[324], [1356]-[1700],
[1795]-[1937]. For analysis of the existence of an inferred or implied contract,
estoppel or misrepresentation, see [325]-[484], [1297]-[1306], [1701]-[1794].
Discussion of principles of determining existence and terms of informal contracts
at [1347]-[1355]. Discussion of construction of contracts by reference to mutually
known circumstances at [1339]-[1346]. Discussion of inferred contractual terms
and implied contractual terms at [326]-[329], [336]-[342], [1395]-[1401],
[1702]-[1704]. Discussion of certainty of representation required for estoppel at
[1748]-[1768] (Carr AJA dissenting). The evidence supported the trial judges
finding that the loans from BGNV to TBGL were subordinated. [3242]-[3433]
(2) (Lee and Drummond AJJA) Even if a subordination agreement could be
inferred or implied jointly between BGNV and TBGL, that would not have been
enforceable by the banks by reason of s 11(2) of the Property Law Act 1969 (WA).
That provision only applies to contracts in writing [349]-[355], [1719] (Carr AJA
dissenting). The subordination agreements conferred a benefit upon the banks,
which was enforceable by them under s 11(2) of the Property Law Act,
notwithstanding that the banks were not specifically named and the
unsubordinated creditors of TBGL and BGF were a changing class. Further,
s 11(2) is not limited in its application to only written contracts. [3438]-[3468]
Statutory claims
(3) (Lee AJA, Drummond AJA concurring) It is not a requirement for a claim
under s 121 of the Bankruptcy Act 1966 (Cth) (applicable by reason of s 565 of
the Corporations Act 2001 (Cth)), s 89 of the Property Law Act, or under
equivalent imperial legislation adopted in the ACT (which governed one of the
44 WAR 1] WESTPAC v BELL GROUP (No 3) 5

security transactions), that a claimant establish conscious dishonesty or conscious


wrongdoing, such as a desire to cheat or swindle, to demonstrate an intent to
defraud. If dishonesty is a separate element to be proved in respect of an intent to
defraud, it is satisfied by showing conduct that falls short of fair dealing. It is not
necessary to show an awareness by the debtor of the extent to which that conduct
has fallen short of the standards of ordinary, decent people. [534]-[545], [2513]
Hardie v Hanson (1960) 105 CLR 451; P T Garuda Indonesia Ltd v Grellman
(1992) 35 FCR 515; Cannane v J Cannane Pty Ltd (in liq) (1998) 192 CLR 557;
Marcolongo v Chen (2011) 242 CLR 546, considered.
(4) (Lee AJA, Drummond AJA concurring) The directors of the Bell Group of
companies knew of the precarious financial position of the companies when the
banks securities were granted. They also knew of the effect upon other creditors
of granting the securities, namely the subtraction of the secured property from
funds available for rateable distribution to the other creditors in a liquidation. The
clear and obvious inference was that the directors actually intended to hinder,
delay or defeat other creditors by granting the securities to the banks. There was
also direct evidence of this intention [547]-[557]. An inference of an intent to
defraud should have been drawn for the purposes of s 121 of the Bankruptcy Act,
s 89 of the Property Law Act and the applicable ACT legislation [581]. Further,
the trial judge should have found that the banks had not acted in good faith for the
purposes of those provisions. [583]-[588], [2513]
(5) (Carr AJA) The Bell directors were experienced businessmen. They
understood that if the planned financial restructure of the Bell Group failed to
eventuate, the Bell companies would go into liquidation and the proceeds of the
sale of the only worthwhile assets would not be shared pari passu among the
creditors. The Bell directors knew that the non-bank creditors, including future
creditors, would not receive any dividends until the banks had been paid in full.
The creditors would be delayed and hindered, and thus relevantly defrauded. That
was sufficient to show an intent to defraud in granting the securities, for the
purposes of s 121 of the Bankruptcy Act. It was unnecessary to show that the Bell
directors appreciated that this was dishonest judged by the standards of ordinary
decent people. However, the execution of the subordination deed by BGNV was
not dishonest for the purposes of s 121 of the Bankruptcy Act. Further, the banks
had not acted in good faith, as they had knowledge of the intention of the Bell
directors to delay, hinder or otherwise defraud the non-bank creditors. That was
the whole point of the securities transactions. [3174]-[3199], particularly at
[3185], [3197]
(6) (Lee AJA, Drummond AJA concurring) The banks had not provided
valuable consideration for the provision of security, for the purposes of s 121 of
the Bankruptcy Act, s 89 of the Property Law Act or the applicable ACT
legislation, by extending the time for repayment of the debts due from the Bell
Group of companies. The extension of time was granted in exchange for the
securities being granted for the purpose of avoiding companies in the Bell Group
being immediately liquidated, and to allow time for the securities to harden to
strengthen the banks position. That was not true or valuable consideration
justifying a disposition of property that would otherwise have been available for
rateable distribution to creditors [598]-[603], [2513] (Carr AJA dissenting). It was
strictly unnecessary to consider whether the banks had provided valuable
consideration, as they had not acted in good faith. However, the banks had
provided valuable consideration by forbearing to enforce immediate payment of
debts that were presently owing. [3200]-[3203]
(7) Various aspects of the security transactions were also settlements of property
for the purposes of ss 120 and 121 of the Bankruptcy Act (applicable by reason of
s 565 of the Corporations Act): (a) (Lee AJA, Drummond AJA concurring) The
grant of share mortgages by TBGL of shares which TBGL held on trust, but which
6 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

it mortgaged as the legal and beneficial owner of the shares, was a disposition of
property by TBGL, not the beneficial owners for whom TBGL held the shares on
trust. The beneficial owners had authorised TBGL to mortgage the shares [633],
[2488]-[2497]; (b) (Lee AJA, Drummond AJA concurring) The subordination deed
was a settlement of property as it involved an intangible subtraction from and
diminution of the property constituted by the debt which is subordinated
[647]-[649] (per contra Carr AJA at [3150]); (c) (Lee AJA, Drummond AJA
concurring, Carr AJA concurring for the purposes of s 121) The creation of a
floating charge also involved the disposition of property, prior to crystallisation of
the charge [701]-[703], [2513], [3164]-[3170] (Carr AJA). Some of the particular
floating charges in this case, which were drafted most restrictively, were also
dispositions of property for the purposes of s 120 of the Bankruptcy Act, but other,
more standard, floating charges, were not [3205]-[3214]; (d) (Drummond and Carr
AJJA) The entry into a guarantee did not involve the disposition of property by
the guarantor. [2498]-[2512], [3151]-[3163] (per contra Lee AJA at [670]-[672])
Re NIAA Corporation Ltd (in liq) (1993) 33 NSWLR 344 at 358; Maxwell
Communications Corporation plc (No 3) (1993) 11 ACLC 3,149 at 3,160-3,161,
applied.
Manning v AIG Europe UK Ltd [2005] 1 BCLC 1; Pacific Brands Sport &
Leisure Pty Ltd v Underworks Pty Ltd (2006) 149 FCR 395 at [39]-[43]; Landall
Holdings Ltd v Caratti [1979] WAR 97, considered.
Tricontinental Corporation Ltd v Federal Commissioner of Taxation [1988] 1
Qd R 474; Lyford v Commonwealth Bank of Australia (1995) 130 ALR 267,
distinguished.
(8) (Lee and Carr AJA) Where property is dealt with contrary to s 565 of the
Corporations Act, the right to obtain remedial orders will not depend upon a
continuing ability to identify the object dealt with. This provision contemplates
that a court may order that a party at fault personally account for the use of
moneys obtained by reason of a dealing contrary to the provisions of s 565(1)
[742], [3229]-[3232] (Drummond AJA dissenting). There was nothing in the
Corporations Act which dealt with the remedies to be given for a transaction
contrary to s 565 which occurred prior to 23 June 1993. The Bell companies were
confined, in respect of their statutory claims, to relief under the general law in
respect of transactions set aside under ss 120 to 122 of the Bankruptcy Act (or the
equivalent ACT legislation). Under the general law, there was no general principle
that a personal remedy involving a money payment would always be available,
whatever the nature of the property the subject of the transaction avoided and
whether avoidance occurs under any of ss 120 to 122 of the Bankruptcy Act (or
the equivalent ACT legislation). Consequently, by way of example, the banks were
not liable upon the statutory claims, to repay the proceeds from the sale of
mortgaged shares in BRL which occurred prior to liquidation. [2514]-[2589]
Brady v Stapleton (1952) 88 CLR 322; Marks v GIO Australia Holdings Ltd
(1998) 196 CLR 494; NA Kratzmann Pty Ltd (in liq) v Tucker (No 2) (1968) 123
CLR 295, considered.
Equitable fraud
(9) (Drummond and Lee AJJA) There is no basis for holding that because a
company is facing insolvency, all creditors are thereby brought into a relationship
with each other so that it would be equitable fraud for one creditor to enter a
transaction adversely affecting other creditors. Nor is there any basis for holding
that entry by such a company, prior to winding-up, into an agreement preferring
one creditor over the others contravenes any head of public policy so as to
establish equitable fraud. [2590]-[2662], particularly at [2661], [3068]-[3098]
Earl of Chesterfield Executors of John Spencer v Sir Abraham Janssen (1751) 2
Ves Sen 125; 28 ER 82, considered.
44 WAR 1] WESTPAC v BELL GROUP (No 3) 7

(10) (Lee AJA dissenting) Upon the onset of insolvency, the common interest of
creditors in the company means that thereafter the insolvent company holds its
assets on trust for pari passu distribution among creditors. In equity, a creditor
with notice of the insolvency of a company acting with intent to defeat the
interests of other creditors will get no title to the property of the insolvent
corporation, although possession of legal title may permit full title to be conveyed
to a bona fide purchaser without notice of the defect in equity [792]. Discussion of
the nature of equitable fraud at [745]-[791]. The banks had knowledge of the state
of insolvency facing the Bell Group. The banks had also constructed a scheme to
effect informal administration of the affairs of the Bell Group under their
supervision, to have the assets of the Bell Group applied to repayment of the
banks claims to the exclusion of other creditors and to avoid the commencement
of any external administration which could imperil the banks preference
[805]-[813]. The banks had engaged in equitable fraud. [814]
(11) (per curiam) BGNV could not establish a separate case of equitable fraud
based upon the unconscientious conduct of the banks in taking advantage of a
special disability of BGNV when BGNV executed the subordination deed. It was
not obvious to the banks that BGNV was not able to make a proper judgment
about whether it was in its interests to execute this deed. There was no gross
inequality of bargaining power between the banks and the Bell companies.
[828]-[831], [2663]-[2665], [3099]-[3109]
Directors duties
(12) (Lee and Drummond AJJA) The directors of the Bell Group of companies
could not honestly assert that they believed that the interests of creditors, other
than the banks, would not be prejudiced by executing the security transactions and
by refraining from commencing formal administration where those transactions
withdrew the groups ability to pay debts, transferred control of the assets of the
group to the banks and immediately reduced the worth of the debts due to other
creditors by denying those creditors access to the assets of the group and
subordinating payment of some of those debts to the payment in full of the claims
of the banks. The dealings by the directors could not be justified in equity and
constituted misconduct from which a finding of breach of fiduciary duty should
follow [1092]-[1094], [2079]-[2096]. Discussion of the nature of directors
equitable duties, and whether they are fiduciary at [834]-[941], [1947]-[2078].
Breen v Williams (1996) 186 CLR 71; Pilmer v Duke Group Ltd (in liq) (2001)
207 CLR 165; Permanent Building Society v Wheeler (1994) 11 WAR 187,
considered.
(13) (Carr AJA dissenting) While it has been assumed, there is no binding
authority that a directors duties to act in the interests of the company and to
exercise powers for proper purposes are fiduciary duties. Nevertheless, on the
present state of authorities, the duties should be regarded as fiduciary and the
breach of such duties could give rise to knowing receipt liability under the first
limb of Barnes v Addy (1874) LR 9 Ch App 244 [2716]-[2717], [2733]. However,
where the plaintiffs at trial had expressly disavowed any allegation of conscious
wrongdoing or conscious dishonesty on the part of the Bell directors, the evidence
showed that the Bell directors subjectively believed that liquidation of the Bell
Group was the only alternative to the securities transactions and, acting honestly,
caused the companies to enter these transactions. In these circumstances, there
was no breach by the directors of their duties to act bona fide or for a proper
purpose. There was also no breach of any duty to avoid conflicts of interest, as
there was no real or sensible possibility of the interests of directors conflicting
with the interests of the Bell Group in avoiding immediate liquidation by entering
the securities transactions [2737]-[2985], [2994]-[3000]. Discussion of nature of
directors equitable duties at [2716]-[2736], [2795]-[2797]. Discussion of
8 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

approach to considering interests of a group of companies at [2868]-[2875],


[2881]-[2899].
Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557; Richard
Brady Franks Ltd v Price (1937) 58 CLR 112; Charterbridge Corporation v
Lloyds Bank Ltd [1970] Ch 62, considered.
Liability for knowing receipt and knowing assistance
(14) (Drummond AJA, Lee AJA concurring) Liability for knowing receipt under
the first limb of Barnes extends to dispositions of company property (including
intangible property and the creation of rights enforceable against company
property, such as the securities transactions in this case) made by a director in
breach of fiduciary duties owed to the company. Liability will be imposed upon a
person receiving such property where the recipient has knowledge, within the first
four categories stated in Baden v Socit Gnrale pour Favouriser le
Dveloppement du Commerce et de LIndustrie en France SA, that the disposition
of property has been made by a director in breach of fiduciary duties owed to the
company. [1099], [2127]-[2173]
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; Kalls
Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557, approved.
Criterion Properties plc v Stratford UK Properties Llc [2004] 1 WLR 1846,
considered.
Smith Kline & French Laboratories (Aust) Ltd v Secretary, Department of
Community Services and Health (1990) 22 FCR 73, distinguished.
(15) (Drummond AJA, Lee AJA concurring) Liability for providing knowing
assistance under the second limb of Barnes will be established where there is a
breach of fiduciary duty by a company officer, the defendant has knowledge of
that breach which falls within the first four categories stated in Baden, and the
breach of fiduciary duty is more than trivial and too serious to be excusable
because the fiduciary acted honestly, reasonably and ought fairly to be excused
(adopting an analogous approach to statutory provisions which excuse trustees or
company officers for breaches of duty). It is unnecessary to show that the fiduciary
acted with a conscious awareness of wrongdoing. [1099], [1113]-[1123],
[2104]-[2126]
Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373;
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, considered.
(16) (Drummond AJA, Lee AJA concurring) The knowledge of the banks about
the breaches of duty by directors of the Bell Group of companies should be
assessed by aggregating the knowledge of the officers of the banks and their
agents (such as solicitors) who worked on the broad transaction of taking
securities from these companies. This aggregation did not depend upon each
officer or agent being a guiding mind of one of the banks or having some duty to
communicate to a central superior. The aggregation of knowledge could also occur
across all of the banks acting on this broad transaction. [1100], [2178]-[2207]
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563, considered.
Dunlop v Woollahra Municipal Council [1975] 2 NSWLR 446, approved.
(17) (Drummond AJA, Lee AJA concurring) The evidence showed that the
banks had sufficient knowledge of breaches of fiduciary duty by directors of the
Bell Group of companies to satisfy the third and fourth categories stated in Baden.
The banks knew that Bell group was insolvent or nearly insolvent; without access
to asset sales, the group would not survive; the banks insisted upon controlling
asset sales; there was no significant corporate benefit to the companies from
entering the securities transactions; the banks knew that the directors were acting
to the prejudice or possible prejudice of various creditors (including the
bondholders) and that these creditors would lose their right to a rateable
distribution on liquidation of TBGL and BGF; and the banks had control of
44 WAR 1] WESTPAC v BELL GROUP (No 3) 9

drafting resolutions by the directors to show that they had no concern that the
directors might be acting improperly. [2250]-[2450], particularly at [2416]
(18) (Carr AJA dissenting) As there was no breach of fiduciary duty by the
directors of the Bell companies, it was not in the interests of justice to determine
the application of liability on the basis of Barnes. However, it was appropriate to
observe that what the Bell directors did which was legally unacceptable was to
prefer one group of creditors, the banks, to the rest of the Bell group creditors.
That required the transactions to be set aside under s 121 of the Bankruptcy Act.
However, there was no need to stretch liability under Barnes to provide the other
creditors with a remedy where the insolvency regime provided adequate
protection. [3052]-[3066]
Relief
(19) (Lee AJA and Drummond AJA) The claimants were entitled to have the
securities transactions rescinded, and this was not prevented because precise
restitutio in integrum was no longer possible [1139]-[1151], [2669]-[2671]. The
banks were not obliged to provide an account of profits, due to the public interest
in preventing further public resources being consumed in litigation over the
accounting process, and in circumstances where the payment of equitable
compensation (requiring return of the funds and compound interest) would not be
so far removed from the result of an accounting as to be inappropriate. [1221],
[2678]
(20) (Lee AJA and Drummond AJA) The correct level of equitable
compensation was the amount received by the Banks from realisation of their
securities, together with a component for interest to be calculated on a compound
basis. That level of compensation provided for the disgorgement by the Banks of
profits gained by the use of the money obtained. The appropriate rate of interest
was to be calculated on a compound basis with monthly rests set at 1% above the
Banks base earning rate. The primary judge had set a lower rate; applying
Wallersteiner v Moir (No 2) [1975] QB 373. The calculation was to be made
without regard to the income tax which that interest should be deemed to have
attracted each year in the hands of the plaintiff companies. [1235]-[1249], [1249],
[2678]
(Carr JA dissenting) The respondents had no right to damages for losses of
profits, nor to disgorgement of profits. The correct rate of interest that should be
applied was the rate as fixed by the Reserve Bank of Australia plus 1%, calculated
at yearly rests. Interest payable should be calculated by first deducting income tax
that would have been paid on those receipts by the plaintiff companies depending
on the tax rate for the year in question. [3542]-[3600]
Wallersteiner v Moir (No 2) [1975] QB 373, considered.
Cases Cited
A v Hayden (1984) 156 CLR 532.
Abbott, Re [1983] Ch 45.
Abignano v Wenkart (1998) 9 BPR 16,765.
Adler v Australian Securities and Investments Commission (2003) 179 FLR 1.
Advance Bank Australia Ltd v FAI Insurances Ltd (1987) 9 NSWLR 464.
Agip (Africa) Ltd v Jackson [1990] Ch 265.
Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353.
Alati v Kruger (1955) 94 CLR 216.
Alden v Gregory (1764) 28 ER 905.
Alderson v Temple (1768) 96 ER 384.
Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656.
10 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507.
Anscor Pty Ltd v Clout (2004) 135 FCR 469.
Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337.
Ashburton Oil NL v Alpha Minerals NL (1971) 123 CLR 614.
Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1
KB 223.
Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (2009) 25 VR 411.
Atlas Tiles Ltd v Briers (1978) 144 CLR 202.
Attorney-General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988.
Australasian Meat Industry Employees Union v Mudginberri Station Pty Ltd
(1987) 18 IR 355.
Australian Broadcasting Commission v Australasian Performing Right
Association Ltd (1973) 129 CLR 99.
Australian Competition and Consumer Commission v CG Berbatis Holdings Pty
Ltd (2003) 214 CLR 51.
Australian Competition and Consumer Commission v Radio Rentals Ltd (2005)
146 FCR 292.
Australian Competition and Consumer Commission v Yellow Page Marketing
BV (No 2) (2011) 195 FCR 1.
Australian Crime Commission v Gray [2003] NSWCA 318.
Australian Growth Resources Corporation Pty Ltd v Van Reesema (1988) 13
ACLR 261.
Australian Metropolitan Life Assurance Co Ltd v Ure (1923) 33 CLR 199.
Australian National Industries Ltd v Greater Pacific Investments Pty Ltd (in liq)
(No 3) (1992) 7 ACSR 176.
Australian Securities and Investments Commission v Adler (2002) 168 FLR 253.
Australian Securities and Investments Commission v Citigroup Global Markets
Australia Pty Ltd (No 4) (2007) 160 FCR 35.
Australian Securities and Investments Commission v Healey (2011) 196 FCR
291.
Australian Securities and Investments Commission v Hellicar (2012) 86 ALJR
522.
Australian Securities and Investments Commission v Lanepoint Enterprises Pty
Ltd (2011) 244 CLR 1.
Australian Securities and Investments Commission v Somerville (2009) 77
NSWLR 110.
Australian Securities and Investments Commission v Vines (2006) 58 ACSR
298.
Australian Securities and Investments Commission v Vines (2005) 65 NSWLR
281.
Australian Securities Commission v AS Nominees Ltd (1995) 62 FCR 504.
Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424.
Avondale Motors (Parts) Pty Ltd v Federal Commissioner of Taxation (1971)
124 CLR 97.
Badat v DTZ Australia (WA) Pty Ltd [2008] WASCA 83.
44 WAR 1] WESTPAC v BELL GROUP (No 3) 11

Baden v Socit Gnrale pour Favouriser le Dveloppement du Commerce et


de LIndustrie en France SA [1993] 1 WLR 509.
Baker v Offcial Trustee in Bankruptcy (unreported, Federal Court, QG 102 of
1994, Burchett, Ryan and Carr JJ, 3 August 1995).
Baltimore & Ohio Railroad Co v United States 261 US 592 (1923).
Bamford v Bamford [1970] Ch 212.
Bank of Credit & Commerce International (Overseas) Ltd v Akindele [2001] Ch
437.
Bank of New Zealand v Essington Developments Pty Ltd (1991) 5 ACSR 86.
Bank of New Zealand v New Zealand Guardian Trust Co Ltd [1999] 1 NZLR
664.
Bankruptcy, Offcial Receiver in v Schultz (1990) 170 CLR 306.
Bankruptcy, Offcial Trustee in v Alvaro (1996) 66 FCR 372.
Bankruptcy, Offcial Trustee in v Baker [1994] FCA 530.
Bankruptcy, Offcial Trustee in v Mitchell (1992) 38 FCR 364.
Bankstown City Council v Alamdo Holdings Pty Ltd (2005) 223 CLR 660.
Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567.
Barker v Duke Group Ltd (in liq) (2005) 91 SASR 167.
Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2006] 1
WLR 1476.
Barnes, Re; Ex parte Stapleton [1962] Qd R 231.
Barnes v Addy (1874) LR 9 Ch App 244.
Bartlett Estates Pty Ltd, Re [1989] 2 Qd R 175.
Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] Ch 515.
Barton v Offcial Receiver (1984) 4 FCR 380.
Barton v Offcial Receiver (1986) 161 CLR 75.
Bell Group Ltd (in liq) v Westpac Banking Corporation (No 1) [2001] WASC
315.
Bell Group Ltd (in liq) v Westpac Banking Corporation (No 10) (2009) 39 WAR
1 at 930.
Bell Group Ltd (in liq) v Westpac Banking Corporation (No 5) [2004] WASC
273.
Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 39 WAR
1.
Belmont Finance Corporation Ltd v Williams Furniture Ltd (No 2) [1980] 1 All
ER 393.
Bennett v Minister of Community Welfare (1992) 176 CLR 408.
Beswick v Beswick [1968] AC 58.
Biala Pty Ltd v Mallina Holdings Ltd (No 2) (1993) 13 WAR 11.
Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd (2005) 226 ALR
510.
Bills v Smith (1865) 122 ER 1211.
Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384.
Blackmagic Design Pty Ltd v Overliese (2011) 191 FCR 1.
Blenkinsopp v Blenkinsopp (1852) 42 ER 644.
12 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

Blenkinsopp v Blenkinsopp (1850) 50 ER 1177.


Blomley v Ryan (1954) 99 CLR 362.
Boardman v Phipps [1967] 2 AC 46.
Bodenham v Hoskyns (1852) 42 ER 1125.
Bofinger v Kingsway Group Ltd (2009) 239 CLR 269.
BP Australia Ltd v Brown (2003) 58 NSWLR 322.
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266.
Brady v Stapleton (1952) 88 CLR 322.
Brall, Re; Ex parte Norton [1893] 2 QB 381.
Brambles Holdings Ltd v Carey (1976) 15 SASR 270.
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424.
Branson, Re; Ex parte Moore [1914] 3 KB 1086.
Breen v Williams (1996) 186 CLR 71.
Brennan v Comcare (1994) 50 FCR 555.
Brew v Whitlock (No 2) [1967] VR 803.
Bridgewater v Leahy (1998) 194 CLR 457.
Briginshaw v Briginshaw (1938) 60 CLR 336.
Bristol & West Building Society v Mothew [1998] Ch 1.
Buche v Box Pty Ltd (1993) 31 NSWLR 368.
Bull v Attorney General (NSW) (1913) 17 CLR 370.
Bunbury Foods Pty Ltd v National Bank of Australasia Ltd (1984) 153 CLR
491.
Burns v Leda Holdings Pty Ltd [1988] 1 Qd R 214.
Byrne v Australian Airlines Ltd (1995) 185 CLR 410.
Caddy v McInnes (1995) 58 FCR 570.
Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45.
Cannane v J Cannane Pty Ltd (in liq) (1998) 192 CLR 557.
Cannane v Offcial Trustee in Bankruptcy (1996) 65 FCR 453.
Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534.
Cardile v LED Builders Pty Ltd (1999) 198 CLR 380.
Carmichael v National Power plc [2000] IRLR 43.
Carter and Kenderdines Contract, Re [1897] 1 Ch 776.
Cascade Pools Australia Pty Ltd, Re (1985) 9 ACLR 995.
Castlemaine Tooheys Ltd v Williams & Hodgson Transport Pty Ltd (1985) 7
FCR 509.
Castlemaine Tooheys Ltd v Williams & Hodgson Transport Pty Ltd (1986) 162
CLR 395.
Cattanach v Melchior (2003) 215 CLR 1.
Centronics Systems Pty Ltd v Nintendo Co Ltd (1992) 39 FCR 147.
Challenge Foundation of New South Wales Ltd v Windgap Foundation Ltd
[2002] NSWSC 313.
Chan v Zacharia (1984) 154 CLR 178.
Charitable Corporation v Sutton (1742) 26 ER 642.
Charterbridge Corporation Ltd v Lloyds Bank Ltd [1970] Ch 62.
44 WAR 1] WESTPAC v BELL GROUP (No 3) 13

Chesterfield, Earl of v Janssen (1751) 28 ER 82.


Chilcotin Pty Ltd v Cenelage Pty Ltd [1999] NSWCA 11.
Cifuentes v Fugro Spatial Solutions Pty Ltd [2009] WASC 316.
City Equitable Fire Insurance Co, Re [1925] Ch 407.
Clarke v Japan Machines (Aust) Pty Ltd [1984] 1 Qd R 404.
Clarkson v Davies [1923] AC 100.
Clay v Clay (1999) 20 WAR 427.
Clay v Clay (2001) 202 CLR 410.
Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1.
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR
337.
Cohen, Re [1924] 2 Ch 515.
Colin Gwyer & Associates Ltd v London Wharf (Limehouse) Ltd [2003] BCC
885.
Collett v De Gols (1734) 25 ER 665.
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447.
Commonwealth Bank of Australia v Ridout Nominees Pty Ltd [2000] WASC 37.
Commonwealth v Verwayen (1990) 170 CLR 394.
Company, Re a; Ex parte Glossop (1988) 4 BCC 506.
Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373.
Cook v Italiano Family Fruit Co Pty Ltd (in liq) (2010) 190 FCR 474.
Coomber, Re [1911] 1 Ch 723.
Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation
(1981) 147 CLR 297.
Cornwell v The Queen (2007) 231 CLR 260.
Corporate Affairs Commission v Papoulias (1990) 20 NSWLR 503.
Coulls v Bagots Executor & Trustee Co Ltd (1967) 119 CLR 460.
Coulton v Holcombe (1986) 162 CLR 1.
Countess of Strathmore v Bowes (1789) 30 ER 211.
County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008]
NSWCA 193.
Craven & Marshall, Re (1870-71) LR 6 Ch App 70.
Creamoata Ltd v Rice Equalization Association Ltd (1953) 89 CLR 286.
Credit Industrial Corporation, Re 366 F (2d) 402 (1966).
Criterion Properties plc v Stratford UK Properties Llc [2004] 1 WLR 1846.
Cummins, Re; Richardson v Cummins (1951) 15 ABC 185.
Cummins (a bankrupt), Trustees of the Property of v Cummins (2006) 227 CLR
278.
Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371.
Daniels v Anderson (1995) 37 NSWLR 438.
David Jones Ltd v Lunn (1969) 91 WN (NSW) 468.
Dawson, Re; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966]
2 NSWR 211.
14 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

Day & Dent Constructions Pty Ltd v North Australian Properties Pty Ltd (1982)
150 CLR 85.
Dean-Willcocks v Nothintoohard Pty Ltd (in liq) (2007) 25 ACLC 109.
Debenham v Ox (1749) 27 ER 1029.
Debtor, Re A [1912] 2 KB 533.
Deeny v Gooda Walker Ltd (No 4) [1996] LRLR 168.
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31.
Demetrios v Gikas Dry Cleaning Industries Pty Ltd (1991) 22 NSWLR 561.
Denistone Real Estate Pty Ltd, Re [1970] 3 NSWR 327.
Devenish v Jewel Food Stores Pty Ltd (1991) 172 CLR 32.
DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW)
(1982) 149 CLR 431.
Docker, Re (1938) 10 ABC 198.
Donnelly v McIntyre [1999] FCA 450.
Dovey v Cory [1901] AC 477.
DPC Estates Pty Ltd v Grey [1974] 1 NSWLR 443.
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423.
Dunlop v Woollahra Municipal Council [1975] 2 NSWLR 446.
Edwards v Attorney General (NSW) (2004) 60 NSWLR 667.
El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685.
Electrical Enterprises Retail Pty Ltd v Rodgers (1988) 15 NSWLR 473.
Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373.
English, Scottish & Australian Bank Ltd v Phillips (1937) 57 CLR 302.
English and Scottish Mercantile Investment Co Ltd v Brunton [1892] 2 QB 700.
Envirodyne Industries Inc, Re 29 F (3d) 301 (1994).
Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50.
Equititrust Ltd v Franks (2009) 258 ALR 388.
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471.
Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218.
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95.
Eslea Holdings Ltd (formerly Ipec Holdings Ltd) v Butts (1986) 6 NSWLR 175.
Espin v Pemberton (1859) 44 ER 1380.
ET Fisher & Co Pty Ltd v English, Scottish & Australian Bank Ltd (1940) 64
CLR 84.
Evans v European Bank Ltd (2004) 61 NSWLR 75.
Evans v Rival Granite Quarries Ltd [1910] 2 KB 979.
Exchange Securities Financial Services Ltd (in liq), Re [1988] Ch 46.
Extrasure Travel Insurances Ltd v Scattergood [2003] 1 BCLC 598.
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89.
Farmers Mart Ltd v Milne [1915] AC 106.
Farrow Finance Co Ltd (in liq) v Farrow Properties Pty Ltd (in liq) [1999] 1
VR 584.
Fasey, Re; Ex parte Trustees [1923] 2 Ch 1.
Feil v Commissioner of Corporate Affairs (1991) 9 ACLC 811.
44 WAR 1] WESTPAC v BELL GROUP (No 3) 15

Fencott v Muller (1983) 152 CLR 570.


Ferrier v Civil Aviation Authority (1994) 55 FCR 28.
Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473.
Fincke v United States 675 F (2d) 289 (1982).
Fiorino, Re; Fiorino v Woodgate (unreported, Federal Court, Gummow J, NB
2929 of 1992, 14 April 1994).
First Energy (UK) v Hungarian International Bank [1993] 2 Lloyds Rep 194.
Fitzsimmons v The Queen (1997) 23 ACSR 355.
Flinn v Flinn [1999] 3 VR 712.
Fodare Pty Ltd v Offcial Trustee in Bankruptcy [2000] FCA 1721.
Foskett v McKeown [2001] 1 AC 102.
Fouche v Superannuation Fund Board (1952) 88 CLR 609.
Fox v Percy (2003) 214 CLR 118.
FP & CH Matthews Ltd (in liq), Re [1982] Ch 257.
Freeman, Re; Ex parte Freeman (1890) 62 LT 367.
Freeman v Pope (1870) LR 5 Ch App 538.
Fresjac Pty Ltd (in liq), Re; Campbell v Michael Mount PPB (1995) 65 SASR
334.
Frith v Gold Coast Mineral Springs Pty Ltd (1983) 65 FLR 213.
Furness v Meek (1857) 27 LJ Ex 34.
Fysh v Page (1956) 96 CLR 233.
G & M Aldridge Pty Ltd v Walsh (2001) 203 CLR 662.
Gaiman v National Association for Mental Health [1971] Ch 317.
Galaxidis v Galaxidis [2004] NSWCA 111.
Gibson Motorsport Merchandise Pty Ltd v Forbes (2006) 149 FCR 569.
Gilltrap v Autopromos Pty Ltd [1995] ATPR 40,371 (41-395).
Giumelli v Giumelli (1999) 196 CLR 101.
Glegg v Bromley [1912] 3 KB 474.
Gould v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490.
Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1.
Green v Bestobell Industries Pty Ltd [1982] WAR 1.
Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286.
Griffth v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145.
Griggs v Noris Group of Companies (2006) 94 SASR 126.
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296.
Grove v Flavel (1986) 43 SASR 410.
Gye v McIntyre (1991) 171 CLR 609.
Hall v Dyson (1852) 17 QB 785.
Hall v Potter (1695) 1 ER 52.
Halletts Estate, Re (1880) 13 Ch D 696.
Hamilton v Commonwealth Bank of Australia (No 2) (1992) 9 ACSR 90.
Hancock Family Memorial Foundation Ltd v Porteous (1999) 151 FLR 191.
Handbury v Nolan (1977) 138 CLR 647 (note).
16 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

Hardie v Hanson (1960) 105 CLR 451.


Harlowes Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968)
121 CLR 483.
Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298.
Harrods Ltd v Stanton [1923] 1 KB 516.
Hawkins v Clayton (1988) 164 CLR 539.
Health, Department of v Arumugam [1988] VR 319.
Henderson v Miles [2005] NSWSC 710.
Hermann v Charlesworth [1905] 2 KB 123.
Hiley v Peoples Prudential Assurance Co Ltd (1938) 60 CLR 468.
Hill v Simpson (1801) 32 ER 63.
Hillig v Darkinjung Pty Ltd (2006) 205 FLR 450.
Hirsche v Sims [1894] AC 654.
Hirth, Re; Ex parte Trustee [1899] 1 QB 612.
Hobbs v Hull (1788) 29 ER 1242.
Hogg v Cramphorn Ltd [1967] Ch 254.
Holiday Inns Inc v Broadhead (1974) 232 EG 951.
Holyoake Industries (Vic) Pty Ltd v V-Flow Pty Ltd (2011) 213 IR 55.
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR
41.
Howard Smith Ltd v Ampol Petroleum Ltd [1974] 1 NSWLR 68.
Hubbards Pty Ltd v Simpson Ltd (1982) 60 FLR 430.
Hughes v St Barbara Mines Ltd (No 4) (2010) 4 ARLR 99.
Hughes v Western Australian Cricket Association Inc [1986] ATPR 48,134
(40-748).
Hungerfords v Walker (1989) 171 CLR 125.
Husain v O & S Holdings (Vic) Pty Ltd [2005] VSCA 269.
Hutton v West Cork Railway Co (1883) 23 Ch D 654.
Hyams, Re; Offcial Receiver v Hyams (1970) 19 FLR 232.
Ibeneweka v Egbuna [1964] 1 WLR 219.
ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR
248.
Illingworth v Houldsworth [1904] AC 355.
Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd [2001] Aust
Contract Reports 90-129.
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd
(2008) 73 NSWLR 653.
Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd
(1988) 5 BPR 11,110.
International Air Transport Association v Ansett Australia Holdings Ltd (2008)
234 CLR 151.
IOC Australia Pty Ltd v Mobil Oil Australia Ltd (1975) 49 ALJR 176.
Irving, Re; Ex parte Brett (1877) 7 Ch D 419.
Issitch v Worrell (2000) 172 ALR 586.
44 WAR 1] WESTPAC v BELL GROUP (No 3) 17

iWave Pty Ltd v Break ODay Business Enterprise Board Inc [2004] TASSC 43.
Jacobs, Re; Ex parte OConnor (1984) 1 FCR 1.
James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296.
Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526.
Jaques McAskell Advertising Freeth Division Pty Ltd (in liq), Re [1984] 1
NSWLR 249.
JC Houghton & Co Pty Ltd v Nothard, Lowe & Wills Ltd [1928] AC 1.
Jeffree v National Companies and Securities Commission [1990] WAR 183.
Jireh International Pty Ltd v Western Exports Services Inc [2011] NSWCA 137.
JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435.
John Alexanders Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR
1.
Joint Stock Discount Co v Brown (1869) LR 8 Eq 381.
Jones v Bartlett (2000) 205 CLR 166.
Jones v Dunkel (1959) 101 CLR 298.
Jones v Gordon (1877) 2 App Cas 616.
Jukes, Re; Ex parte Offcial Receiver [1902] 2 KB 58.
Juliana, The (1822) 165 ER 1560.
K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR
309.
Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557.
Kearley v Thomson (1890) LR 24 QBD 742.
Keene, Re [1922] 2 Ch 475.
Kennedy v Australian Securities and Investments Commission (2005) 142 FCR
343.
Kerr (a bankrupt), Re [1927] NZLR 177.
Kheirs Financial Services Pty Ltd v Aussie Home Loans Pty Ltd (2010) 31 VR
46.
Kimberly-Clark Australia Pty Ltd v Arico Trading International Pty Ltd (2001)
207 CLR 1.
Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722.
Kirwan v Cresvale Far East Ltd (in liq) (2002) 44 ACSR 21.
Kokotovich Constructions Pty Ltd v Wallington (1995) 17 ACSR 478.
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563.
Kriketos v Livschitz (2009) 14 BPR 26,717.
Krtolica v Westpac Banking Corporation [2008] NZCCLR 24.
Kuru v New South Wales (2008) 236 CLR 1.
La Rosa, Re; Ex parte Norgard v Rocom Pty Ltd (1990) 21 FCR 270.
Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458.
Landall Holdings Ltd v Caratti [1979] WAR 97.
Larratt v Bankers & Traders Insurance Co Ltd (1941) 41 SR (NSW) 215.
Law v Law (1735) 24 ER 1114b.
Lawrence v Fox 20 NY 268 (1859).
Learoyd v Whiteley (1887) LR 12 App Cas 727.
18 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

Legione v Hateley (1983) 152 CLR 406.


Lehrain, Re; Offcial Receiver (Trustee) v Frankston Timber Pty Ltd (1975) 24
FLR 407.
Leighton Holdings Ltd v HIH Casual General Insurance Ltd [2001] WASC 34.
Lewis v Doran (2005) 219 ALR 555.
Lewis v Doran (2004) 184 FLR 454.
Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60.
Linter Group Ltd v Goldberg (1992) 7 ACSR 580.
Linter Textiles Australia Ltd (in liq) v Federal Commissioner of Taxation (2002)
50 ATR 548.
Linton v Telnet Pty Ltd (1999) 30 ACSR 465.
Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555.
Lloyds v Harper (1880) 16 Ch D 290.
Lloyds Bank Ltd v Marcan [1973] 1 WLR 1387.
Lloyds Bank NZA Ltd v National Safety Council of Australia (Vic) (in liq)
[1993] 2 VR 506.
Lockwood Security Products Pty Ltd v Doric Products Pty Ltd (2004) 217 CLR
274.
London Loan & Savings Co v Brickenden [1934] 3 DLR 465.
Low v Bouverie [1891] 3 Ch 82.
Lyford v Commonwealth Bank of Australia (1995) 130 ALR 267.
Macleod v The Queen (2003) 214 CLR 230.
Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133.
Maddever, Re (1884) 27 Ch D 523.
Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181.
Maguire v Makaronis (1997) 188 CLR 449.
Malone v Metropolitan Police Commissioner [1979] Ch 344.
Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd [2003] 1 AC 469.
Manning v AIG Europe UK Ltd [2005] 1 BCLC 1.
Manzi v Smith (1975) 132 CLR 671.
Marchesi v Barnes [1970] VR 434.
Marcolongo v Chen (2011) 242 CLR 546.
Marks v Feldman (1870) LR 5 QB 27LR 5.
Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494.
Maronis Holdings Ltd v Nippon Credit Australia Pty Ltd (2001) 38 ACSR 404.
Maxwell Communications Corporation plc, Re (1993) 11 ACLC 3,149.
May v Chapman and Gurney (1847) 153 ER 1225.
McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579.
McCaughey v Commissioner of Stamp Duties (1945) 46 SR (NSW) 192.
McKenzie v McDonald [1927] VLR 134.
MDA Investment Management Ltd (No 1), Re [2005] BCC 783.
Mendonca, Re; Ex parte Federal Commissioner of Taxation (1969) 1 ATR 571.
Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd
(2010) 241 CLR 357.
44 WAR 1] WESTPAC v BELL GROUP (No 3) 19

Miller v Jackson [1977] QB 966.


Mills v Mills (1938) 60 CLR 150.
Montagus Settlement Trusts, Re [1987] Ch 264.
Morison v Moat (1851) 68 ER 492.
Morley v Statewide Tobacco Services Ltd [1993] 1 VR 423.
Motor Trades Association of Australia Superannuation Fund Pty Ltd v Rickus
(No 3) (2008) 69 ACSR 264.
Mouat, Re; Kingston Cotton Mills Co v Mouat [1899] 1 Ch 831.
Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2010] NSWCA 111.
Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274.
Muntz v Smail (1909) 8 CLR 262.
NA Kratzmann Pty Ltd (in liq) v Tucker (No 1) (1966) 123 CLR 257.
NA Kratzmann Pty Ltd (in liq) v Tucker (No 2) (1968) 123 CLR 295.
National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] 1 VR 386.
National Commercial Banking Corporation of Australia Ltd v Batty (1986) 160
CLR 251.
National Provincial Bank Ltd v Ainsworth [1965] AC 1175.
National Westminster Bank Ltd v Halesowen Presswork & Assemblies Ltd
[1972] AC 785.
NEAT Domestic Trading Pty Ltd v AWB Ltd (2003) 216 CLR 277.
Nelson v Nelson (1995) 184 CLR 538.
New South Wales v Banabelle Electrical Pty Ltd (2002) 54 NSWLR 503.
New World Alliance Pty Ltd, Re; Sycotex Pty Ltd v Baseler (No 2) (1994) 51
FCR 425.
Newcastle City Council v GIO General Ltd (1997) 191 CLR 85.
News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410.
Ngurli Ltd v McCann (1953) 90 CLR 425.
Nguyen, Re; Ex parte Offcial Trustee in Bankruptcy (1992) 35 FCR 320.
NIAA Corporation Ltd (in liq), Re (1993) 33 NSWLR 344.
Nicholson v Permakraft (NZ) Ltd (in liq) [1985] 1 NZLR 242.
NIML Ltd v Man Financial Australia Ltd (2006) 15 VR 156.
Ninety Five Pty Ltd (in liq) v Banque Nationale de Paris [1988] WAR 132.
Nocton v Lord Ashburton [1914] AC 932.
Norberg v Wynrib [1992] 2 SCR 226.
Norgard v Deputy Commissioner of Taxation [1987] WAR 15.
Northern Engineering Pty Ltd v Federal Commissioner of Taxation (1979) 10
ATR 584.
Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146.
OHalloran v OHalloran [2002] FCA 1305.
OKeeffe Nominees Pty Ltd v BP Australia Ltd [1990] ATPR 51,725 (41-057).
Offcial Trustee v Pastro [1999] FCA 1631.
On the Street Pty Ltd v Cott (1990) 101 FLR 234.
Overend & Gurney Co v Gibb (1872) LR 5 HL 480.
Owen v Homan (1853) 4 HL Cas 997.
20 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

OzEcom Ltd (in liq) v Hudson Investment Group Ltd [2007] NSWSC 719.
P & V Industries Pty Ltd v Porto (2006) 14 VR 1.
Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd (2006) 149 FCR
395.
Pacific Projects Pty Ltd, Re (unreported, Qld Sup Ct, Demack J, 11 November
1988).
Pacific Projects Pty Ltd (in liq), Re [1990] 2 Qd R 541.
Paragon Finance plc v DB Thakerar & Co (a firm) [1999] 1 All ER 400.
Partridge v Equity Trustees Executors and Agency Co Ltd (1947) 75 CLR 149.
Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No
3) (1998) 195 CLR 1.
Payne v Parker [1976] 1 NSWLR 191.
Pegang Mining Co Ltd v Choong Sam [1969] 2 MLJ 52.
Pennant Hills Restaurants Pty Ltd v Barrell Insurances Pty Ltd (1981) 145 CLR
625.
Permanent Building Society v Wheeler (1994) 11 WAR 187.
Perrey v Mordiesel Co Pty Ltd [1976] VR 569.
Peter Cremer GmbH v General Carriers SA (The Dona Mari) [1974] 1 WLR
341.
Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126.
Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165.
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44 WAR 1] WESTPAC v BELL GROUP (No 3) 21

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22 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

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44 WAR 1] WESTPAC v BELL GROUP (No 3) 23

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24 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

Wood v Sutcliffe (1851) 61 ER 303.


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Appeal and cross-appeal
T F Bathurst QC, D E J Ryan SC, H K Insall SC, S Habib SC, M C
Goldblatt, Dr R S Derham, D F C Thomas and K F Banks-Smith, for the
appellants.
N J Young QC, C G Colvin SC, S M Davies SC, E A Cheeseman, J Barber
and D Jackson, for the first to fifth, seventh to 28th and 30th respondents.
N OBryan SC and A A DArcy, for the sixth and 29th respondents.
Cur adv vult
TABLE OF CONTENTS
Lee AJAs reasons [1]
Drummond AJAs reasons [1282]
Carr AJAs reasons [2681]
Attachment 1
Attachment 2
Lee AJAs reason
Introduction [1]
Subordination [10]
Convertible Subordinated Bonds [14]
NP Reports [42]
Banks Pleadings of Subordination in Contract and [56]
Estoppel
Banks Pleaded Representational Documents [64]
Banks Pleaded Representations [65]
Onus of proof on Banks Pleadings of Contract [66]
and Estoppel
Analysis of Banks Pleaded Representational Documents [74]
Letters dated 11 December 1985, 15 April 1987 [74]
from TBGL to the Banks
NP Reports [153]
a) NP Report 31 December 1985 [157]
b) NP Reports 30 June 1986, 31 December 1986, [168]
30 June 1987
c) NP Report 31 December 1987 [173]
d) NP Reports 30 June 1988, 31 December 1988, [193]
30 June 1989
44 WAR 1] WESTPAC v BELL GROUP (No 3) 25

NP Information Packages [219]


Lloyds Information Memorandum [235]
Proposal for Negative Pledge Guarantee [255]
Three year Business Plan (Business Plan) [269]
Other matters referred to by his Honour [288]
Accounting records [288]
BGF (ACT) Ltd [310]
Contracts [235]
Contracts inter se [325]
a) Inferred contractual term [325]
b) Implied contractual term [335]
c) Capacity of Banks to enforce contracts [345]
inter se
Contracts inter partes [357]
Estoppel [374]
Trade Practices Act 1974 (Cth) [468]
Statutory Claims [485]
Dispositions of property with intent to defraud [502]
Corporations Act, s 565 [502]
Property Law Act 1969 (WA), s 89 [505]
The ACT legislation [508]
Onus of proof [513]
Applicability of s 565 of the Corporations Act to [515]
BGNV Subordination Deed
Intent to defraud [526]
Good faith [583]
Valuable consideration [589]
Dispositions by way of settlement [609]
Corporations Act, s 565 [609]
Settlement of property [613]
Relevant Transactions [617]
a) Share mortgages executed by TBGL as trustee [618]
and authorisations executed by beneficial owners
b) PSD [640]
c) Guarantee and Indemnity [663]
d) Mortgage Debentures floating charges [689]
Relief on Statutory Claims [711]
Equitable fraud [745]
Claims of respondents other than BGNV [745]
Defence of laches [815]
Claim of BGNV [828]
Conduct of directors [833]
Nature of fiduciary duties [834]
Pleaded fiduciary duties [909]
26 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

Duty to act bona fide in the best interests of the [918]


company by not causing company to prejudice interests
of creditors
Duty not to exercise powers improperly [924]
Duty not to have conflict of interest [934]
Breaches of fiduciary duties [942]
Duties to act bona fide in the best interests of the [942]
company by not causing company to prejudice
interests of creditors and not to exercise powers
improperly
a) Australian directors [943]
b) UK directors [1047]
c) Equity Trust [1069]
Duty not to have conflict of interest [1076]
Summary [1086]
Barnes v Addy [1096]
Other grounds of appeal and cross-appeals [1129]
Loss of right of rescission by election to affrm [1129]
Rescission not available because restitutio in integrum [1139]
not possible
Funds released by banks to bondholders not [1139]
recoverable
Securities released by banks not recoverable [1146]
Ratification [1153]
Limitation [1172]
Election [1190]
Set-off [1192]
Remedial trust [1208]
Denial of right to elect an account of profits [1217]
Amount of equitable compensation [1223]
Liability to taxation [1250]
Injunctive relief [1261]
Orders [1277]
Generally [1277]
Costs [1279]
Orders of this Court [1281]
Schedule 1
Schedule 2
Schedule 3
17 August 2012
Lee AJA.
Introduction
1 The basic facts from which the issues in this appeal arise are set out in the
reasons of Carr AJA and it is unnecessary to repeat or add to them before
dealing with the issues that arise for decision in the appeal and cross-appeals. In
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 27

the main, but with some variations or additions, the following reasons adopt the
abbreviations, acronyms, initialisms, and defining terms used by his Honour the
trial judge set out in Schedules 38.1 and 38.2 of his Honours reasons. For
convenience and ease of reference amended forms of those Schedules have been
included as Attachments 1 and 2 to the reasons of the court.
2 The case before his Honour concerned the collapse in the early 1990s of a
corporate structure known as the Bell group of companies (the Bell group)
formed by a corporate entrepreneur, Robert Holmes Court (RHC), in the
early 1970s. The ultimate holding company of all companies in the Bell group
was The Bell Group Ltd (TBGL) of which RHC was the principal beneficial
shareholder. The subsidiaries of TBGL, in the main, were companies
incorporated in Australia (the Australian companies), but some companies were
incorporated in the United Kingdom (the UK companies) and elsewhere.
3 Expansion of the business operations of the Bell group in that period
depended not only upon subscribed and accumulated corporate capital but also
substantial borrowings obtained from Australian and international financial
institutions (the Banks) and from RHC and foreign investors as subscribers to
convertible subordinated bonds (Bonds) issued by TBGL, Bell Group Finance
Pty Ltd (BGF) and Bell Group NV (BGNV). Apart from a small overdraft
facility provided to West Australian Newspapers Ltd (WAN) the whole of the
Bell group indebtedness to the Banks was borne by BGF, Bell Group (UK)
Holdings Ltd (BGUK) and TBGL. As at 26 January 1990 that indebtedness
stood at approximately $260 million. At the same date the indebtedness of
TBGL, BGF and BGNV to the holders of Bonds (Bondholders) was
approximately $548 million.
4 In broad terms his Honour had to decide whether the plaintiff Bell group
companies and their liquidators (the principal respondents) were entitled to
orders that the Banks disgorge moneys obtained from the conversion of Bell
group property transferred to the Banks on or about 26 January 1990, the effect
of which alienation had been the exclusion of other creditors from access to that
property. It was asserted by the respondents that the transfer of that property to
the Banks occurred in a situation of acknowledged insolvency.
5 The Banks contested that claim. By a counterclaim based on pleadings of
contract and estoppel the Banks submitted that the indebtedness to Bondholders
was subordinated to the indebtedness to the Banks and that, therefore, in any
event, the property alienated to the Banks would have been applied to the
discharge of the Banks claims even if alienation of that property had not
occurred and liquidations of the Bell group companies had been commenced
instead.
6 Numerous contests at trial in respect of issues of fact and the construction of
documents, required vast amounts of evidence to be examined in detail and
resulted in very lengthy reasons for decision being published by his Honour.
7 The subordination issue was identified by his Honour as a principal
element of the controversy that his Honour had to settle. His Honour said, at
[2556], that it permeat[ed] almost every aspect of the case. His Honours
reasons for decision applied 440 pages to determination of that question.
8 His Honour accepted significant parts of the Banks case on the
subordination issue but stated, at [4243], that:
had the [B]anks not established the subordinated status of the on-loans as at
28 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

26 January 1990, the case concerning the prejudicial and detrimental effects of the
Transactions and the Scheme, a critical element in the [respondents] causes of
action, would have been unanswerable.
9 The grounds of the cross-appeal as to whether the subordinated status of the
on-loans as at 26 January 1990 was duly established, therefore, raised a central
issue in the proceeding and it is appropriate to address that question at the
outset.
Subordination
10 It was the Banks case that intra-group loans made by BGNV to TBGL and to
BGF from funds BGNV received from the subscriptions by investors to the
Bonds it issued were made under contracts of loan in which BGNV agreed to
subordinate its right to recover the loans to the rights of other creditors of
TBGL and BGF in the event of liquidation of either company.
11 Alternatively, the Banks claimed rights in estoppel by reason of
representations, it was said, that TBGL had made to the Banks in respect of the
matter of subordination.
12 As discussed later in these reasons, variations of, or alternatives to, the above
were also pleaded but the nub of the Banks case was as stated.
13 Before addressing how his Honour dealt with the relevant matters on which
issue was joined on the pleadings, it is necessary to provide some background
detail in respect of the relationship between the Bonds and the negative pledge
reports (NP Reports) and to examine his Honours understanding thereof, a
significant factor in his Honours reasoning (at [4254]).
Convertible subordinated bonds
14 In the latter part of 1985 TBGL began investigating the merits of issuing
Bonds to obtain funds for use in the businesses of the Bell group. TBGL
understood that by issuing Bonds to overseas investors, funds could be acquired
at acceptable cost provided that payments of interest going offshore were a
deductible expense for the Bell group and met the requirements of s 128F of the
Income Tax Assessment Act 1936 (Cth) (the ITAA) (as it then stood) in respect
of the borrowing operation, and were not subject to withholding tax.
15 TBGL arranged for Bonds to be issued in December 1985, May 1987 and
July 1987. The companies involved in the Bond issues were TBGL, BGF and
BGNV. With two exceptions, discussed below, the Bonds were issued on
European markets to offshore investors.
16 BGNV was incorporated in the Netherlands Antilles on 28 November 1985 as
a wholly owned subsidiary of TBGL for the purpose of issuing Bonds to
overseas investors (at [77]) and to meet the requirements of s 128F of the ITAA.
BGF was incorporated on 11 February 1986, as a wholly owned subsidiary of
TBGL, with the intent that BGF act thereafter as the internal financier of the
Bell group (at [75], [178]). BGNV became a wholly owned subsidiary of BGF
on 25 March 1987 (at [2781]).
17 Other than the Bonds issued directly by TBGL to Heytesbury Securities Pty
Ltd (Heytesbury Securities), discussed below, the Bonds consisted of two parts.
The first part may be described for the purpose of these reasons as a [Finance]
Bond. The face value, or principal amount, of the [Finance] Bond was the sum
payable by the issuer of the Bond (the Issuer) to a Bondholder on the date of
maturity of the Bond. The second part was a Conversion Bond issued by TBGL
which was attached to, and not detachable from, the [Finance] Bond. A
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 29

Conversion Bond had the same face value, or principal sum, as the [Finance]
Bond to which it was attached. Conversion Bonds gave the Bondholder a right
to elect, in the period of the Bond, to direct the Issuer to apply the principal sum
repayable to the Bondholder on the [Finance] Bond to payment of the balance
of unpaid principal of the Conversion Bond to TBGL, thereby obliging TBGL
to apply the whole of the principal of the Conversion Bond to acquisition by the
Bondholder of shares in TBGL at the price per share (Conversion Price)
stipulated in the Bond Issue Trust Deed. Bond entitlements were exercisable by
bearer.
18 Upon issue by TBGL each Conversion Bond was paid up to 1 cent per $1,000
of face value (other than in Bond Issue 3 where the paid up amount was 0.01
per 1,000). The balance of principal of a Conversion Bond became payable if
the Bondholder exercised a right to elect to convert a Conversion Bond to
TBGL shares. If by the maturity date of a Bond the Bondholder had not elected
to convert the Conversion Bond to shares in TBGL, TBGL undertook to redeem
and cancel the attached Conversion Bond by paying to the Bondholder the
amount paid up on the Conversion Bond (ie 1 cent per $1,000 of face value).
19 The first issue of Bonds (Bond Issue 1) occurred on 20 December 1985
(at [309]). The combined principal sum of the issue was $150 million. TBGL
and BGNV each issued Bonds worth $75 million. The BGNV-issued Bonds
were sold to overseas investors by underwriters and appointed selling agents
and were listed on the Luxembourg Stock Exchange. The TBGL-issued Bonds
did not have an attached Conversion Bond. It was a single Bond which included
a right to convert the Bond to TBGL shares. Those Bonds were issued to
Heytesbury Securities and were unlisted. Heytesbury Securities was controlled
by RHC, the major beneficial owner of shares in TBGL. The purpose of that
placement of Bonds was twofold. First, to protect RHCs interests as principal
shareholder by providing him with an option to obtain additional TBGL shares
by converting the Bonds to TBGL shares and second, to meet the requirements
of s 128F of the ITAA. At first it had been intended that RHC take up
$75 million of the $150 million Bonds to be issued offshore by BGNV but upon
realisation that exemption from withholding tax would not be granted if an
Australian resident subscribed to such a proportion of the Bonds issued, it was
determined that RHCs requirements were to be met by a separate domestic
issue of Bonds by TBGL.
20 Subsequently, Bonds were issued by BGF and BGNV on 7 May 1987 (Bond
Issue 2) and by BGNV on 14 July 1987 (Bond Issue 3) (at [310]-[311]). The
principal sum of the Bonds in Bond Issue 2 was $250 million of which
$175 million represented Bonds issued by BGNV to offshore investors and
$75 million Bonds issued by BGF to Heytesbury Securities. The latter
placement had the same purpose as the issue of Bonds to Heytesbury Securities
by TBGL in Bond Issue 1. The principal amount of the [Finance] Bonds issued
offshore by BGNV in Bond Issue 3 was 75 million. As with Bond Issue 1 the
BGNV-issued Bonds in Bond Issues 2, 3 were sold by underwriters and agents
abroad to overseas investors and were listed on the Luxembourg Stock
Exchange.
21 The Bonds issued by TBGL and BGF to Heytesbury Securities were
originally recorded in short agreements dated 20 December 1985
[TBGL.03393.205] (the first agreement); and 6 May 1987 [TBGL.02127.142;
TBGL.02127.142.001] (the second agreement).
30 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

22 TBGL was included as a party to the second agreement as issuer of the


attached Conversion Bonds and as guarantor of the performance by BGF of its
obligation to redeem the Bonds on maturity.
23 Neither agreement included a form of the Bond or set out the terms or
conditions thereof. The first agreement provided that the Bonds were identical
in all respects to the convertible notes issued by BGNV save for differences
with respect to rights and other issues, capital distribution and optional
redemption as set out in the Schedule to the agreement. The first agreement
stated that such differences were in order to comply with the provisions of the
[ITAA]. Why that was so was not made apparent in the content of the
Schedule.
24 The differences set out in the Schedule to the first agreement appeared to
make the terms of TBGL-issued Bonds more favourable to Heytesbury
Securities as Bondholder than the rights obtained by Bondholders under the
terms of the Bonds issued by BGNV. First, the condition for exercise by TBGL
of an option to call in and redeem the Bonds in the first five years of the term of
the Bonds was more restrictive in that the Schedule provided for the current
market price of TBGL shares to be adjusted down for any bonus, rights issues,
other cash issues and capital distributions making it more difficult for the
condition for exercise of the option, namely, that the ordinary share price be
at least 130 per cent of the conversion price for a period of 30 business days,
to be met. Second, Heytesbury Securities, unlike other Bondholders, had an
entitlement to all bonus and rights issues (and) other securities issued by
TBGL during the term of the Bonds such entitlement to be exercisable upon
conversion of the Bonds to TBGL shares. In addition, the Schedule provided
Heytesbury Securities with a commission of 2.5% on the principal sum of the
Bonds for a management fee, underwriting fee and selling concession,
the effect of which, in the circumstances, was a discount of 2.5% on the cost of
the Bonds.
25 The second agreement stated that subject to the terms of the Schedule to that
agreement, the terms of the Bonds issued by BGF to Heytesbury Securities were
terms which are standard to convertible bond issues in the Euro-market at this
time. It did not state that differences from those terms were necessary in order
to comply with the ITAA. The Schedule to the second agreement provided that
Heytesbury Securities was to be paid a commission of 2.5% on the principal
sum of the Bonds, but did not repeat the additional benefits recited in the
Schedule to the first agreement.
26 It was not until 25 July 1988 that Trust Deeds for the Bonds issued by TBGL
[TBGL.00003.003] and BGF [TBGL.00003.002] were executed (at [313]-
[319]). Under those Trust Deeds LDTC was appointed as Trustee for the
Bondholder. The Trust Deeds recited that they were restatements of the terms on
which the Bonds were held. On a date before 25 July 1988 Heytesbury
Securities had transferred its interest in the Bonds to Drayton Capital Pty Ltd
(Drayton) and Drayton executed each Trust Deed as the Bondholder. It appears
to be assumed that Drayton was controlled by RHC and that RHCs financial
commitment to the Bell group was not discharged until 28 July 1988 when the
Insurance Commission of Western Australia (SGIC) acquired the Bonds that had
been issued by TBGL and BGF to RHCs interests.
27 BGNV received the principal amount of the [Finance] Bonds it issued in
Bond Issues 1, 2 and 3 less fees and commissions paid to selling agents,
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 31

underwriters, managers of the Issues, and costs and expenses. The net amounts
received were transmitted by BGNV to TBGL in Bond Issue 1 and to BGF in
Bond Issues 2, 3 and recorded as loans in the respective accounting records of
each company. The differences between the principal amounts of the [Finance]
Bonds issued by BGNV and the sums remitted to TBGL and BGF were treated
as borrowing costs incurred by BGNV on behalf of TBGL and BGF. Those
costs were debited by journal entry to the loan accounts of TBGL and BGF with
BGNV. The amount of each loan then matched the principal amount of the
[Finance] Bonds issued by BGNV. The amount of the TBGL loan account with
BGNV abated with the exercise by Bondholders of the right to convert
Conversion Bonds to shares in TBGL. Between 20 December 1985 and
30 June 1988 $14.633 million was added to TBGL share capital and share
premium reserves by application of the principal of the Conversion Bonds to the
purchase of TBGL shares. At the same time the TBGL loan account with
BGNV, $75 million, was reduced by that amount [282.14.0004 Notes 7(e) p 31;
8(i)(a) p 32; 9 p 34; TBGL.03421.050 Notes 7(i)(a) p 21; 8(i)(a) p 22; 22 p 30].
28 Schedule 1 to my reasons sets out details of Bond Issues 1, 2 and 3.
Schedule 2 records the progressive liability of BGNV as the Issuer of Bonds.
Schedule 3 is a schedule of TBGLs liability as Issuer and Guarantor in respect
of all Bonds issued.
29 Bond Issue Trust Deeds were executed by BGNV as Issuer, TBGL as
Guarantor and LDTC as Trustee for the three Bond Issues by BGNV ((1):
TBGL.08045.031 [cl 6(A)]; (2): TBGL.04554.001; (3): TBGL.45076.046
[cl 5(A)]). It was provided in each Trust Deed that the rights of Bondholders to
be paid the principal sum of the [Finance] Bonds were subordinated to the rights
of other creditors of BGNV if BGNV were placed in liquidation. Similarly,
Bondholders rights against TBGL, as guarantor of the amounts repayable to
Bondholders by BGNV were subordinated to the rights of other creditors of
TBGL in the event of the liquidation of TBGL, as was a Bondholders right to
receive from TBGL the paid up amount of a Conversion Bond upon redemption
of the Conversion Bond [(1): cl 6(B); (2), (3): cl 5(B)].
30 The liability of TBGL as guarantor was described in the Bond Issue Trust
Deeds [(1): cl 5(A), (F), (G), (H); (2), (3): cl 4(A), (F), (G), (H)] as a direct and
unconditional obligation by which TBGL accepted liability as if it were the
principal debtor, not merely a surety, and as a full liability that applied
irrespective of the liability of BGNV or BGF.
31 The Banks submissions to his Honour assumed that in addition to
subscribing the face value of the [Finance] Bonds, Bondholders also paid the
paid up amount of the Conversion Bonds. The Banks relied upon that
assumption for a submission that the moneys lent to TBGL (and presumably to
BGF) by BGNV contained a component that represented the paid up amount of
Conversion Bonds contributed by Bondholders. On the hearing of the appeal
counsel for the Banks was asked whether any of the accounting records of
TBGL, BGF and BGNV supported that submission but no entry in the accounts
to that effect was identified.
32 Counsel for the Banks submitted that moneys contributed by Bondholders as
the paid up amount of the Conversion Bonds was subordinated money (appeal
ts 3494). That description was part of the proposition that underlay all
submissions put to his Honour by the Banks on the issue of subordination,
namely, that bonds means proceeds, a proposition examined later in these
32 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

reasons. The reasoning behind the use of the term subordinated money
referred to above appeared to be as follows: because the right of a Bondholder
redeeming a Conversion Bond from TBGL to recover the paid up amount of a
Conversion Bond was, if TBGL went into liquidation, subordinated to the rights
of other creditors of TBGL, the paid up amount of a Conversion Bond could be
described as subordinated money. Furthermore, as, so it was put, the paid up
amount of the Conversion Bonds was part of the funds lent by BGNV to TBGL
(and BGF), it could be assumed that the whole of those loans had been
understood by BGNV, TBGL and BGF to be subordinated loans at the time
they were made. Apart from the fallacy embedded in the description
subordinated money, the following facts show that the foregoing submission
cannot be sustained.
33 Under the Bond Issue Trust Deeds [(1): cl 7(D); (2), (3): cl 6(D)] BGNV and
TBGL undertook to issue, and deliver to a stakeholder for Bondholders a Global
[Finance] Bond (in the case of BGNV) and a Global Conversion Bond (in the
case of TBGL), each to have the same principal sum. The principal sum of the
Global Conversion Bond was to be initially paid up as to [1 cent per $1,000
(0.01 per 1,000 in Bond Issue 3)] principal amount upon delivery by TBGL.
Under the Subscription Agreements made between TBGL, BGNV and parties
undertaking to underwrite and manage the issue of the Bonds (the Managers)
[(1): TBGL.00355.012; (2): TBGL.08043.034; (3): 395.22.0034] TBGL and
BGNV agreed that BGNV would deliver to the Managers a Global [Finance]
Bond for the purposes of the Trust Deeds. That delivery was to be made against
payment by the Managers to BGNV of the principal amount of the Global
[Finance] Bond less 1.5% discount to selling agents, 1% commission to the
Managers and other expenses [cl 6(C); cl 7; cl 6]. There was no provision in the
Bond Issue Trust Deeds, or in the Subscription Agreements, for TBGL to
receive any payment against delivery of the Global Conversion Bond paid up as
to 1 cent per $1,000 (0.01 per 1,000) of principal.
34 It does not appear from any other material brought to the attention of the
court that subscribers to the Bonds made any payment on the Conversion
Bonds. If there had been such a payment it would have been necessary for those
moneys to be paid to TBGL as part of its capital funds or, if received and
retained by BGNV, recorded by BGNV as a loan received from TBGL. There
was no record of either event.
35 Indeed the following accounting record in the TBGL journal in respect of
Bond Issue 1 demonstrates conclusively that no moneys were remitted to TBGL
as moneys subscribed to the Conversion Bonds by Bondholders.
36 The TBGL journal entry [TBGL.02176.184] shows that, as forecast to
investors in the Offering Circular [TBGL.08045.024, p 14], $73,025,000, being
the net proceeds of the Issue, was remitted to TBGL as a loan. Details were set
out in the journal entry of the fees, costs and disbursements deducted from the
funds subscribed to the BGNV Bonds, also treated as advances from BGNV to
TBGL. The amount of those outgoings was $1.975 million which brought the
amount of the loan to $75 million.
37 The journal entry also recorded two further sums brought to account as
receipts by TBGL (consistently with the TBGL assurance to the Australian
Taxation Office (ATO), described later in these reasons, that BGNV would not
obtain an offshore profit from the Bond Issue) being interest earned on the
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 33

funds whilst held as bank deposits between 20-23 December 1985 and a foreign
exchange gain on that money between the dates of deposit and withdrawal.
38 No part of the moneys accounted for in this journal entry represented a
notation of the receipt and disbursement of a sum representing the paid up
amount of the Conversion Bonds.
39 Those facts show that as stated in the respective Offering Circulars
distributed before each Bond Issue, the Conversion Bonds were issued by
TBGL as bonds paid up in the amount specified, and that Bondholders did not
contribute that sum.
40 The amount endorsed as paid up on the Conversion Bonds seems to have
been treated by TBGL as a nominal sum unnecessary for separate account as to
its source from capital reserves pending conversion or redemption of the
Conversion Bonds. When Conversion Bonds were converted the entries made in
shareholder funds and reserves recorded that the full principal sum of the
Conversion Bonds was applied to shareholder funds and share premium
reserves [TBGL Annual Report 30 June 1987: TBGL.00008.004, p 31
Note 7(e), p 32 Note 8(i)(a); TBGL Annual Report 30 June 1988:
TBGL.03421.050, p 21 Note 7(i)(a), p 22 Note 8(i)(a)].
41 It is obvious that the paid up amount of the Conversion Bonds had no
relevance to any proposition that the loans made by BGNV to TBGL and BGF
included a term that BGNVs right to recover the loans was subordinated to the
rights of other creditors of TBGL and BGF if those companies were placed in
liquidation.
NP Reports
42 Between July 1983 and March 1987, Negative Pledge Agreements (NP
Agreements) were made between TBGL and nominated subsidiaries of TBGL
(together the TBGL NP Group) of the one part and members of the Banks of
the other (at [164]). Under the NP Agreements the participating TBGL
subsidiaries were described as Indemnifying Subsidiaries. From time to time
Supplemental Agreements added TBGL subsidiaries as Indemnifying Subsidiar-
ies pursuant to cl 12.2 of the Second Schedule of the NP Agreements.
43 Under that clause TBGL undertook to have all wholly owned subsidiaries
incorporated in Australia join the NP Agreements as Indemnifying Subsidiaries.
Pursuant to cl 9 of the Second Schedule of the NP Agreements, a wholly owned
subsidiary of TBGL, incorporated outside Australia, could elect to join the NP
Agreements as an Indemnifying Subsidiary subject to two provisos in cl 9 being
satisfied.
44 In terms, the NP Agreements executed after the date of incorporation of
BGNV contained a warranty by TBGL that BGNV was an Indemnifying
Subsidiary and that it was a party to the NP Agreements (Second Schedule,
cl 12.1). However, BGNV did not execute any of those NP Agreements nor was
it identified in the First Schedule to those agreements as a party to the
agreements as an Indemnifying Subsidiary. Although BGNV could have become
an Additional Indemnifying Subsidiary bound by the NP Agreements by
executing a supplemental agreement for that purpose pursuant to cl 9 of the
Second Schedule, that step was not taken.
45 Under the NP Agreements, NP Reports were required to be presented to the
34 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

Banks each six months. The NP Reports informed the Banks whether ratio
limits prescribed in the NP Agreements with regard to assets and liabilities of
the TBGL NP Group were being met.
46 The NP Agreements defined Shareholders Funds as all paid up capital and
reserves appearing in the Latest Audited Consolidated Balance Sheet of [the
TBGL NP Group] (cl 1.1). At all material times Coopers & Lybrand (C&L)
were the accountants and auditors of TBGL. Accounts were audited as at
30 June each year for publication in the TBGL Annual Report. It may be
assumed that the parties to the NP Agreements contemplated that a balance
sheet prepared on 31 December by C&L as accountants satisfied the
requirements of the phrase Latest Audited Consolidated Balance Sheet.
47 The definition of Total Liabilities applied a more expansive concept of
shareholder funds by excluding paid up share capital, reserves of any nature or
undistributed profits of [the TBGL NP Group] (cl 1.1). The principal definition
of Total Liabilities was the aggregate amount (as disclosed by the Latest
Audited Consolidated Balance Sheet) of all secured and unsecured liabilities of
[the TBGL NP Group].
48 As shown later in these reasons the consolidated balance sheets of the TBGL
NP Group between 31 December 1985 and 31 December 1987 treated the
amount described as Convertible Bonds as part of Shareholders Funds for
the purposes of the NP Reports and on that basis excluded the amount of that
equity from the amount of Total Liabilities.
49 His Honour (at [3223]-[3224]) noted that the Banks were bound by the terms
of the NP Agreements to receive NP Reports based on accounts prepared by
C&L if those accounts did not include liabilities to redeem the Bonds as part of
the Total Liabilities of the TBGL NP Group.
50 On 30 July 1987 the NP Agreements were replaced by the NP Guarantee
(at [2801]). Termination of the NP Agreements required the Banks to provide
formal releases from the covenants of indemnity to all Indemnifying
Subsidiaries. Those releases were completed at the end of September 1987.
51 The NP Guarantee restated the ratios to be maintained between assets and
liabilities as now defined and redefined the TBGL NP Group as TBGL and
Australian Subsidiaries (cl 1.01). The expression Australian Subsidiaries
did not exclude, necessarily, a foreign subsidiary of TBGL. The terms of
cl 15.02 of the NP Guarantee permitted TBGL, at any time, to nominate BGNV
as an Australian Subsidiary.
52 Shareholders Funds was defined as Total Tangible Assets less Total
Liabilities (cl 1.01). The term Total Tangible Assets was defined, generally,
as the aggregate of book values of Tangible Assets of TBGL NP Group on a
consolidated basis. Tangible Assets, in broad terms, was defined as all assets
other than intangible assets according to accounting principles generally
accepted in Australia, but subject to the inclusion of intangible assets valued by
an independent valuer approved by the auditor (cl 1.01).
53 Total Liabilities was now defined as the aggregate amount of all liabilities
of the TBGL NP Group on a consolidated basis being liabilities classified as
such under accounting principles generally accepted in Australia, including
contingent liabilities. The direct inclusion of a contingent liability was a
significant change from the definition of Total Liabilities that applied under
the NP Agreements in which the only contingent liability included was that for
which provision for an estimated liability had been made in the consolidated
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 35

balance sheet. A further significant change from the previous definition in the
NP Agreements was the exclusion of non current Subordinated Debt from
Total Liabilities (insofar as that debt would otherwise be included in the
aggregate). Subordinated Debt was defined as the aggregate amount of all
Borrowings that are expressly defined as subordinated and expressed in their
terms to rank after all unsecured and unsubordinated debt of the Guarantor
and/or the Australian Subsidiaries (cl 1.01).
54 Borrowing was defined to include the obtaining or undertaking of any
financing liability (cl 1.01).
55 It followed from the foregoing that the liability of TBGL (as guarantor of the
obligations that BGF and BGNV undertook as issuers of Bonds) being a
liability that would otherwise have been included within Total Liabilities for the
purposes of the NP Guarantee was expressly excluded from Total Liabilities as
a non-current Subordinated Debt: see appeal ts 3234-3236.
Banks pleadings of subordination in contract and estoppel
56 It was not the Banks case that BGNV was a mere cipher, agent or nominee
of TBGL or BGF in the borrowing transactions undertaken by BGNV in the
Bond Issues (cf Re Polly Peck International plc (in administration) (No 4)
[1996] 2 All ER 433 at 440 (Polly Peck)). The Banks accepted that all
transactions in which TBGL, BGF and BGNV were involved in respect of the
Bond Issues took place with legal effect according to the terms recorded in
relevant documents and arrangements.
57 The Banks pleadings of contract and estoppel were set out in
[PLED.010.001, paras 11EA-11ER]. The Banks pleaded that BGNV agreed
with TBGL and BGF, in the contracts of loan made between those companies
(described by his Honour as contracts inter se), that the contracts contained a
term to the effect that BGNVs right to recover loans made to TBGL, or BGF,
was subordinated to the rights of other creditors of those companies in the event
of either of those companies being placed in liquidation. There was no direct
evidence of such a contractual term and the existence thereof was said to be a
matter of inference, or implication, made necessary by the circumstances
[paras 11EA(a)(1); 11EF; 11EG].
58 The Banks further pleaded that there were contracts (described by his Honour
as contracts inter partes) made in respect of Bond Issues 1, 2 between TBGL
and the Banks that the liabilities of TBGL [and BGF] (or TBGL and others)
arising from the raising and deployment of funds by those Bond Issues would,
on a liquidation of TBGL and BGF, be subordinated to the liabilities of those
companies to the Banks [paras 11EA(a)(3); 11EK-11EP].
59 His Honour rejected the pleading of contracts inter partes. The Banks appeal
from that finding. His Honour upheld the pleading of contracts inter se, but
found that the Banks lacked capacity to enforce those contracts. The Banks
appeal from the latter finding and the respondents cross-appeal from the finding
that contracts inter se contained a term subordinating BGNVs rights.
60 With regard to the pleading of estoppel, it was submitted that TBGL
represented to the Banks, which induced the assumption held by the Banks
that the liabilities of TBGL and BGF pursuant to the fund raising
arrangements were subordinated [paras 11EA(a)(4); 11ED(72); 11ER].
36 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

61 Alternatively, it was pleaded that BGNV was estopped as against TBGL and
BGF from asserting that the on-loans [were] unsubordinated [paras
11EA(a)(2); 11EJ].
62 The pleadings of estoppel depended upon the same material relied upon to
support the pleadings of contract.
63 His Honour upheld the Banks pleading of estoppel against TBGL but found
it unnecessary to reach a conclusion on the estoppel that the Banks claimed that
TBGL and BGF could assert against BGNV. The respondents cross-appeal from
the finding of estoppel and the Banks, by notice of contention, submit that his
Honour erred in failing to make a finding on the pleading that TBGL and BGF
could assert an estoppel against BGNV.
Banks pleaded representational documents
64 His Honour was satisfied that, as pleaded by the Banks, grounds for the
findings in contract and estoppel could be found in representations said to have
been made in the following documents:
(a) Letters dated 11 December 1985 and 15 April 1987 from TBGL to the
Banks [PLED.010.001, para 11ED(17), (43)];
(b) Negative Pledge Reports (NP Reports) [PLED.010.001,
para 11ED(62)];
(c) Negative Pledge Information Packages (NP Information Packages)
[PLED.010.001, para 11ED(66), (68)];
(d) Lloyds Bank Information Memorandum April 1986 (Lloyds Informa-
tion Memorandum) [PLED.010.001, para 11ED(27)];
(e) Proposal for Negative Pledge Guarantee (NP Guarantee)
[PLED.010.001, para 11ED(59), (59A);
(f) Three Year Business Plan May 1988 (Business Plan) [PLED.010.001,
para 11ED(69)].
Banks pleaded representations
65 The representations said to arise out of the foregoing documents were
pleaded by the Banks as follows:
(a) In the letter dated 11 December 1985 TBGL represented that:
(i) the liabilities of TBGL as a member of the [TBGL NP
Group], arising from the raising and deployment of moneys
in and about [Bond Issue 1] were, or would be, subordinated
to the liabilities of TBGL to the [Banks] [PLED.010.001,
para 11ED(17)(i)];
(ii) [B]ondholder debt was, or would be, subordinated and
ranked, or would rank, behind existing and future [B]ank
borrowings of the [TBGL NP Group] [PLED.010.001, para
11ED(17)(h)];
(iii) [the Bonds issued by TBGL and the Bonds issued by
BGNV in Bond Issue 1] were, or would be, identical in terms
of effective subordination [PLED.010.001, para
11ED(17)(d)].
(aa) In the letter dated 15 April 1987 TBGL represented that:
(i) the liabilities of TBGL and BGF as members of [TBGL NP
Group] arising from the raising and deployment of moneys in
and about [Bond Issues 1, 2 or, alternatively, Bond Issue 2]
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 37

were, or would be, subordinated to the liabilities of [TBGL


and BGF] to the [Banks] [PLED.010.001,
para 11ED(43)(k)];
(ii) [B]ondholder debt [in Bond Issue 2] was, or would be,
subordinated and ranked, or would rank, behind existing of
future [B]ank borrowings of the [TBGL NP Group] in the
same manner as [Bond Issue 1] was so subordinated and was
so ranked [PLED.010.001, para 11ED(43)(j)];
(iii) [the Bonds issued by BGF and the Bonds issued by BGNV
in Bond Issue 2] were, or would be, identical in terms of
effective subordination [PLED.010.001, para 11ED(43)(f)].
(b) The NP Reports from TBGL to the Banks made representations to the
Banks consistent only with the exclusion of liabilities of companies
in the [TBGL NP Group] to BGNV in the calculation of Total
Liabilities [PLED.010.001, para 11ED(63)].
(c) The NP Information Packages from TBGL to the Banks represented
that the funds raised pursuant to the issues of [Bonds] were, and
could be treated as, a form of shareholders funds [PLED.010.001,
para 11ED(67), (68)].
(d) The Lloyds Information Memorandum, prepared from information
provided to Lloyds by TBGL, represented that the liabilities of TBGL
arising from the raising and deployment of moneys in and about
[Bond Issue 1] were subordinated to the liabilities of TBGL to [the
Banks] [PLED.010.001, para 11ED(30)(g)].
(e) During the course of the negotiation of the [proposed NP Guarantee]
TBGL represented to the Banks that the [B]onds had created
non-current subordinated debt of companies within the [TBGL NP
Group] [PLED.010.001, para 11ED(59A)]. [In the further and better
particulars of this pleading provided by the Banks the source of the
foregoing representation was confined to a letter from TBGL to various
of the Banks dated 14 May 1987.]
(f) In the Business Plan TBGL represented that the [B]ondholders
ranked behind the [Banks] in respect of recovery of moneys from assets
of the Bell [g]roup [PLED.010.001, para 11ED(70)(e)].

Onus of proof on Banks pleadings of contract and estoppel

66 An important part of the respondents pleaded case was the challenge to the
validity of the Transactions, including the BGNV Subordination Deed,
together said to comprise a Scheme by which the Banks obtained rights over
property of the Bell group able to be applied to recovery of moneys owed to the
Banks by BGF, BGUK and TBGL.

67 The respondents asserted that the BGNV Subordination Deed was an


advantage obtained by the Banks at a time when the Banks had knowledge that
TBGL, and members of the Bell group, were either insolvent or facing
insolvency. The BGNV Subordination Deed was executed by the Banks (by
Westpac as the Security Agent) and TBGL, BGF, and BGNV on 31 July 1990.
The alleged advantage obtained by the Banks from the execution of the BGNV
Subordination Deed, in which BGNV agreed to its claims against TBGL and
38 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

BGF being subordinated to those of the Banks, was the priority accorded to the
Banks claims as creditors of TBGL and BGF over the claims of BGNV as a
creditor of those companies.
68 As noted above the Banks pleaded that at all material times the claims of
BGNV against TBGL and BGF in a liquidation of those companies, had been
subordinated to the claims of the Banks as creditors of TBGL and BGF either
by an express term in the contracts of loan made between those companies or by
operation of an estoppel that prevented BGNV, TBGL and BGF contending
otherwise against the Banks.
69 His Honour at [2701]-[2704] held that the Banks bore the onus of proving
their pleading and rejected the Banks argument that the respondents had the
onus of disproving the Banks case as part of the requirement that the
respondents prove that the Banks obtained an advantage from the execution of
the BGNV Subordination Deed.
70 By notice of contention filed in response to the respondents cross-appeal, the
Banks repeated their submissions on the issue of onus of proof.
71 If the Banks had limited their defence and counterclaim to a bare denial that
advantage was obtained by the Banks from execution of the BGNV
Subordination Deed, that pleading would have been insufficient to disclose the
intention of the Banks to present a case based on a claim of prior subordination
of rights effected by contract or estoppel. On the material facts pleaded to that
point no issue of prior subordination of the rights of BGNV as a creditor of
TBGL and BGF would have been raised against BGNV. Necessarily the Banks
had to extend the pleading of the defence and counterclaim to assert a positive
case based on facts that raised the claim to be made by the Banks that
subordination of BGNVs rights as a creditor of TBGL and BGF had been
effected already by contract or estoppel prior to execution of the BGNV
Subordination Deed. It followed that the course of the pleadings raised either a
direct or an evidentiary onus that the Banks prove the facts they alleged in
respect of subordination.
72 His Honour correctly so held and the notice of contention of the Banks in
response to the respondents cross-appeal on this question cannot be sustained.
73 It is now necessary to describe in more detail, and to analyse, the pleaded
elements of the Banks case on the subordination issue.
Analysis of Banks pleaded representational documents
Letters dated 11 December 1985 [214.02.0084.4], 15 April 1987
[048.03.0063.1] from TBGL to the Banks
74 The relevant passages in his Honours reasons in respect of the pleaded
representations said to be contained in these documents appear in
[2845]-[2849], [2864]-[2866] and [3569]-[3586].
75 Insofar as representations are said to have been made by TBGL in these
letters, it is to be noted that the representations are confined to Bond Issues 1, 2.
Where the representation pleaded is that the respective liabilities of TBGL and
BGF arising from the raising of moneys in and about Bond Issues 1, 2 were, or
would be, subordinated to the liabilities of TBGL and BGF to the Banks that
representation recited an existing fact. The liability of TBGL as the Issuer of
Bonds and as guarantor of the obligations of BGNV and BGF as Issuers of
Bonds was a liability in respect of which the Bondholders had agreed to
subordinate their rights to the rights of other creditors of TBGL, which included
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 39

the Banks. Similarly in respect of the liability of BGF as the Issuer of Bonds,
the Bondholder had agreed to subordinate its rights in respect of that liability to
the rights of other creditors of BGF which also included the Banks.
76 Similarly the further pleaded representation that [B]ondholder debt was
subordinated to existing or future borrowings from the Banks was also a matter
of fact where the borrowers from the Banks were TBGL or BGF and where
[B]ondholder debt was understood to be the liability of TBGL or BGF to
redeem Bonds as Issuers thereof, or the liability of TBGL as guarantor of the
obligations of BGF or BGNV as the Issuers of Bonds.
77 The foregoing representations did not establish a right to relief pleaded by the
Banks. Therefore, the claims of the Banks in contract and estoppel rested on the
remaining pleaded representations said to be contained in the letters, namely,
that the deployment of moneys in and about Bond Issues 1, 2 were, or would
be, subordinated to the liabilities of TBGL and BGF to the Banks and that
BGNV Bonds in Bond Issues 1, 2 were, or would be, identical in terms of
effective subordination to the Bonds issued to Heytesbury Securities.
78 As discussed later in these reasons, in the course of the trial these claims of
the Banks became transmuted into the paraphrases bonds means proceeds and
effective subordination.
79 With regard to the reliance of the Banks on a representation said to have been
made by TBGL that Bonds issued to Heytesbury Securities were identical with
Bonds issued by BGNV in terms of effective subordination, that argument of
the Banks proceeded as follows, as his Honour understood it, at [3250]: because
on the liquidation of TBGL or BGF the right of Heytesbury Securities to
recover moneys repayable under the Bonds issued to it by TBGL and BGF in
Bond Issues 1, 2 was subordinated to the rights of other creditors of TBGL and
BGF and the letters from TBGL stated that the Bonds issued by TBGL, BGF
and BGNV were in identical terms, it should be concluded that it was
represented by TBGL that the right of BGNV to recover loans made to TBGL
and BGF from moneys subscribed to the Bonds issued by BGNV was
subordinated to the rights of other creditors of TBGL and BGF on liquidation of
those companies.
80 The words in terms of effective subordination were the words of the
pleader. Neither letter contained an expression in those terms and there was no
evidence of any discourse between the parties that used or relied upon that
expression and was able to provide a context that provided a secondary meaning
to terms used in the correspondence.
81 In short it was a device used in support of an argument for application of a
construction to a document that was not otherwise apparent on the face of the
contents of the document.
82 As with the words bonds means proceeds the expression effective
subordination was treated by his Honour as a concept able to be applied as a
general aid to construction of the documents that were relied upon by the Banks
in their pleadings and as an implied addition to the pleaded representations said
to be contained therein (at [3647]).
83 As set out in the reasons that follow, resort to the foregoing concepts
pre-ordained an impermissible process of construction by his Honour in
determining the meaning of any representations contended to have been made
40 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

by TBGL in the documents transmitted to the Banks by TBGL and nominated


by the Banks as the source of the representations pleaded, or as those disclosing
the contractual term asserted by the Banks in their pleading.
84 The letters forwarded to the Banks by TBGL dated 11 December 1985 and
15 April 1987 did not seek approval from the Banks for TBGL or its
subsidiaries to issue Bonds in Bond Issues 1, 2. In each case issue of Bonds was
already underway. Completion of that process was not conditioned upon the
favourable response of the Banks. The letters requested the Banks to assent to
the forecast treatment of the Bonds as equivalent to equity for the purpose of the
NP Agreements, that is to say, as an addition to the capital base of TBGL and
not as an increase in the gross debt of the TBGL NP Group.
85 As noted by his Honour, at [2720]-[2721], it was the intention of the
management of TBGL that the issued Bonds be included in TBGL accounts as
part of TBGL shareholder funds. The Bonds were so treated in the first audited
accounts prepared thereafter, namely, the TBGL Annual Report 30 June 1986
[TBGL.03474.079] and in the unaudited balance sheet for the TBGL NP Group
prepared for the first NP Report presented after the letter dated 11 December
1985, namely, the NP Report 31 December 1985 [TBGL.00808.036]. As
recorded earlier his Honour, at [3223]-[3224], posited that the terms of the NP
Agreements made it unnecessary for TBGL to seek approval from the Banks for
the Bonds to be so treated if C&L were satisfied that the TBGL accounts could
be prepared on that basis. That point is of some importance in the context of the
Banks pleadings of contract and estoppel.
86 In respect of Bond Issues 1, 2, the management of TBGL sought formal
acknowledgment from the Banks that the NP Reports would be prepared
treating the issued Bonds as TBGL equity. With regard to Bond Issue 3, which
took place on 14 July 1987, TBGL did not seek that acknowledgment.
87 Treatment of subscriptions to the Bonds in the accounts of TBGL as
equivalent to subscriptions to the equity of TBGL resulted in the liabilities of
TBGL, BGF and BGNV, as issuers of the Bonds, being eliminated from TBGL
consolidated accounts. The decision of C&L to accept that treatment had to be
based on the joint confidence of the directors of TBGL and the auditors that the
Convertible Bonds attached to the Bonds would be used by Bondholders to
obtain TBGL shares in lieu of payment to the Bondholders of the moneys
payable on redemption of the Bonds.
88 The fact that a Bondholders right to recover moneys from BGNV (as Issuer),
or TBGL (as Guarantor), may become subordinated to the rights of other
creditors of BGNV or TBGL in the event of the liquidation of those companies,
was not treated by C&L as the basis on which, in advance of the exercise by
Bondholders of the right to elect to apply moneys subscribed to the Bonds to the
acquisition of TBGL shares, subscriptions to the Bonds could be treated in the
accounts of TBGL as equivalent to investment in TBGL share capital. Of
course, the latent risk to Bondholders in the potential subordination of their
right to recover moneys subscribed to the Bonds, and the length of the period to
elapse before the Bonds would be redeemed (10 years), may have been regarded
by accountants and auditors as factors that could encourage Bondholders to
elect to convert the Bonds to TBGL shares, particularly if the Conversion
Price remained below the market price of TBGL shares, but that potential
subordination was not in itself the ground on which investment in the Bonds
was treated as an investment in TBGL equity.
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 41

89 From TBGLs point of view the acceptance by the Bondholders of the


requirement that in the event of the liquidation of TBGL the right of
Bondholders to recover Bond redemption moneys from TBGL as guarantor
would be subordinated to the rights of other creditors of TBGL, would have
been regarded as a necessary counterpart to Bondholders being treated by
TBGL as deferred shareholders. And Bondholders would have regarded such
subordination of their rights as an additional consideration given by them for
acquiring the Conversion Bonds as an attachment to the [Finance] Bonds.
90 As his Honour accepted, at [3054] and [3060], Bondholders also provided
consideration for the attachment of the Conversion Bonds (otherwise described
as the grant of deferred equity) by agreeing to accept a lower rate of interest
than that payable on bonds to which no convertible bonds were attached: see
Memo TBGL (Cahill) to C&L, 17 July 1987 [TBGL.00918.022]. Acceptance of
subordination was an acknowledgment by the Bondholders of the equivalence
of their position to that of deferred shareholders. It also emphasised that
Bondholders regarded it as a benefit to be able to elect to apply the moneys
payable on redemption of the Bonds to the acquisition of shares in TBGL at the
conversion price per share stipulated in the Bond Issue documents. Exercise
of that election would have resulted in the replacement of the potential
subordination of their rights as creditors of BGNV and TBGL with the
subordinated interests they would obtain in the net worth of TBGL as
shareholders of TBGL.
91 Although it may be accepted that the Banks would have been comforted by
advice that rights of Bondholders would be subordinated to the rights of
unsubordinated creditors in the event of a liquidation of either BGNV, TBGL or
BGF, the agreement of the Banks to have accounting calculations under the NP
Agreements based on an assumption that moneys subscribed to the Bonds could
be treated as subscriptions to the share capital of TBGL, required the Banks to
make, or rely upon, the assumption made by C&L, namely, that Bondholders
could be regarded as deferred shareholders, notwithstanding that an election had
not yet been made by the Bondholders to exercise the right to acquire shares in
TBGL pursuant to the Conversion Bonds. Of course, as noted above, under the
NP Agreements the Banks had agreed that the audited accounts of the Bell
group governed the content of the NP Reports to the Banks.
92 The two letters to the Banks were in straightforward terms and were
consistent with the information provided in circulars to potential investors or
subscribers to the Bonds.
93 The relevant part of the letter dated 11 December 1985 read as follows:
Based on past price performance of [TBGLs] shares it is anticipated investors
will exercise their right to convert prior to the redemption date. Given that the
Bonds are a subordinated debt which will not be payable for 10 years with a
strong likelihood of being converted, [TBGL] considers that the issues should be
regarded as equity when considering balance sheet ratios for the purposes of its
banking covenants.

94 A summary of the terms of the Bond Issue was attached to the letter and it set
out, inter alia, that Bondholders rights were subordinated to the rights of
unsubordinated creditors of the Issuer of the Bonds in the manner provided in
the Trust Deed.
95 Relevantly the letter dated 15 April 1987 stated:
42 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

[TBGL] considers that, in line with treatment of the December 1985 issues, these
issues should be treated as equity when considering balance sheet ratios for the
purposes of banking covenants for the following reasons:
i) The past price performance of [TBGL] Ordinary Shares indicates that it is
likely that investors will exercise their right to convert prior to the
redemption date.
ii) The current conversion price of the December 1985 issue is A$5.22 per
fully paid Ordinary Share and, of the original A$75 million Convertible
Bonds placed in Europe in December 1985, A$10.875 million had been
converted or requests made for conversion as at 15 April 1987. The current
market price of the Bonds is approximately A$190.00.
iii) The bonds are a subordinated debt which is not due for repayment until
May 1997 and in which there is no right of put by the investor.
96 A copy of the offering circular was enclosed with the letter. It stated that
the last sale price of ordinary shares of TBGL on 8 April 1987 was $10.70. It
also stated that the rights of Bondholders were subordinated to unsubordinated
creditors of BGNV in the manner provided in the Trust Deed.
97 On the face of the two letters there was no representation as to the terms of
any inter-company loans to be made by BGNV from funds obtained from
subscriptions to the Bonds.
98 His Honour, at [3580] and [3586], however, found that in respect of each
letter the sensible and reasonable construction of the letter is that the term
bonds extends beyond the bonds per se and encompasses the proceeds and
hence the on-loans and that the letters contained the pleaded representation,
namely, that the liabilities of TBGL arising from the raising and deployment of
moneys in and after the bond issues would be subordinated to the liabilities of
TBGL to the [Banks].
99 The reasoning applied by his Honour included a conclusion, at [3582], that
there was an irresistible inference to be drawn from the letter dated
11 December 1985 that the issues, being subordinated, would rank behind bank
debt. The support for such an irresistible inference was said to be the act of
sending the letter to the Banks because it would make no sense to write such a
letter if the class of creditors was not to include the banks.
100 With respect to his Honour, the assertion of the existence of an irresistible
inference disclosed error. The letter to the Banks explained that the rights
under the Bonds were being treated by the Bell group as equivalent to rights in
the equity of TBGL and how the balance sheet ratios would be affected
accordingly. As noted already it may not have been necessary under the terms of
the NP Agreement for TBGL to seek any assent from the Banks to that
treatment of the Bonds if the auditors were satisfied to proceed in that manner.
But such abundance of caution did not permit a conclusion, or raise an
irresistible inference, that the letter could be construed, contrary to its plain
terms, to contain a representation unsupported by those terms.
101 For the reasons set out below his Honour erred in concluding that the
inference drawn by his Honour was available from the terms of either letter.
102 Insofar as the letter dated 11 December 1985 referred to subordination it did
so in the context of discussion of the probability of conversion of the Bonds to
equity. The reference to subordinated debt was part of the identification of
elements that supported the proposition being put by TBGL, namely, that it was
likely that the Bonds would be converted to TBGL shares and that, therefore,
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 43

the Bonds should be regarded as equity. Primarily, the anticipation of


conversion of Bonds to shares was said to be [b]ased on past price
performance of [TBGLs] shares. Indicia said to justify the expectation that
investors would exercise the right to convert the Bonds to TBGL shares were
summarised in the words, the Bonds are a subordinated debt which will not be
payable for 10 years with a strong likelihood of being converted.
103 A Bondholder could transfer the risk of subordination, and any disadvantage
in the length of the term of the Bonds, by selling the Bonds or, alternatively, by
exercising the right to convert the Bonds to shares in TBGL. The apprehended
future financial benefit available to a Bondholder converting Bonds to shares at
a conversion price below market price was said to point to the strong likelihood
of exercise of the election to convert and to be sufficient, in itself, to justify
treating the Bonds as equity.
104 Although, as discussed earlier, it may not have been necessary under the
NP Agreements for TBGL to obtain approval from the Banks to treat the Bonds
as equity, the purpose of the letters, on their face, was to ensure that the Banks
raised no objection to the Bonds being treated as equivalent to the acquisition of
additional share capital by TBGL. The letter purported to say no more about
subordination than was set out in the summary of the Bond issue details
attached to the letter, namely, that BGNVs obligations to the Bondholders were
subordinated to the rights of other unsubordinated creditors of BGNV in the
manner provided in the Trust Deed.
105 His Honour, at [3113]-[3114], suggested that the contents of a memorandum
dated 3 September 1985 [TBGL.00930.122] prepared by Griffiths as Bell group
Treasurer for the consideration of RHC provided support for the construction
his Honour applied to the letters. That memorandum discussed risks and
advantages in raising capital for the Bell group by issuing convertible
subordinated bonds offshore. His Honour considered that the construction he
applied to the letters was consistent with the purpose of TBGL as understood by
the author of that memorandum.
106 His Honour then found the foregoing understanding to be the actual
subsequent intent of TBGL in representations his Honour found to be contained
in the letters from TBGL to the Banks dated 11 December 1985 and
15 April 1987.
107 The internal memorandum of 3 September 1985 was prepared at an early
stage of the consideration of the use of bonds. The decision that TBGL arrange
the issue of bonds was not made by the directors until 8 October 1985 and
approval from shareholders was not obtained until 12 November 1985.
108 By 11 December 1985 the understanding of TBGL as to the treatment of
the bonds as equity had developed well beyond the limited consideration
displayed in the Treasurers memorandum. That memorandum did not address
the entitlement to have the bonds treated as equity based on the degree of
likelihood of the bonds being converted to TBGL shares. It was that prospect
that was the main thrust of the letters of 11 December 1985 and 15 April 1987
and which, incidentally, brought into play the terms of the NP Agreements
which provided that accounting principles applied by the auditors were to
govern the extent of the obligations of the TBGL NP Group to the Banks under
the NP Agreements.
44 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

109 The relevant passage extracted by his Honour at [3114], from the
memorandum as that which was said to contain the understanding relied upon
by his Honour, read as follows:
The key to the issue is to have the issue clearly subordinated and acceptable to our
banks as quasi-equity. To be comfortable banks will probably look to have this
issue subordinated in time as well as nature.

110 To understand the concept of subordination being suggested in that


memorandum, and before any conclusion could be drawn from it as to the intent
of any subsequent representation to the Banks by TBGL, it was necessary to
have regard to the whole of the relevant passage, which continued as follows:
The 10 year term should enable [TBGL] to achieve subordination for 3 to 4 years
at least. It should be noted however that banks are not used to the subordination
concept and will probably require some additional restrictions on the balance sheet
or cashflow to prevent the gearing from becoming too high.

111 The Banks would have been quite familiar with subordination according to its
ordinary meaning and as at 3 September 1985, as the memorandum appeared to
recognise, a more unusual concept of subordination was being suggested for
TBGL to put to the Banks.
112 The Treasurer would have understood that whilst the businesses of the
companies of the Bell group continued as going concerns the right of a
prospective bondholder to receive the amount due on redemption of a bond by
TBGL would not be a right subordinated to rights of other creditors of TBGL,
and that it would be in TBGLs discretion whether bonds were redeemed ahead
of maturity and ahead of repayment of bank debt.
113 On their face the words achieve subordination for 3 to 4 years at least (as
used in that memorandum) were not addressing a prospect of being able to have
the lender of the funds subscribed to the bonds agree to have the right to recover
the funds subordinated to rights of other creditors of the borrower in the event
that the borrower was placed in liquidation at some future date. The words
raised a different concept of subordination, one of current operation, sufficient to
provide comfort to the Banks that capital introduced to the Bell group by the
issue of bonds would be kept available to the Bell group for 3 to 4 years at
least.
114 The memorandum appeared to imply that it could be suggested that for 3 to
4 years at least of the 10-year term of the Bonds the funds would not be
removed from the Bell group to be applied to redemption of bonds ahead of the
debts owing to the Banks by the TBGL NP Group.
115 Under the Bond Issue documents the option provided to the Issuer to redeem
Bonds was not exercisable (save for Tax Reasons) until two years had elapsed
and for the next three years was subject to payment of a premium of 4% on the
face value of the Bonds (reducing by 1% per year) and was only exercisable in
that time if the price of TBGL ordinary shares for a prescribed period of 30 days
was at least 130% of the relevant conversion prices under the Bonds.
Thereafter, the Bonds were redeemable at any time at face value. These
provisions either prevented, or imposed substantial disincentives against, the
exercise of the option to redeem Bonds by the Issuer in the first five years of the
term of the Bonds, unless the option was used as a lever to encourage
conversion and complete commitment of funds to TBGL capital. Such
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 45

limitations may have been regarded as sufficient to dissuade the Issuer from
taking any steps to redeem the Bonds in the first 3 to 4 years at least of the
term of the Bonds.
116 Although Bond Issue 3 provided a put option to Bondholders allowing them
to demand that the Bonds be redeemed, that option could not be exercised until
five years of the term of the Bonds had elapsed.
117 It follows that his Honours conclusion (that this memorandum provided
evidence of a TBGL intention conformable with the representations found by
his Honour to be contained in the letters to the Banks dated 11 December 1985
and 15 April 1987) was not available on an ordinary reading of the document.
118 But more than that the Treasurers memorandum of 8 October 1985
[TBGL.00951.001.017] prepared for the information of directors of TBGL at
the meeting of directors held on that day (the meeting at which the directors
resolved to approve the issue of bonds) did not present subordination as the
key to the issue and in fact made no reference to subordination in
recommending that the proposed issue of bonds proceed.
119 At [3226]-[3243] his Honour set out his reasons for concluding that the
objective manifestation of intent contained in, for example, the 11 December
1985 letter, is that the money sum the subject of the request was a subordinated
debt (at [3239]) and that the intention of the contracting parties, as manifested
by their conduct, was to make the on-loans on a subordinated basis (at [3243]).
120 The reasons provided for those conclusions appear to be based on errors of
fact as discussed below.
121 To ground the foregoing conclusions his Honour stated at [3228] that the
[B]onds, as a debt instrument sound in money The conversion bonds, on the
other hand, do not sound in money.
122 This statement revisited a comment made by his Honour at [2982], in the
[NP Reports] the [B]onds are treated as sounding in a monetary liability and
(at [3230]-[3231]):
Just as the debt instrument sounds in money, so too does its representation in the
accounts. It is shown as a monetary sum, regardless of whether it appears in
non-current liabilities or as a line item in shareholders funds.
All of this, it seems to me, counts against the view that the communications
both internally and to the banks about the bonds or the issues being regarded
as equity were aimed at the bonds as a paper security, that is the bonds per se,
rather than the money sum that the bonds represent
123 His Honour appears to have overlooked the composite rights entailed in the
Bonds and to have focused on their function as debt instruments. Indeed, as
previously noted, his Honour was unable to accept that Bonds could be regarded
properly as equity be it deferred, quasi or any other equally inapt description
(at [3231]).
124 For that reason his Honour appears to have restricted his consideration to the
money sum, or debt component of the Bonds, as the subject for treatment as
equity (at [3231]).
125 But that approach did not properly address the dual structure of the Bonds for
which treatment as equity was proposed.
126 It was not correct to say that the letter dated 11 December 1985 was based on
a concept of equity that did not represent shareholders funds but instead
represented a component of subordinated debt.
46 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

127 His Honour accepted that there was imprecision in describing the money
sum for which the debt instrument stands as something that can be regarded as
equity (at [3231]). However, his Honour then stated that such an approach to
construction of the letter of 11 December 1985 was justified as the subject of
the request for equity treatment was an amount of $75 million and that
figure did not correspond with the obligation of TBGL to redeem the
conversion bond, nor be explained by any other aspect of the conversion
bonds.
128 First, it should be noted that the letter of 11 December 1985 was not a request
to treat an amount of $75 million as equity (which sum his Honour regarded as
the sum lent by BGNV to TBGL: see [3238]). The letter sought formal accord
from the Banks for the treatment of $150 million as equity being the sum of the
Bonds issued by BGNV and TBGL. That was the amount treated as equity in
the TBGL NP Group balance sheet at 31 December 1985 [TBGL.00808.036]
and in the audited Consolidated Balance Sheet in the TBGL Annual Report
30 June 1986 [TBGL.03474.079].
129 Second, his Honours reasons, set out in [3227]-[3232], where his Honour
separated Conversion Bonds from [Finance] Bonds and stated that the former
[did] not sound in money, misunderstood the operation of the process of
conversion provided by the Bond Issue Trust Deeds discussed below.
130 Furthermore, by introducing consideration of TBGLs obligation to redeem a
Conversion Bond, his Honour misunderstood the composite nature of the Bonds
and the request being addressed to the Banks in the letter of 11 December 1985
and misdirected himself on the matter of construction of the letters.
131 His Honour stated, at [3232], that [he did] not shy away from the finding
that while the likelihood of conversion may have been an important reason [in
the justification of the prospect of conversion of the Bonds (see [3195])], it was
not the only one. That statement failed to recognise, or apply, the weight
required to be accorded to the extent to which the letters of 11 December 1985
and 15 April 1987 were predicated on a belief in the likelihood of Bondholders
converting Bonds to TBGL shares. The requests for treatment of the Bonds as
equity were firmly and centrally based on that proposition. Subordination of the
rights of Bondholders, and the length of the period of the Bonds before
maturity, were no more than incidental matters bearing on that prospect of
conversion.
132 If it were thought that regard could be given to any subsequent event to
discern what message the foregoing letters conveyed, the most compelling had
to be the statement in the TBGL Annual Report 30 June 1988
[TBGL.03421.050] that Bonds could no longer be treated as equity in TBGL
accounts because of replacement of an expectation that the Bonds would be
converted to shares with the likelihood that the Bonds would be redeemed
instead.
133 At [3232] his Honour suggested, indirectly and, with respect, incorrectly, that
the amount of equity obtained from conversion of the Bonds could not be
matched to the principal amount of the Bonds.
134 This seems to be raised in the following passage (in [3228]):
[TBGL] has a right to receive the conversion price when a bondholder decides
to convert The conversion price (in amount) bears no relationship to the
principal sum on the bonds.
and (in [3229]):
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 47

The ultimate effect of all of this would have seen TBGL receive funds to the
extent of the conversion price, less any commissions and less the principal amount
of the relative bonds.
135 With respect to his Honour those statements reflect a misunderstanding of the
operation of the provisions of the Bond Issue Trust Deed.
136 The mechanics of conversion were set out in the Bond Issue Trust Deeds at
(1): cl 11; (2), (3): cl 10. Upon receiving notice of a Bondholders election to
exercise the right provided by a Conversion Bond, BGNV as Issuer of the
[Finance] Bond was required to apply the principal sum payable (by BGNV to
the Bondholder) on the [Finance] Bond to the balance of principal payable to
TBGL on the Conversion Bond. For that service BGNV, at its discretion, was
entitled to deduct from the moneys payable to the Bondholder a commission of
1 cent per $1,000 (0.01 per 1,000 for Bond Issue 3) [(1): cl 11(16); (2), (3):
cl 10(16)] being the sum that would match the paid up amount of each
Conversion Bond. Bonds were denominated in amounts of $1,000 and $5,000
(1,000 and 10,000 in Bond Issue 3). Therefore, the paid up principal of each
attached Conversion Bond was either 1 cent or 5 cents (0.01 or 0.10). The
total amount of paid up principal and, therefore, the total amount of commission
that would have been payable to BGNV on all of the Bonds that were converted
prior to 30 June 1988 would have been $146.33. It does not appear that BGNV
exercised the option to retain any commission on Bonds converted. The whole
principal sum of the [Finance] Bonds was recorded as received and applied by
TBGL, bypassing the need for TBGL to construct an accounting record for the
paid up component of the Conversion Bonds.
137 Under the Bond Issue Trust Deeds TBGL was required to apply the whole of
the principal amount of the Conversion Bond, being the same principal sum as
the [Finance] Bond to which the Conversion Bond was attached, to the purchase
of TBGL shares at the prescribed Conversion Price per share [(1): cl 11(1);
(2), (3): cl 10(1)]. The Conversion Price set for each Bond Issue included a
premium on the face value of a TBGL share. Therefore, on conversion the
principal sum of the Bond was distributed to issued share capital in the amount
of the face value of shares issued and the remainder to the share premium
reserve account: see TBGL Annual Report 30 June 1987: [TBGL.00008.004,
p 32 Note 8(i)(a)]; TBGL Annual Report 30 June 1988: [TBGL.03421.050, p 22
Note 8(i)(a)]; see also Companies (Western Australia) Code 1981 (WA), s 119.
138 The terms of the Bonds provided that no fraction of a share was to be issued
and no cash adjustment was to be remitted to a Bondholder in respect of any
fraction of a share that remained after applying the principal amount of the
Conversion Bond to the purchase of shares at the Conversion Price [(1):
cl 11(14); (2), (3): cl 10(14)]. As shown in the Annual Reports referred to above
that meant that residual amounts, if any, were included in amounts credited to
the share premium reserve account of TBGL.
139 In other words, the amount available for treatment as equity based on the
outcome of conversion of the Bonds was the addition to shareholder capital of
the whole amount of the principal sum of the Bonds to issued share capital and
the share premium reserve. His Honours assumptions were inconsistent with
that fact and led to erroneous conclusions by his Honour on the questions of
construction and intent of TBGL in the various documents considered.
140 With regard to the letters, the task for his Honour was to identify the plain
meaning from the words used. By relying upon the approach to construction put
48 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

to the court by counsel for the Banks, namely, bonds means proceeds and
effective subordination his Honour was deflected from undertaking proper
construction of the letters.
141 The ordinary meaning of each letter was reasonably clear, namely, that there
was a high prospect that all Bonds would be converted to TBGL shares and
therefore the Banks were asked to agree to treatment of the Convertible
Subordinated Bonds as equity.
142 At the time the Bonds were issued, the Banks could have anticipated that the
parties to whom the funds obtained by BGNV from the issue of the Bonds were
lent may not have been confined to members of the TBGL NP Group. A copy of
the Offering Circular [347.02.0003, p 3] distributed to investors in Bond Issue
2 was attached to the TBGL letter to the Banks dated 15 April 1987 and it stated
that the net funds subscribed to the Bonds would be lent by BGNV to members
of the [Bell group] for funding the [Bell groups] business activities, a group
that extended beyond the TBGL NP Group.
143 Furthermore, perusal of BGNVs Articles of Incorporation
[TBGL.08045.006, Art 2] would have shown that BGNV had broad authority to
invest funds, obtained from the issue of Bonds, for the purpose of financing
directly, or indirectly, the activities of the Bell group.
144 If TBGL, as ultimate holding company in the Bell group, formed the opinion
that the business interests of the Bell group would be better served at that time
by BGNV lending the funds subscribed to the Bonds to a party external to the
Bell group, eg an associated company Bell Resources Ltd (BRL) or JN Taylor
Holdings Ltd (JNTH); or by placing the funds on deposit with a financial
institution, or by allocating the funds to a particular investment (such as a
strategic shareholding in a major corporation), or to a particular project (which
may include a joint venture with another corporation), then BGNV, if it were
satisfied that doing so met the purpose of its Articles, could apply the funds in
that way instead of lending the funds directly to TBGL or BGF for those
companies to make use of the funds, including further distribution within the
Bell group. It is unnecessary to consider the extent to which such use of the
funds by BGNV could continue to provide a taxation advantage to TBGL
pursuant to the certificate of compliance issued by the Commissioner of
Taxation under s 128F(4) of the ITAA (a requirement of which was that the
offshore borrowing operation have a purpose of raising money for use in an
Australian business). No doubt risk of loss of that advantage would be a matter
to be considered by TBGL before it made any request to BGNV to apply the
funds to a use other than loans directly to the Bell group.
145 The foregoing provisions set the context in which the Bondholders invested
and in which the terms of the Bonds were to be read.
146 The Bondholders accepted that their right to recover the principal of the
Bonds was subordinated to the rights of present or future creditors of BGNV (as
Issuer) and of TBGL (as Guarantor) in the event of liquidation of those
companies.
147 But the Bond Issue Trust Deeds did not require the Bondholders to accept,
either expressly or by implication, that BGNV could disadvantage Bondholders
by fettering its right to recover debts due to BGNV by subordinating its right to
recover those debts to the rights of other creditors of the debtors.
148 On the face of transactions of loan made between BGNV and TBGL and
BGF, the same consequences would apply. That is to say, on a liquidation of
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 49

BGNV, the recoverable assets of BGNV, whether in the form of investments,


loans or deposits with an external party, or inter-company loans to Bell group
companies, would be available to meet the claims of the Bondholders in that
liquidation after the claims of creditors of BGNV, against which the claims of
the Bondholders had to be deferred, had been met.
149 As his Honour said, no person actually thought through the implications and
mechanics of the on-loans (at [3225]), or, in what his Honour described as a
troubling feature of the subordination issue, no-one actually thought through
the mechanics of the on-loans and the implications of subordination
(at [3379]): see also [3133], [3135], [3267] and [3269].
150 A significant reason why the Banks did not examine the mechanics or
implications of TBGL NP Group obtaining access to additional capital through
loans from an offshore subsidiary may have been that it was thought that the
terms of the NP Agreements provided sufficient protection for the interests of
the Banks. Under the NP Agreements each TBGL NP Group company had
agreed to indemnify the Banks and to pay, when called upon, the whole of the
sums advanced to a member of the TBGL NP Group by the Banks, and each
TBGL NP Group company had covenanted with the Banks not to compete
against claims lodged by the Banks in the liquidation of a TBGL NP Group
company. Therefore, if BGNV lent moneys to BGF and TBGL for use in an
Australian business of the Bell group (the operators of which were members of
the TBGL NP Group) the liquidation of the TBGL NP Group company that had
borrowed funds from BGF or TBGL for that purpose could not result in the
return of those funds to BGF or TBGL, until the Banks as claimants in that
liquidation had recovered from that company, pursuant to the foregoing
indemnity, the amounts lent by the Banks to other members of the TBGL NP
Group. In those circumstances it can be understood why the Banks did not
consider that there was risk for the Banks in BGNV making loans to TBGL or
BGF for funding the [Bell] Groups business activities [347.02.0003, p 3]
from moneys obtained by BGNV from subscriptions to Bonds issued by BGNV,
notwithstanding that BGNV was not an Indemnifying Subsidiary bound by
the NP Agreements and, therefore, not a company in the liquidation of which
the Banks could lodge a claim to displace the claims of the Bondholders. If they
had turned their minds to it the Banks may have thought it prudent to seek to be
added directly as creditors of BGNV as indemnitees by requesting that BGNV
accept the obligations of an Additional Indemnifying Subsidiary pursuant to
cl 9 of the Second Schedule of the NP Agreements. Fulfilment of that request,
of course, would have been subject to the provisos to the clause being met and
the directors of BGNV being satisfied that it was in the interests of BGNV to
incur those liabilities.
151 In late September 1987, after all Bonds had been issued and all loans from
moneys obtained from issue of the Bonds had been made by BGNV, a radical
change occurred in the Banks arrangements with the TBGL NP Group when
the NP Agreements were replaced by the NP Guarantee and the Banks formally
released all TBGL NP Group companies from their covenants of indemnity.
152 Proper construction of the letters from TBGL to the Banks dated
11 December 1985 and 15 April 1987 did not permit a finding that the letters
contained the representations pleaded or relied upon at trial.
50 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

NP Reports
153 Considerable effort appears to have been spent at trial on analysis of these
reports which his Honour described, at [2969], as complicated and confusing
documents.
154 Each NP Report was presented in the same form. Appendices C and D of the
reports set out respectively the calculations of liabilities and of assets of the
TBGL NP Group. All NP Reports were prepared by C&L and adopted and
endorsed by directors of TBGL before distribution to the Banks.
155 Preparation of NP Reports by C&L required adjustments to be made to the
consolidated accounts prepared for TBGL. TBGL consolidated accounts
disregarded balances of net inter-company liabilities and only included the
liabilities of Bell group companies to external parties.
156 Therefore, to prepare accounts and reports for the TBGL NP Group it was
necessary, first, to excise that part of the consolidated accounts of TBGL that
represented assets and liabilities of a non-indemnifying subsidiary and,
second, to include adjusting entries for the assets and liabilities of TBGL NP
Group companies that arose as a result of treating the non-indemnifying
subsidiary as an external party.
a) NP Report 31 December 1985 [TBGL.03389.024.001]
157 The report was dated 30 April 1986. The commencing figures used in App C
for the calculation of non-current and current liabilities were those set out in an
unaudited consolidated balance sheet of TBGL at 31 December 1985
[TBGL.00733.053]. When prepared that balance sheet did not treat the Bonds
issued on 20 December 1985 as TBGL equity. TBGL and BGNV each had a
liability of $75 million to redeem the Bonds they had issued on that date and
accordingly the amount of non-current liabilities set out in that balance sheet
included $150 million for those liabilities. However, by April 1986, when the
NP Report and the Lloyds Information Memorandum were prepared, variation
to the treatment of the Bonds in the Bell group accounts was underway as the
following Note to an Attachment to the Lloyds Information Memorandum
recorded [TBGL.03796.065]:
NOTE: The restated net worth of A$650 million referred to on page 23 of
the Information Memorandum is based on the figure of A$496 million shown for
Total Share Capital and Reserves in the consolidated balance sheet at
31 December 1985 (attached) to which has been added A$150 million being the
convertible issue made in December 1985. This item is currently shown under
Non Current Liabilities as Unsecured Loans. The justification for treating this
item as capital is that [TBGL] current share price is higher than the conversion
price and conversion can be currently exercised. Under Australian accounting
practice, however, the convertible must be treated as loan capital until conversion.
Note that conversion could not occur pre 20 February 1986.
158 The consolidated balance sheet at 31 December 1985 (attached) referred to
in the Note was item (b) of the Attachment and was the unaudited consolidated
balance sheet of TBGL referred to above.
159 As indicated in the Note, the restated net worth of A$650 million
referred to in the Note was the net worth (rounded up) obtained by adding $150
million (treated as equity) for the Bonds issued in December 1985, to the $496
million for share capital and reserves set out in that consolidated balance sheet
of TBGL at 31 December 1985.
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 51

160 Item (c) of the Attachment was an unaudited balance sheet for the TBGL NP
Group at 31 December 1985 [TBGL.00808.036] prepared for the NP Report.
Notwithstanding the stated understanding of the author of the Note as to
Australian accounting practice, that balance sheet treated the Bonds issued by
BGNV and TBGL (described therein as Convertible Notes) as TBGL
shareholder funds and, therefore, excluded liability on the Bonds ($150 million)
from non-current liabilities of the TBGL NP Group.
161 The change in accounting treatment of the Bonds recorded in the balance
sheet for the TBGL NP Group at 31 December 1985 from that contained in the
consolidated balance sheet of TBGL at 31 December 1985 was ultimately
reflected in the NP Report.
162 The NP Report should have applied a commencing figure for non-current
liabilities in App C that was a net sum after the Bond redemption liabilities had
been excluded, being the amount shown in the TBGL NP Group balance sheet
at 31 December 1985. However, the NP Report applied the figure set out in the
consolidated balance sheet of TBGL at 30 December 1985 which, as noted
above, did not record the Bonds as equity. As noted later in these reasons the
NP Reports that followed, up to and including 31 December 1987, applied a
commencing figure for non-current liabilities that automatically excluded Bond
redemption liabilities, because the consolidated balance sheets of TBGL, on
which the NP Reports for the TBGL NP Group were based, treated
subscriptions to the Bonds as equivalent to subscriptions to TBGL share capital
and, therefore, excluded from liabilities the cost of Bond redemptions.
163 The first adjustment made to App C was a purported deconsolidation of
non-indemnifying subsidiaries. Deducted from the amount of non-current
liabilities was the liability of BGNV to pay $75 million to redeem the Bonds it
had issued. Added to App C as a non-current liability was a sum of $75 million,
described as a liability arising from reversal of inter-company accounts on
deconsolidation of non-indemnifying subsidiaries being the liability of the
TBGL NP Group to BGNV. That adjustment operated as an offset and had no
effect on the net amount of non-current liabilities in App C which, according to
the TBGL NP Group balance sheet at 31 December 1985, remained inflated by
$150 million.
164 App C was then further adjusted by deducting $150 million from non-current
liabilities. On its face that adjustment deducted BGNV and TBGL Bond
redemption liabilities because the funds subscribed to the Bonds and convertible
to TBGL share capital in that amount had been treated as equity as set out in
the TBGL NP Group balance sheet at 31 December 1985.
165 His Honour, at [2946], said that he was satisfied that the words used in the
NP Report to explain the deduction of the Bond redemption liabilities meant
what they said. The relevant words of the explanatory note read as follows:
$75,000,000 Convertible Note borrowings of [TBGL] plus $75,000,000
Convertible Note borrowings of [BGNV] on-lent to [TBGL] treated as equity.
His Honour said:
In the 30 April 1986 negative pledge report, the liabilities arising from the bond
issue by TBGL, and the inter company liability owing by TBGL to BGNV in
respect of the on-loan of the proceeds of the bond issue by BGNV, were excluded
from total liabilities (and were regarded as equity) for the NP ratios.
166 The latter statement suggests a misunderstanding of the explanatory note. The
52 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

note recognised that, in accounting terms, it was appropriate, at that time, to


have regard to the probability that the funds subscribed to the Bonds would be
applied by Bondholders to the acquisition of shares in TBGL and that moneys
would not be returned to Bondholders in redemption of the Bonds. Accordingly,
as forecast at the time of issue of the Bonds, as had been agreed by the Banks
and as set out in the TBGL NP Group balance sheet at 31 December 1985, the
NP Report treated the funds subscribed to the Bonds as capital funds of TBGL,
thereby eliminating any liability TBGL or BGNV had to repay the Bonds and,
derivatively, any liability TBGL may have had to BGNV in respect of the
amount recorded in the BGNV accounts as a loan to TBGL.
167 It could not be the inter-company liability owing by TBGL to BGNV in
respect of the on-loan of the proceeds of the bond issue by BGNV that was
regarded as equity by the directors and accountants. It was the acceptance of
the probability that Bondholders would forgo the right to redeem the Bonds and,
instead, exercise the right provided by the Conversion Bonds issued by TBGL
to acquire shares in TBGL that permitted TBGL, and its accountants, to treat
subscriptions to Bond Issue 1 as equivalent to a subscription to TBGL share
capital and part of shareholder funds in the preparation of the NP Report. Of
course, as a forecast event taken to be sufficiently certain to justify such an
accounting treatment, subsequent events could alter that judgment, but as at the
date of the NP Report, it stood as stated. In no sense could it be said that the
on-loan was treated by the directors and accountants as a subscription to
capital. The words on lent to [TBGL] as included in the explanatory note of
the NP Report were merely descriptive. That construction was confirmed in the
NP Reports that followed.
b) NP Reports 30 June 1986, 31 December 1986, 30 June 1987
168 The audited Consolidated Balance Sheet in TBGL Annual Report
30 June 1986 [TBGL.03474.079, p 29] and the balance sheet of the TBGL NP
Group attached to the NP Report 30 June 1986 [TBGL.00733.038] treated the
funds subscribed to Bond Issue 1 (described as Convertible Notes in the
former and as Convertible Bonds in the latter) as equivalent to share capital
and as part of Bell group shareholder funds. As a consequence, the commencing
figure for non-current liabilities in App C of the NP Report, being the amount
for that item set out in the audited Consolidated Balance Sheet in TBGL Annual
Report 30 June 1986, did not include any liability for BGNV, or TBGL, to
redeem the Bonds those companies had issued (at [2951]).
169 It is not clear why App C of this NP Report then purported to deconsolidate
non-current liabilities of the TBGL NP Group by deducting a BGNV liability
for Bond redemption ($75 million) as a non-current liability of a
non-indemnifying subsidiary when that sum was not included as a liability in
the amount from which it was being deducted. The purported reversal of
inter-company accounts on deconsolidation by adding a TBGL liability to
BGNV in the like amount ($75 million) meant that the final amount in App C
was not distorted but the recorded steps of deconsolidation were unnecessary.
170 The outcome of the NP Report matched that of the preceding NP Report
31 December 1985, namely, that by reason of the acceptance that moneys
subscribed to the Bonds could be treated as equivalent to share capital of TBGL
the liability of BGNV and TBGL to repay moneys to Bondholders could be
treated as extinguished.
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 53

171 The foregoing comments made in respect of the NP Report 30 June 1986
apply equally to the NP Reports 31 December 1986 and 30 June 1987.
172 Nothing in the foregoing NP Reports provided support for an argument that a
loan contract between BGNV and TBGL contained a term that BGNVs
entitlement to recover that loan on liquidation of TBGL was subordinated to the
rights of other creditors of TBGL, nor did the NP Reports contain a
representation to that effect.
c) NP Report 31 December 1987 [360.02.0038]
173 This NP Report, dated 12 February 1988, was the first presented under the
NP Guarantee. Notwithstanding the share market collapse in October 1987,
preparation of the NP Report continued the assumption that subscriptions to the
Bonds could be treated as equivalent to subscription TBGL shareholder funds.
Therefore, no liability to redeem the Bonds was included in the commencing
figure for non-current liabilities set out in App C of the NP Report: see [2960].
174 As discussed above, the NP Reports 30 June 1986, 31 December 1986 and
30 June 1987 had made necessary deconsolidation adjustments to the
commencing figure for non-current liabilities set out in App C by purporting to
deduct BGNV liability for the redemption of the Bonds it had issued, offset by
the addition of a TBGL NP Group liability for sums borrowed from BGNV by
TBGL and BGF. The NP Report 31 December 1987 ceased that practice and
restricted deconsolidation adjustments instead to non-current assets in App D.
175 The non-current assets of BGNV, represented by the sums receivable from
TBGL and BGF, were addressed for the first time and stated to be an amount of
$406.3 million. That sum was deducted from non-current assets in App D. That
figure appears to have been taken from the TBGL unaudited consolidated
balance sheet 31 December 1987 [TBGL.00841.049], and the TBGL NP Group
unaudited balance sheet 31 December 1987 [TBGL.00837.046], each of which
included Convertible bonds in share capital and reserves at a figure of
$556.3 million. Deduction from that sum of $150 million for the Bonds issued
by TBGL ($75 million) and BGF ($75 million) provided a balance of
$406.3 million as the amount outstanding on Bonds issued by BGNV and,
therefore, as the amount advanced by BGNV to TBGL and BGF.
176 How the figure of $556.3 million was calculated for the foregoing balance
sheets at 31 December 1987 was not explained. As at 31 December 1987 the
remainder of the loan owing by TBGL to BGNV from Bond Issue 1, after
taking into account the Bonds actually converted to TBGL shares, was
$61.3 million. $175 million was the amount lent to BGF from funds subscribed
to BGNV Bond Issue 2. The balance of the sum of $406.3 million, $170
million, appeared to be an A$ value ascribed to the 75 million loan to BGF
from BGNV Bond Issue 3. That represented an historical Sterling exchange rate
that would have been applicable at or about the date of the issue, 14 July 1987,
but it was not the rate applicable at 31 December 1987.
177 As at 31 December 1987 the cost to BGF of repaying 75 million would have
been $193.4 million, a difference of $23.4 million. Therefore, as at
31 December 1987 the principal sum owing on the Bonds was $579.7 million
and the liability of TBGL and BGF to BGNV as borrowers was $429.7 million.
178 Indeed $429.7 million was the sum added to App D as a TBGL NP Group
non-current asset in reversal of the deconsolidation effected in App D by
54 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

deducting the BGNV asset of $406.3 million described above. That step, of
course, provided a net increase of $23.4 million in TBGL NP Group assets in
App D.
179 To offset that notional increase in group assets completion of the
deconsolidation adjustment appears to have been made in App C by adding
$23.4 million to the non-current liabilities of the TBGL NP Group.
180 In [2961] his Honour stated that he was not at all sure what the amount of
$23.4 million added to non-current liabilities in App C was intended to
represent. His Honour noted that the expert accountant called by the Banks,
Scudamore, had opined that the amount of $23.4 million may have represented
current liabilities of TBGL and BGF to BGNV at 31 December 1987. Properly,
his Honour doubted that was so given that App C dealt with current liabilities
under a separate heading.
181 His Honour correctly rejected Scudamores proposition set out in para 5.22 of
the report of that witness [WITD.030.003]. Indeed, in a supplementary report
dated 12 January 2006 [WITD.030.015, para 19] Scudamore withdrew that
opinion. That withdrawal, of course, exposed errors in paras 5.22 and 5.23 of
Scudamores original report in which Scudamore provided the further opinion
that the sum of $23.4 million did not relate to loan indebtedness of TBGL and
BGF to BGNV.
182 Of course, the thesis constructed by Scudamore and accepted by his Honour
that the NP Reports supported an argument that loans from BGNV to TBGL and
BGF were subordinated, relied on an assertion that the loan indebtedness to
BGNV had not been taken into account in the preparation of this NP Report
because it had been treated as a non-current Subordinated Debt within the
terms of the NP Guarantee. As set out above that proposition was not correct.
183 Surprisingly by notice of contention filed in response to the respondents
cross-appeal the Banks asserted that his Honour erred in failing to find that the
sum of $23.4 million referred to above was a sum of current liabilities owed
by TBGL and BGF to BGNV.
184 Several comments should be made on this contention. First, his Honour did
not make a finding of fact on that issue. Second, although a finding of fact was
available to his Honour on the evidence before him, it was contrary to the
finding contended for by the Banks. Indeed, the witness on whom the Banks
relied for their contention had resiled from the proposition and the contention
should have been withdrawn.
185 As set out above the whole of the NP Report had to be considered to
understand what that figure represented. The amount of $23.4 million shown in
App C as an additional non-current liability was the net amount owed to BGNV
by TBGL and BGF that resulted from the shortfall in the amount deducted in
non-current assets in App D as the amount receivable by BGNV for moneys
advanced to TBGL and BGF. Those adjustments had no net effect on the
outcome of the NP Report which was based on treatment of the Bonds as
commitments to TBGL shareholder funds. The NP Report provided no evidence
of a contract or representation in the terms alleged by the Banks.
186 The audited annual accounts of TBGL published in the TBGL Annual
Reports 30 June 1986 [TBGL.03474.079] and 30 June 1987 [282.14.0004]
informed the public that for the purpose of preparing those accounts funds
subscribed to the Bonds had been treated and accounted for as equivalent to
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 55

subscribed shareholder capital of the Bell group. That, of course, carried an


implied representation that treatment of the Bonds in that manner was consistent
with Australian accounting and auditing standards.
187 A similar statement to the public was made in the audited accounts published
in the BRL Annual Report 30 June 1987 [TBGL.30759.045] in respect of the
treatment of Convertible Subordinated Bonds issued by BRL in that financial
year.
188 His Honour, at [2982], stated that preparation of the foregoing NP Reports by
including moneys subscribed to the Bonds as TBGL shareholder funds and
eliminating Bond redemption liabilities, would have been inconsistent with
reality, thus suggesting that some other form of accounting method had to be
relied upon to explain the NP Reports. That statement, in effect, repeated an
observation his Honour had made earlier in his reasons, at [2710], namely, that
funds subscribed to the Bonds created debts to Bondholders that were not
extinguished until a Bondholder elected to convert Bonds to shares and shares
were issued. As a statement of legal principle that was correct, but it did not
address the relevant issue, namely, how were the NP Reports prepared and was
the method of preparation only consistent with a term in the loan contracts, or a
representation by TBGL, that BGNVs right to recover loans made to TBGL
and BGF were subordinated to the rights of other creditors of TBGL and BGF
in the event of liquidation of those companies.
189 His Honour, at [2982], stated that neither TBGL, nor C&L, recognised that
the Bond proceeds had been treated as converted to capital in preparing the NP
Reports, and that C&L had made no suggestion in their documents that they had
prepared the NP Reports on that assumption.
190 The error in that statement appeared to be recognised by his Honour
subsequently, at [3223]-[3224], when his Honour accepted that if C&L were
satisfied that accounting principles permitted the Bonds to be treated as equity
in the TBGL accounts it followed that Bond liabilities were excluded from
Total Liabilities under the terms of the NP Agreements.
191 His Honours statement in [2982] was contradicted by the introductory
remarks of each NP Report which carried an acknowledgment by the directors,
which repeated the words used by C&L in presenting the NP Reports to the
directors, that the NP Reports were based on the audited (or unaudited)
consolidated accounts of TBGL (eg [370.10.0351]; [TBGL.03389.017];
[462.04.0006]; [275.08.0002.2]). Until 30 June 1988 the consolidated accounts
of TBGL treated the moneys subscribed to the Bonds as part of the shareholder
capital of TBGL and the accounts were prepared by excluding liabilities to meet
the cost of redeeming the Bonds from non-current liabilities of TBGL and its
subsidiaries. Therefore, his Honours conclusion that NP Reports based on those
accounts did not recognise the treatment of subscriptions to the Bonds as equity
(and thereby eliminated redemption liabilities for the Bonds), was a clear error.
Equally, the statement by his Honour, at [2982], that the Bonds are treated (in
the NP Reports) as sounding in a monetary liability was also incorrect if the
use of those words by his Honour was to be understood as a statement that the
NP Reports prepared between December 1985 and December 1987 were not
based on accounts that treated sums obtained from the issue of Bonds as part of
shareholder funds of TBGL.
192 As far as the above NP Reports were concerned, they were prepared on the
basis that TBGL accounts treated the Bonds as equivalent to subscriptions to
56 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

TBGL capital. TBGLs requests to the Banks that they agree that in the NP
Reports the [Bond] issues be treated as equity were consistent with that
process.
d) NP Reports 30 June 1988, 31 December 1988, 30 June 1989
NP Report 30 June 1988 [360.03.0071]
193 This NP Report was based on the audited consolidated accounts of TBGL set
out in the TBGL Annual Report 30 June 1988 [TBGL.03421.050]. The accounts
were approved by the auditors on 21 October 1988. In Note 22(b) of the Notes
to Accounts of that Annual Report the effect of the stock market collapse of
October 1987 was acknowledged and the previous accounting treatment that
accepted subscriptions to the Bonds as equivalent to subscriptions to share
capital of TBGL was abandoned, it being considered by the directors (and
auditors) that there was no longer any likelihood that Bondholders would elect
to exercise the right to direct TBGL, BGF and BGNV to apply funds payable on
redemption of the Bonds to the purchase of shares in TBGL. Obviously
subordination of the liability of the Issuers, or of the Guarantors, of the Bonds
was an irrelevant consideration in that determination.
194 Therefore, in the TBGL Annual Report 30 June 1988 [see Consolidated
Balance Sheet p 15; Notes to Accounts 20, 22; pp 30-32], the redemption cost
of the Bonds ($585.2 million) was included as a non-current liability. For the
first time, part of that redemption liability included provision for the risk of
exercise of the put option granted to Bondholders in Bond Issue 3. The option
was exercisable at a premium of 123.125% to the face value of the Bonds. The
appropriate provision in respect of the premium was calculated at $37.5 million
(at the current conversion rate for Sterling), on the assumption that all
Bondholders in Bond Issue 3 would exercise the put option. In other words, the
accounting method that accepted a probable outcome to justify inclusion of
funds subscribed to the Bonds as shareholder funds of TBGL was now applied
to create an added limb of TBGL liability. Of the sum of $585.2 million,
$150 million represented the liabilities of TBGL ($75 million) and BGF ($75
million) for redemption of the Bonds those companies had issued to Heytesbury
Securities. The balance of $435.2 million was the redemption liability of BGNV
for the Bonds it had issued, an amount that included the provision of
$37.5 million for the put option premium. That provision, of course, was not
part of either the TBGL or BGF loan debt to BGNV. It was, however, part of
TBGLs separate liability as guarantor of BGNVs obligations under the Bonds
BGNV had issued. It should be noted that the BGNV Financial Statements
30 June 1988 [TBGL.08013.030] recorded BGNV indebtedness on the Bonds at
$443.9 million (converted from US$ at 0.7953 A$/US$), an apparent
overstatement of $8.7 million.
195 By adopting the sum of non-current liabilities set out in the audited
consolidated accounts of TBGL as the commencing figure for non-current
liabilities in App C, the NP Report duly included the amount of the redemption
liabilities set out in those accounts in the process of calculating the Total
Liabilities of the TBGL NP Group. The terms Total Liabilities,
Subordinated Debt and Borrowing as defined in the NP Guarantee
[TBGL.03393.067] have been set out earlier in these reasons.
196 Given that BGNV was not an Australian Subsidiary, and had not been
nominated to be included as one as permitted under cl 15.02 of the NP
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 57

Guarantee, perhaps a formal record should have been made in App C of


offsetting transactions to effect the deconsolidation of BGNV as a
non-Australian Subsidiary by deducting the non-current liabilities of BGNV
for redemption of Bonds and by adding appropriate reversing entries for TBGL
and BGF liabilities to BGNV that arose as a result. Those steps were not taken.
197 It would then have been necessary to adjust the amount of non-current
liabilities in App C by deducting Subordinated Debts as defined in the NP
Guarantee.
198 His Honour, at [2970], suggested that perhaps the error made in this NP
Report in failing to record offsetting deconsolidating and reversing entries to
deconsolidate BGNV items from non-current liabilities in the NP Report could
be attributed to confusion arising from the variable methods of representation of
Bond liabilities in the preceding NP Reports, namely, sometimes as part of
non-current liabilities and sometimes as shareholder funds. But with respect to
his Honour that was not an available explanation. As his Honour had
acknowledged (at [2951] and [2960]) until this NP Report 30 June 1988, no NP
Report after the first NP Report 31 December 1985 had included Bond liabilities
as a non-current liability of the TBGL NP Group. Indeed all NP Reports,
including the first NP Report, had treated the subscribed Bond funds as
equivalent to subscribed capital of the Bell group in the relevant TBGL NP
Group balance sheet. And as already discussed, the first NP Report was, in
substance, consistent in method and outcome with the subsequent NP Reports in
that it was based on recognition of an addition to equity and elimination of the
Bond redemption liability from non-current liabilities.
199 The NP Report proceeded, correctly, to deduct a sum of $585.2 million from
App C as Subordinated Convertible Bonds. Deduction of that sum was the
correct course if it is taken to represent the Subordinated Debts of
$150 million of TBGL and BGF as Issuers of Bonds in Bond Issues 1, 2, (being
expressly subordinated debts under the relevant agreements for the issue of
those Bonds to Heytesbury Securities), and $435.2 million as the contingent
liability of TBGL as guarantor of the liabilities of BGNV under the Bond Issue
Trust Deeds 1, 2 and 3, also an expressly subordinated debt under the Trust
Deeds. As indicated above the contingent liability of TBGL as guarantor fell
within the definition of Total Liabilities. As noted earlier the Banks accepted
that that liability was required to be excluded from Total Liabilities as a
non-current Subordinated Debt being a Borrowing of TBGL as that term
was defined, the guarantee by TBGL of BGNVs financial obligations as an
Issuer of Bonds being the undertaking of (a) financing liability by TBGL.
200 There was no foundation for a conclusion that it was the TBGL and BGF loan
accounts with BGNV that had been treated in this NP Report as expressly
subordinated debts as defined in the NP Guarantee and that it was those
liabilities to BGNV that had been deducted under the heading Subordinated
Convertible Bonds in App C. His Honour, at [2973], seemed to suggest that the
BGNV loans to TBGL and BGF fell within the meaning of non-current
Subordinated Debt as defined in the NP Guarantee and to raise the implication
that the audited accounts and NP Report could have been prepared in some way
to reflect that. That reasoning is difficult to follow. First, those liabilities were
not the Subordinated Convertible Bonds described in the NP Report. Second,
the definition of non-current Subordinated Debt would have required the
auditors to be satisfied that the borrowings had been expressly defined as
58 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

subordinated and expressed in (their) terms to rank after all unsecured and
unsubordinated debt of TBGL or BGF. There was no evidence before his
Honour that TBGL had provided instructions to the accountants and auditors in
or before October 1988 that in the relevant contracts of loan BGNVs right to
recover the loans had been expressly defined as subordinated and expressed in
its terms to rank after all unsecured and unsubordinated debt of TBGL and BGF.
201 Furthermore, as at 30 June 1988 the loan accounts stood at $60.4 million for
TBGL and $337.3 million for BGF, a total of $397.7 million. No part of the
provision for the put option premium ($37.5 million), a sum for which BGNV
was liable as Issuer of the Bonds in Bond Issue 3 and treated in the accounts as
part of BGNVs liability on the Bonds, was able to be treated as moneys
advanced by BGNV to TBGL or BGF. The amount deducted from App C
($435.2 million), therefore, exceeded the loan indebtedness of TBGL and BGF
($397.7 million) by $37.5 million. However, as noted above, $435.2 million did
match the contingent liability of TBGL as guarantor of BGNVs redemption
liability, which as also noted above, was a Subordinated Debt.
202 In addition, the TBGL and BGF loan accounts with BGNV appear to have
been dealt with separately in the NP Report as an offset of assets under App D
in application of the process of deconsolidation and the sum offset did not
match the figure of $435.2 million.
203 $406.4 million was the sum deducted from non-current assets in App D as the
asset of a non-Australian Subsidiary BGNV. That sum was the amount
included in the non-current assets of the BGNV Financial Statements
30 June 1988 as the amount of the loans receivable by BGNV from TBGL and
BGF. It overstated the indebtedness of BGF to BGNV according to the TBGL
Annual Report 30 June 1988, by $8.7 million, the same amount of
overstatement that was applied in the BGNV Financial Statements 30 June 1988
to the Bond redemption liability of BGNV noted earlier.
204 The offset to the foregoing deduction was then made in App D by adding as
a non-current asset of the TBGL NP Group the same sum of $406.4 million as
an asset arising from reversal of consolidation journals on deconsolidation of
non-Australian Subsidiaries, namely, BGNV.
NP Report 31 December 1988 [333.04.0006 and 333.04.0006.1;
275.08.0002.2]
205 This NP Report followed the same method as NP Report 30 June 1988.
206 The commencing figures for liabilities in App C and assets in App D were
those set out in the TBGL unaudited consolidated balance sheet 31 December
1988 [TBGL.03817.001] and the amount of non-current liabilities in App C
included $578.9 million as the redemption liability for Bonds issued. As in the
prior NP Report this NP Report did not effect deconsolidation adjustments to the
non-current liabilities of App C by deducting the liabilities of BGNV as a
non-Australian Subsidiary and adding TBGL NP Group liabilities to BGNV
as a reversing entry. Instead deconsolidation of BGNV items was restricted to
the assets in App D by deducting the non-current assets of BGNV and adding a
reversing entry for non-current assets arising therefrom in the TBGL NP Group.
207 Non-current liabilities in App C were reduced by deducting the whole of the
redemption liability of $578.9 million as Subordinated Convertible Bonds.
That figure carried forward provision for the put option premium at the
30 June 1988 figure, $37.5 million. As explained in respect of the previous NP
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 59

Report the sum of $578.9 million may be taken to represent the combination of
$150 million for the Bond redemption liabilities of TBGL and BGF and
$428.9 million for the Bond redemption liabilities of BGNV for which TBGL
had a subordinated liability as guarantor. The loan indebtedness of TBGL and
BGF to BGNV at that date stood at only $391.4 million.
NP Report 30 June 1989 [364.06.0065]
208 This NP Report was based on the audited accounts published in the TBGL
Annual Report 30 June 1989 [TBGL.00008.002].
209 The commencing figures for non-current liabilities in App C and non-current
assets in App D of the NP Report were those set out in the Consolidated
Balance Sheet of the TBGL Annual Report 30 June 1989.
210 The figure for non-current liabilities in App C included $546.2 million for
Bond redemption liabilities. That sum included $7.2 million as the amount
applied to amortisation of the put option premium provision in the Bell group
consolidated accounts in the previous financial year. As at 30 June 1989 the
balance of the unamortised put option premium provision ($30.3 million as at
30 June 1988) was $28.3 million at the 30 June 1989 Sterling/A$ exchange rate.
However, in the TBGL Annual Report 30 June 1989 [see Consolidated Balance
Sheet p 25; Notes to Accounts 20, 23; pp 37, 38] the risk provision for the put
option premium was abandoned and the balance of the unamortised sum was
deleted from the BGNV Bond redemption liability.
211 The NP Report added a sum of $504.3 million to App C for non-current
liabilities, said to be a sum arising from the reversal of inter-company accounts
on deconsolidation of non-Australian subsidiaries. However, the subsidiary, or
subsidiaries, were not identified and the only amount deducted from non-current
liabilities as Non-current liabilities of all non-Australian subsidiaries to raise a
requirement for a reversing entry was a sum of $3.1 million attributed to the
Bell Group International Ltd (TBGIL).
212 How the sum of $504.3 million was calculated was not explained. The
covering letter of the auditors dated 29 November 1989 attached to the report to
the Directors [TBGL.03023.058.001] provided no details. If the sum of
$504.3 million purported to include TBGL NP Group loan indebtedness to
BGNV ($389 million) there should have been a corresponding deduction of
BGNV liability for Bond redemption to offset the reversal entry and to avoid
improper inflation of TBGL NP Group liabilities. BGNV redemption liability as
at that date was $396.2 million (if the $7.2 million applied to the TBGL
consolidated profit and loss account 30 June 1988 to amortise the put option
premium referred to earlier were included) [see TBGL Annual Report
30 June 1988 TBGL.03421.050, Item 22(b)(ii), p 32].
213 The NP Report again purported to deduct from non-current liabilities full
Bond redemption indebtedness of TBGL, BGF and BGNV under the heading
Subordinated Convertible Bonds. The amount deducted was $574.5 million
which overstated the actual redemption liability ($546.2 million) recorded in the
TBGL Annual Report 30 June 1989 [Note 20; p 37] by $28.3 million, that sum
being the remainder of the amount of the unamortised put option premium
which, as noted above, was deducted from Bond redemption liability in the
TBGL Annual Report 30 June 1989, a fact apparently overlooked (and therefore
an error) in the preparation of this NP Report.
214 In App D partial deconsolidation of BGNV assets and liabilities was effected
60 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

by deducting a BGNV non-current asset of $409.8 million and adding a


non-current asset of $396.2 million as a reversal entry. As set out above that
latter amount represented BGNVs redemption liability on the Bonds (if the
amount of $7.2 million already applied to the TBGL profit and loss statement in
amortisation of the abandoned put option premium provision were included)
but it did not represent the loan indebtedness to BGNV of TBGL and BGF.
215 The TBGL and BGF loan accounts stood at $389 million according to the
audited BGNV Financial Statements 30 June 1989 [TBGL.06718.148].
216 The sum of $409.8 million appeared to be a combination of two amounts,
$396.2 million and $13.6 million. In App C $13.6 million had been deducted
from current liabilities as a liability of BGNV, presumably interest due to
Bondholders. No reversing addition to current liabilities was made in App C,
that omission thereby offsetting the $13.6 million deflation of assets in App D
effected by the deduction of $409.8 million as a non-current asset for which in
respect of the $13.6 million (presumably current interest due from TBGL and
BGF) there had been no reversing entry in App D for deconsolidation of that
BGNV item.
217 It seems that the deduction of $409.8 million from non-current assets in App
D treated the $13.6 million interest payable to BGNV by TBGL and BGF as a
deferred sum and it was not deducted as a current asset in App D as would
normally have been the case.
218 This NP Report reflected various errors in its preparation but neither this NP
Report nor the two preceding NP Reports provided any support for a
proposition that contracts of loan between BGNV, TBGL and BGF contained a
term of subordination nor did the NP Reports contain any representation by
TBGL to that effect in the terms pleaded in [PLED.010.001, para 11ED(63)].
NP Information Packages
219 The NP Information Packages comprised three documents dated 6 November
1987 [207.17.0014.7]; 27 November 1987 [201.17.0017.2]; and 29 February
1988 [207.17.0021].
220 The paragraphs in his Honours reasons that dealt with these documents are
[3564] and [3596].
221 The NP Information Packages appear to have been prepared to provide
supplementary information to the Banks immediately after the onset of the
effects of the stock market collapse of October 1987. The information in the
documents was directed to assuring the Banks with regard to forecast trading
results for cash flow and profit. The documents also provided current and
projected balance sheets, reported on the sale of assets and identified assets
considered to be saleable.
222 All three documents, consistently with NP Reports as at the relevant dates,
recorded the Bonds (described as Convertible Notes or Convertible bonds)
in the current or projected balance sheets as part of shareholders funds and
accordingly eliminated liabilities of the TBGL NP Group in respect of the
Bonds.
223 The pleaded representation in respect of these documents was that TBGL
represented that the funds received pursuant to the issue of the Bonds were able
to be treated as a form of shareholders funds.
224 Insofar as the documents represented that the Convertible Notes or
Convertible bonds issued had been treated, and were able to be treated, as
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 61

TBGL equity it was statement of existing fact both as to the content of audited
and unaudited accounts and as to the principles being applied by accountants
and auditors.
225 At [3564] his Honour acknowledged that the NP Information Packages did
not make reference to the bond issues being subordinated. On its face that
element was irrelevant to the representation pleaded but as indicated in the
following passage it appears that his Honour had in mind that bonds mean
proceeds.
226 At [3596], his Honour accepted the Banks submission that the treatment of
the bond issues as a form of shareholders funds in the NP Information
Packages was, in the context of the letters of 11 December 1985 and
15 April 1987, the Lloyds Information Memorandum, the letter dated
14 May 1987 and the definitions of Total Liabilities and subordinated debt in
the NP Guarantees, a representation that the bond issue proceeds were
subordinated debt of the [TBGL NP Group].
227 The argument accepted by his Honour rested on the same propositions
advanced in respect of all of the pleaded material relied upon to support the
contentions of contract and estoppel by the Banks, namely, that wherever the
Bonds were referred to, it was not a reference to the Bonds per se or to the legal
relationships established thereby, but a reference to the moneys subscribed to
the Bonds, and presumably, to moneys attributable to those subscriptions when
received by a member of the TBGL NP Group.
228 As discussed earlier, the submissions bonds means proceeds and effective
subordination and the failure of the Banks to address the core facts that bore
upon construction of the documents relied upon by the Banks to support their
pleaded case led his Honour away from ascertaining the proper meaning of
these documents.
229 Any representation said to have been made in those documents had to be
determined in the context first, of the NP Agreements, and subsequently, the NP
Guarantee.
230 As his Honour opined, at [3223]-[3224], recognition by the accountants, with
or without the accord of the Banks, that the likelihood of exercise by
Bondholders of a right to convert debt to equity in TBGL justified treatment of
subscriptions to the Bonds as equivalent to a subscription to TBGL share
capital, had the result under the NP Agreements that the Bonds could not be
treated as liabilities for the purposes of the TBGL NP Group relationship with
the Banks. That meant that whilst the NP Agreements were on foot and whilst
C&L accepted that the Bonds could be so treated, there were no liabilities for
the TBGL NP Group arising from the issue of Bonds by TBGL, BGF or BGNV.
231 That circumstance provided a clear context in which to discern the meaning
of the various documents relied upon by the Banks, in particular, the letters
11 December 1985 and 15 April 1987, the Lloyds Information Memorandum,
the NP Reports and the NP Information Packages. That context provided no
foundation for a proposition that the stated treatment of Bonds as equity was a
representation that moneys lent to TBGL and BGF by BGNV was to be treated
as equity (apparently because of subordination of the lenders right to recover
the debt) and that the liabilities of TBGL and BGF under the loans had been
excluded as liabilities of the TBGL NP Group under the NP Agreements on that
basis. It was obvious from the relevant material that the directors and auditors
62 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

were not treating funds subscribed to the Bonds as TBGL equity grounded on an
understanding that the loans made by BGNV from those funds included a term
of subordination of the right to recover the loans.
232 The directors, and C&L, determined that as at 30 June 1988 TBGL accounts
could no longer be prepared on the assumption that the likelihood of conversion
of the Bonds to shares permitted the inchoate rights of the Bonds to be treated
as TBGL equity. Thereafter, TBGL accounts, and subsequent NP Reports based
thereon, were prepared on the basis that the whole of the indebtedness to
Bondholders under the Bonds had to be treated as liabilities in TBGL accounts
and as part of the aggregate of Total Liabilities under the NP Guarantee. TBGL
had liability for the whole of the indebtedness arising under the Bonds. In
addition to its liability as an issuer of Bonds, TBGL had liability as guarantor
for the Bonds issued by BGF and BGNV, which in the latter case included
liability for payment of a put option premium, for which provision was made
in the TBGL Annual Report 30 June 1988 and included as part of the liability
under the Bonds. As noted earlier, that latter amount, of course, was not part of
moneys lent by BGNV to either TBGL or BGF and the only explanation for
inclusion of that sum as a TBGL NP Group liability is TBGLs liability as
guarantor for the payment of that sum.
233 As also previously explained, pursuant to the NP Guarantee the liability of
TBGL was able to be excluded from the aggregated liabilities as a non-current
Subordinated Debt as defined.
234 There was nothing in the content of the NP Information Packages capable of
supporting a representation in the extended meaning applied by his Honour and
his Honour erred in failing to apply the plain meaning of those documents.
Lloyds Information Memorandum [333.02.0081; TBGL.03796.065;
TBGL.03779.137; TBGL.00733.053]
235 The principal paragraphs in his Honours reasons that deal with this
document are [2852]-[2863], [3195]-[3197] and [3587]-[3590].
236 The Lloyds Information Memorandum was prepared by Lloyds Bank, with
TBGLs authority, and was distributed to proposed members of the Lloyds
Syndicate Banks in April 1986. It proposed that Lloyds Syndicate Banks
provide a loan facility of up to 60 million to BGF and/or BGUK.
237 As noted earlier, the Banks pleaded that this document contained the
representation pleaded as being made in the letters dated 11 December 1985 and
15 April 1987, namely, that the liabilities of TBGL arising from the raising and
deployment of moneys in and about the [B]ond issues were subordinated to the
liabilities of TBGL to [the Banks].
238 An Attachment [TBGL.03796.065] to the Memorandum contained an
unaudited TBGL Consolidated Balance Sheet at 31 December 1985 and a
TBGL NP Group balance sheet at the same date. It also contained a report by
TBGL to The Stock Exchange of Perth Ltd dated 25 March 1986
[TBGL.03779.137]. That report contained the following statement:
During the period under review the [Bell] Group has raised additional capital
amounting to $181m. Of this sum $150m was raised through the issue of
subordinated bonds, due 1995, convertible into ordinary shares of [TBGL], and
$31m through the issue of 2,620,000 fully-paid ordinary shares. All proceeds from
these issues were received on 23rd December 1985.
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 63

239 The Memorandum made the following comment on TBGLs borrowing and
debt policy (at p 2):
There are strict limitations on lending down through associated or subsidiary
companies of course this is subject to the negative pledge arrangements where
cross indemnities are given by certain subsidiaries and [TBGL].
240 The following statement was made in respect of the Bonds (at p 2):
Under the convertible bond issue A$75 million [was] raised by [TBGL] and A$75
million by [BGNV]. In this regard it should be noted that existing bankers to
[TBGL] have agreed to treat this issue as equity and participants in this facility
will likewise be requested to so treat it.
241 A similar statement (at p 28) concluded the Memorandum.
242 There was a list of significant events that had occurred since 30 June 1985, in
which the foregoing account of the issue of Bonds was recited in the following
form (at p 23):
(5) In December, 1985 [TBGL] raised A$150 million in subordinated
convertible bonds maturing 1995. Interest payable on the bonds is 11% per
annum. The nature of the bonds is such that they may be considered as
equity for the purposes of gearing calculations. At the same time [TBGL]
raised A$30 million of funds from an ordinary share placement.
That list of events was completed by this paragraph (at p 23):
The impact of the above post-30th June events has been a substantial increase in
the consolidated net worth of the Company with a resultant significant reduction
in effective gearing and hence increase in borrowing capacity. Restated net worth
including convertible bonds is in excess of A$650 million ignoring any premium
over book value for the investments in associate companies.
243 The words emphasised in the above extracts were underlined in the document
exhibited.
244 The calculation of the net worth of TBGL by the inclusion of convertible
bonds was further explained in the Note to the Attachment. Although the Note
has been set out earlier in these reasons, it is convenient to repeat it:
NOTE: The restated net worth of A$650 million referred to on page 23 of
the Information Memorandum is based on the figure of A$496 million shown for
Total Share Capital and Reserves in the consolidated balance sheet at
31 December 1985 (attached) to which has been added A$150 million being the
convertible issue made in December 1985. This item is currently shown under
Non Current Liabilities as Unsecured Loans. The justification for treating this
item as capital is that The Bell Group Ltd current share price is higher than the
conversion price and conversion can be currently exercised. Under Australian
accounting practice, however, the convertible must be treated as loan capital until
conversion. Note that conversion could not occur pre 20 February 1986.
245 As discussed earlier in these reasons at [157]-[161] the Note explained why
the Memorandum in the text at p 23, and the attached balance sheet for the
TBGL NP Group at 31 December 1985, departed from the TBGL Consolidated
Balance Sheet at 31 December 1985 [TBGL.00733.053] which had not treated
the Bonds issued in December 1985 as part of TBGL equity.
246 The TBGL NP Group balance sheet at 31 December 1985 [TBGL.00808.036]
(which was included as item (c) of the Attachment to the Memorandum) treated
64 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

the Bonds (described as Convertible Notes) as part of TBGL shareholders


funds and did not include any liabilities in respect of the Bonds as TBGL NP
Group liabilities.
247 As the Note explained it:
The justification for treating this item as capital is that [TBGL] current share price
is higher than the conversion price and conversion can be currently exercised.
248 The representation which the Banks contend was contained in the
Memorandum was the same representation that the Banks asserted was made in
the prior letter 11 December 1985 and in the subsequent letter 15 April 1987
and the reasons provided earlier as to why his Honour erred in finding such a
representation to have been present in those letters apply equally to his
Honours conclusion that the same representation was expressed in the
Memorandum.
249 As his Honour, at [3608], acknowledged, there was no evidence of a
representation having been made in communications between TBGL and the
Banks, either orally or in writing, in the terms pleaded by the Banks. However,
at [3197] (repeated at [3588]), his Honour stated a conclusion that the Note and
the explanation it provided for the accounting treatment of the Bonds described
on p 23 of the Memorandum meant that a person reading that material would
piece together the parts and come away with an understanding that there were to
be on-loans and that they (like the bonds) would be subordinated.
250 His Honour continued that he accepted that it was less clear that the reader
would necessarily understand that the subordinated status of the bonds and the
on-loans was a reason being advanced in favour of equity treatment but then
stated that he had come to the conclusion, on balance, that the foregoing
meaning was sufficiently clear for these purposes. Given the acknowledgment
of lack of clarity the finding sufficiently clear for these purposes would not
seem adequate to meet the requirement of a clear and unambiguous
representation in the terms alleged.
251 His Honour conceded that the meaning of the Note in the Attachment did not
support the foregoing conclusion but said that as the Note was expressly tied to
p 23 of the Lloyds Information Memorandum and therefore to item (5), he
could conclude that, because in item (5) the word subordinated in the
description subordinated convertible bonds was underlined and because there
[was] no mention in item (5) of convertibility in connection with the treatment
of bonds as equity, the meaning of all relevant passages was as he had stated.
252 The reasoning relied upon by his Honour for reaching his conclusion as set
out in [3195]-[3196] errs in its treatment of the relevant material.
253 Insofar as the Note was expressly tied to any part of p 23 of the
Memorandum it was tied to the passage the Note itself expressly identified,
namely, Restated net worth including convertible bonds is in excess of A$650
million. In that passage the amount of net worth is underlined; there is no
mention of subordination; it is convertible bonds that are included in the net
worth and the Note describes the justification for treating the convertible issue
as capital as the degree of likelihood of conversion of the Bonds.
254 The plain meaning of passages relied upon in the Lloyds Information
Memorandum cannot support the pleading made in respect of it and the
construction put to his Honour by the Banks and accepted by his Honour should
have been rejected.
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 65

Proposal for Negative Pledge Guarantee [042.05.0018.2; 443.13.0001.1;


443.13.0001.2]
255 The Banks pleaded that by a letter to various banks dated 14 May 1987
TBGL represented to the Banks that [Bond Issues 1, 2] had created non-current
subordinated debt of companies within the [TBGL NP Group].
256 The proposal to the Banks that an NP Guarantee replace the NP Agreements
began in early 1987. In February 1987 TBGL wrote to the Banks [294.08.0004]
suggesting that the NP Agreements needed to be replaced with a parent
guarantee from [TBGL]. TBGL had informed the Banks that the NP
Agreements restricted TBGLs ability to issue bearer instruments in domestic
and international Markets in that it was not feasible to assign the benefit of the
NP Agreements to each purchaser of a bearer instrument and whilst the NP
Agreements remained on foot, bearers of those instruments would be
subordinated to the interests of the Banks in respect of the assets of TBGL
subsidiaries because of the superior position of the Banks by reason of the
covenants of indemnification given to the Banks by Indemnifying Subsidiaries
under the NP Agreements.
257 Although the letters to the Banks dated 14 May 1987 were not identical in
form and content, the part relied upon by the Banks for the pleaded
representation was common to all, namely, advice that the definitions of Total
Liabilities and Total Tangible Assets would be replaced with more general
definitions with the result that the non-current Subordinated Debt would be
excluded from Total Liabilities, the reason for that being to exclude from
Total Liabilities subordinated debt such as the subordinated convertible bonds
which [the Banks] [had] already agreed to treat as equity for liability ratio
purposes.
258 A TBGL proposal for replacement of the NP Agreements and release of the
covenants of Indemnifying Subsidiaries constituted a substantial variation in
existing arrangements with the Banks. The proposed exclusion from Total
Liabilities of non-current Subordinated Debt went further than provided by
the NP Agreements. Under the NP Agreements once the accountants and
auditors treated the Bonds as TBGL equity (by reason of the likelihood of
conversion of the Bonds to TBGL shares), it necessarily followed that any
liabilities on the Bonds were no longer recognised as Bell group liabilities. That
was because of acceptance by the accountants and auditors that the prospect of
conversion of the Bonds to TBGL equity was so high that the funds subscribed
to the Bonds could be treated as subscriptions to TBGL capital. Of course, the
decision of the accountants and auditors to treat the Bonds as TBGL equity was
not based on any provisions in the Bond Issue documents as to subordination of
the rights of Bondholders to recover moneys payable under the Bonds.
Subordinated Debt was not a defined term and not a liability able to be
excluded under the NP Agreements.
259 The Banks put to his Honour, therefore, that it was not a representation by
TBGL in the letter that on-loans were subordinated per se but a representation
(applying the bonds means proceeds thesis) that the Banks had been able to
treat the on-loans as TBGL equity by reason of there being a term of
subordination in those loans.
260 That seemed to be a submission of refined circularity that finessed relevant
facts.
261 The published accounts of TBGL, audited by C&L, were prepared until
66 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

30 June 1988 on the basis that all bonds could be treated as equity because of
the expectation that all bonds would be converted. The following note in the
TBGL Annual Report 30 June 1988 [TBGL.03421.050 Note 22 at p 32]
confirmed how the accounts had been prepared:
In 1987, the Convertible Bonds were shown as quasi-equity in the balance sheet in
a separate category under the heading of Total Share Capital Reserves and
Convertible Bonds. This treatment was adopted because the expectation at that
time was that redemption would not apply and that all the Bonds would be
ultimately converted into ordinary shares.
In 1988, following the fall in world stock market prices since October, 1987, the
expectancy is that redemption is more than likely and for that reason the Directors
now believe it to be prudent to show the Convertible Bonds as subordinated debt
in Non-Current Liabilities.
262 The NP Reports at relevant times were prepared by C&L (for adoption by
TBGL directors) and were based on the TBGL accounts prepared by C&L (eg,
[369.05.0052]; [370.10.0351]).
263 His Honours conclusions on this pleading were as follows (at [3592]):
If, as I have found, subordinated debt encompasses the on-loans as well as the
bonds per se, the 14 May 1987 letter seems to me to be a clear representation that
funds arising from the deployment of the first and second BGNV bond issues, as
well as from the TBGL and BGF bond issues, have that status. And for the same
reasons as I explained in connection with the 11 December 1985 letter, the
reference to subordinated debt is itself sufficient to carry with it the meaning
that on a liquidation the on-loans would rank behind bank debt. It does not matter
that the precise mechanism by which the subordination of the debt, and therefore
that ranking, was to be effected is not described in detail in the letter.
264 As noted already, the more general definition of Total Liabilities forecast
in the letter 14 May 1987 would include contingent liabilities and would
exclude non-current Subordinated Debt, a term to be the subject of express
definition.
265 As already discussed, those definitions provided for the exclusion of TBGLs
liabilities under the Bonds in the event that the Bonds ceased to be treated as
TBGL equity because the liability of TBGL for the whole of the principal sum
of the Bonds issued would now be defined as a non-current Subordinated Debt
to be excluded from the Total Liabilities of the TBGL NP Group.
266 His Honour should have found that insofar as the letter made a representation
as to past or current events the ordinary meaning of the words used did not
constitute the representation pleaded.
267 Furthermore, insofar as the letter made a representation as to future events the
words used were clear in their meaning and, to the extent that those words met
the ordinary meaning of the representation pleaded, it provided no assistance to
the Banks case in contract or estoppel.
268 Where the Banks submitted to his Honour that the pleaded representation
raised a latent or ancillary representation relied upon by the Banks his Honour
should have rejected that submission and should have found in any event that
the ordinary meaning of the letter contained no such representation.
Three year Business Plan [TBGL.03870.001] (Business Plan)
269 His Honours consideration of this document is contained in [3206]-[3208],
[3220]-[3221], [3565] and [3596]-[3601].
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 67

270 The Business Plan was dated 13 May 1988, a date subsequent to RHCs
sale of his beneficial interest in shares in TBGL to Bond and SGIC, but before
the National Companies and Securities Commission (NCSC) inquiry was
instituted (19 May 1988) and before Bond undertook to make a takeover bid for
the whole of the shares in TBGL (5 June 1988).
271 His Honour found that the Business Plan was prepared to provide an
assurance to the Banks as to the future of TBGL after the reverse suffered as a
result of the collapse of the stock market in late 1987 (at [3207]). Indeed, C&L
had been commissioned to prepare the plan immediately after the stock market
collapse of October 1987 [207.17.0017.2, p 1].
272 In March 1988, an attempt had been made to merge the interests of BRL and
TBGL by the sale of the RHC controlling shareholding in TBGL to BRL as
part of a BRL takeover of TBGL. That proposal had been thwarted by
commercial adversaries of RHC who made a bid for shares in BRL
conditioned upon the BRL merger with TBGL not proceeding. Thereupon the
merger proposal was abandoned by the management of BRL and TBGL.
Instead, in April 1988, the RHC interest in TBGL (c 40%) was sold in two
parcels to Bond and SGIC.
273 RHC, however, remained Chairman of TBGL until 21 October 1988. Bond
appointees, Oates and Mitchell, did not take office until 2 August 1988
(at [121]) when the Bond takeover of TBGL was completed by Bond obtaining
approximately 80% of TBGL shares. At that time management and treasury
functions were taken over by Bond (at [124]). RHC-appointed representatives
on the board of TBGL resigned on 26 August 1988 (at [123]).
274 At 5 May 1988, however, when the Banks were advised that a three year plan
was being prepared and would be distributed to them, at [126], RHC-appointed
officers, in particular the Bell group Treasurer, familiar with the history of
TBGL financial affairs were in office (at [3207]). The Business Plan was
forwarded to the Banks on 17 May 1988. At that point, RHC-appointed officers
were well advanced in a substantial asset sale and debt reduction programme
(at [84], [367]).
275 The Business Plan was not prepared as a plea to the Banks for time to pay
the debt owed to the Banks but to reassure the Banks that the orderly sale of
assets undertaken would enable TBGL to reduce the debt owed to the Banks
without the need to make any current provision for the redemption of Bonds.
The reasoning of the Business Plan was that maturity of the Bonds would not
occur until December 1995 and May and July 1997, by which time it was
anticipated that additional Bonds would have been converted to TBGL shares
and that future profitable conduct of the TBGL business, after reduction of debt
and receipt of dividends and management fees from businesses of the associated
companies, would provide access to funds in later years sufficient to meet the
redemption cost of the Bonds, or to secure a loan facility to discharge that
liability.
276 Of course, if any of the Bondholders in Bond Issue 3 exercised the available
put option in July 1992, TBGL would have been required to redeem those
Bonds at that time. That prospect was not separately addressed in the Business
Plan but it was taken into account in the PP Corporate Advice Ltd Valuation of
TBGL (4 March 1988) [TBGL.35708.063] to which the Business Plan
referred.
277 As at May 1988, by sale of substantial assets, the associated companies of
68 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

TBGL had achieved substantial liquidity and the belief stated in the Business
Plan that those companies could maintain dividends and remit management fee
income to the Bell group appeared to have reasonable grounds. The associated
companies in which the Bell group held substantial investment and for which
TBGL provided management services were BRL and JNTH. By May 1988 BRL
held liquid funds of about $1.2 billion (at [32]) and JNTH had realised
$640 million from asset sales (at [346]) and had net assets in cash or equivalent
that exceeded $200 million. (By 30 June 1989, however, after the BCHL
takeover of TBGL shareholdings in BRL and JNTH, the whole of the cash
assets of JNTH had been lent to BCHL companies (at [1450]) and the BRL
funds of $1.2 billion had been transferred to BCHL and accounted for as a
deposit on the purchase of BCHLs brewery interests (at [1513]).)
278 The argument in the Business Plan for continuing to exclude the Bonds as
a liability and for treating funds subscribed to the Bonds as equivalent to
shareholder funds of TBGL appeared to rely on a combination of two factors.
First, the length of term before the Bonds became repayable and, second, a
belief in the continuing prospect of conversion of the Bonds to a shareholding in
TBGL.
279 Reference to the length of term before maturity of the Bonds reflected a belief
that the drawdown of funds to redeem the Bonds would not be required until
well beyond the discharge of Bank facilities so that funds would be available to
reduce Bank debt whether or not Bank facilities were treated as current or
non-current liabilities.
280 With regard to the prospect of the conversion of Bonds to shareholdings, the
Business Plan (p 16) set out projections based on a belief that a high
proportion of Bonds would be converted. At May 1988 approximately 20% of
the BGNV Bonds in Bond Issue 1 had been converted. None of the BGNV
Bonds in Bond Issue 2 or Bond Issue 3, which became convertible in July 1987
and October 1987 respectively, had been converted.
281 In the Business Plan, under the heading Convertible Bonds, it was stated
that: All bonds are fully and explicitly subordinated to all unsubordinated
debt (p 16). That statement was correct insofar as the rights of Bondholders
against BGNV, TBGL or BGF as Issuers of the Bonds, and against TBGL as
guarantor of the Issuers, were subordinated to the rights of all other
unsubordinated creditors of BGNV, TBGL and BGF upon liquidation of those
companies. Neither that statement, nor the surrounding context of the Business
Plan, represented that there was a contractual term in contracts of loan made
between BGNV and TBGL or BGF providing for the right of BGNV to recover
those loans to be subordinated to the rights of other creditors of those
companies upon liquidation.
282 As set out earlier in these reasons the Banks had pleaded that the Business
Plan represented that [B]ondholders ranked behind the Banks in respect of
recovery of moneys from assets of the Bell [g]roup.
283 Bondholders of Bonds issued by TBGL and BGF did rank behind the Banks
in the distribution of assets in a liquidation of TBGL or BGF. Bondholders of
Bonds issued by BGNV ranked behind other creditors of BGNV in the event of
liquidation of that company. BGNV was part of the Bell group but not part of
the TBGL NP Group and therefore the Banks had no claims against BGNV
behind which the claims of those Bondholders could be ranked. However, if
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 69

those Bondholders, through the Trustee, sought to recover moneys owed to


them by BGNV by proving in the liquidation of TBGL as guarantor of BGNV,
the Bondholders would rank behind the Banks in that liquidation.
284 The result of the foregoing would have to be a finding that the pleaded
representation said to have been contained in the Business Plan did not advance
the case in contract or estoppel contended for by the Banks.
285 His Honour, at [3597], however, determined that the Business Plan contained
the following representation:
[T]hat if a liquidation of TBGL, BGF or other [TBGL NP Group] company were
to occur, the [B]anks would rank ahead of liabilities arising from the issue of the
[B]onds and the use of proceeds thereof by such companies.
286 It appears that his Honour understood the pleaded representation to involve
some concept of running subordination that appeared to have characteristics
akin to those of a constructive trust in that it attached funds subscribed to the
Bonds so that whenever use of those funds could be followed to an advance of
funds by a company in the TBGL NP Group to another company in the TBGL
NP Group, the Banks claims as creditors of the latter company would rank
ahead of a claim by the former company for recovery of the funds advanced.
287 Apart from that conclusion going well beyond the pleaded case of the Banks,
as discussed earlier in these reasons his Honours approach to construction of
the Business Plan failed to consider the ordinary meaning of the words used and
introduced an impermissible application of the extraneous constructs put
forward by counsel for the Banks, namely, bonds means proceeds and
effective subordination. His Honour erred in finding that a representation was
made in the Business Plan in the terms set out by his Honour.
Other matters referred to by his Honour
Accounting records
288 The Banks did not seek to prove that the rights of TBGL and BGF to recover
inter-company loans made by TBGL or BGF to other companies of the Bell
group were subordinated to the rights of other creditors of the borrowing
companies in the event of liquidation of the borrowers where those loans had
been made from funds advanced to TBGL or BGF by a lender whose right to
recover those funds advanced had been subordinated to the rights of other
creditors of TBGL or BGF. Indeed there was no evidence to suggest that loans
made by TBGL or BGF from such funds were made other than in the
normative, ordinary course of inter-company lending within the Bell group
on an unsubordinated basis [this being] the conclusion to be reached from
the primary accounting materials and the treatment in the annual accounts of
various group companies (at [3258]).
289 That meant that subordination of a lenders right to recover funds lent to
TBGL or BGF was irrelevant to the terms of inter-company loans made by
TBGL and BGF from those funds. Examples of funds advanced to TBGL and
BGF with subordination of the lenders right to recover the funds, and from
which it was intended that inter-company loans within the Bell group would be
made by TBGL and BGF, included the Bond subscriptions received by TBGL
from Heytesbury Securities in Bond Issue 1; the Bond subscriptions received by
BGF from Heytesbury Securities in Bond Issue 2; and the loan facilities
provided to BGF by Heytesbury Holdings Ltd (HHL) and by Bell Resources
70 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

Finance Pty Ltd (BRF) referred to below. It follows that there would be no
expectation that inter-company loans from BGNV to TBGL or BGF would be
on terms that BGNVs right to recover the loans would be subordinated.
290 Whilst his Honour, at [3258], acknowledged that the normative, ordinary
course of inter-company lending within the Bell group was on an
unsubordinated basis his Honour then suggested that a contrary conclusion
could be reached in the case of the loans by BGNV to TBGL and BGF because
the office of the chairman and the Treasury were intimately involved in the
whole of the arrangements for this fundraising. By that his Honour meant
involved in the issue of the Bonds. His Honour stated that he could see no
reason why that [involvement] would not also extend to the arrangements by
which the bond issue proceeds, having come into BGNV, made their way into
the [TBGL NP Group].
291 But no evidence that described involvement by the office of chairman and
the Treasury in arrangements concerning the loans, or that was capable of
supporting an inference that such involvement occurred for the purpose of
effecting variation in the usual terms of inter-company lending, was identified
by his Honour. Therefore, in respect of the BGNV loans, there appears to have
been no evidence inconsistent with, or capable of displacing, evidence that
reflected the normative, ordinary course of inter-company lending.
292 His Honour, at [3269], stated that his conclusion was that the absence from
the accounting documents of an explicit acknowledgement that the loans [were]
subordinated was outweighed by the probative force of the other documentary
evidence that [he had] outlined.
293 That documentary evidence must be taken to be the documents referred to by
his Honour and dealt with above, none of which spoke to the loan contracts
between BGNV and TBGL or BGF. As stated in the analysis of that material
none of those documents contained evidence of probative force able to displace
the clear inference provided by the accounting records that the normative,
ordinary course of inter-company lending was followed in the loans made by
BGNV to TBGL, BGF.
294 His Honour acknowledged, at [2702] and [3259], that the accounting records
of the Bell group provided three instances of inter-company loans where the
right of the lender to recover the loans had been subordinated to the rights of
other creditors of the borrower. In each case, subordination was contained in a
written agreement and appropriate notations were made in the primary
accounting documents of the borrowing entity.
295 The first example concerned BGUK and its wholly owned subsidiary TBGIL.
A Deed [TBGL.07043.068] dated 30 June 1987 recorded a loan from BGUK to
TBGIL in an amount of 100 million for use as working capital, free of interest,
for a term of 19 years. The Deed provided that the loan had a character of
deferred capital in that BGUK was given the right to convert the amount of the
loan to shares in TBGIL. Furthermore, BGUK agreed that its right to recover
the loan was subject to the consent of bank lenders to TBGIL and, in the event
of liquidation of TBGIL, was subordinated to the rights of all other creditors of
TBGIL, and in particular, the bank lenders.
296 Relevant published accounts of TBGIL at 30 June 1987 [TBGL.00909.014]
30 June 1998 [TBGL.03613.040] and 30 June 1989 [TBGL.04070.007]
recorded the loan as a Subordinated loan.
297 The second example was a loan facility of $500 million granted to BGF by
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 71

HHL, the ultimate major shareholder of TBGL representing the interests of


RHC (at [65]). The loan facility was for a term of five years from
17 August 1987 [TBGL.02132.034; TBGL.00902.059]. The terms of the loan
were restated in writing on 27 November 1987 [TBGL.04817.098;
TBGL.04817.099] when the amount of the facility was reduced to $145 million.
The borrowing was guaranteed by TBGL and bore interest at 2% above bank
rate. HHLs right to recover the sum advanced was subordinated to the rights of
all other unsubordinated creditors in the event of the liquidation of BGF or
TBGL. The facility, drawn down to $100 million, was discharged by two equal
payments on 27 and 28 April 1988. It was recorded in the journals and ledgers
of BGF as a subordinated loan. It was not suggested that the use of those
funds by BGF as the group financier for loans to other Bell group members
would have been on other than usual terms, that is, without subordination of
BGFs right to recover those loans.
298 The third example was the replacement of the HHL/BGF facility referred to
above. By letter dated 27 April 1988 [TBGL.01034.126] BRF, a wholly owned
subsidiary of the associated company BRL, agreed to lend BGF $100 million.
Interest was payable at a bank rate plus 1.5% and TBGL guaranteed
performance of BGFs obligations. BRF agreed that its right to recover the sum
advanced was subordinated to the rights of all other unsubordinated creditors of
BGF and TBGL in the event of the winding-up of those companies. The funds
were drawn down in two equal amounts on 27 and 28 April 1988 and
presumably applied to discharge the borrowing from HHL.
299 The loan was recorded in the BGF ledger as a subordinated loan. That detail
was not reported in the BGF Annual Accounts 30 June 1988 [TBGL.03403.068]
where it was merely described as an amount owing to an associated company.
However, in the TBGL Annual Report 30 June 1988 the parent company
recorded the liability of its subsidiary in the Consolidated Balance Sheet of
TBGL and the Notes to the Accounts recorded the liability as an Unsecured
subordinated loan [TBGL.03421.050, p 30 Note 20].
300 In the BGF Annual Accounts 30 June 1989 [TBGL.03341.015, p 10]
Note 12(v) of the Notes to Accounts stated that the company had repaid its
unsecured unsubordinated loan from [BRF] in May 1989.
301 Having recited the foregoing as the sole instances of subordinated loans in
the accounting records of the Bell group, his Honour then stated, at [3267], that
it would have been better had the journal and ledger records of loans from
BGNV to TBGL and BGF contained a clear statement that the debts were
subordinated, as they did in relation to the three loans [described above]. Of
course, if the right to recover the loans was not subordinated then the journal
and ledger entries, and the treatment in the accounts, were all consistent with
that lack of subordination, as was the absence of any written acknowledgment
or minute of such a circumstance.
302 His Honour speculated, at [3267], that a purpose of stamp duty avoidance
may have caused no formal agreement for the BGNV on-loans (presumably
including a term of subordination) to be brought into existence. There was no
evidence that a written agreement for loan made and retained in Netherlands
Antilles would bear stamp duty and, of course, stamp duty considerations had
not impeded the formation of a written record of each of abovementioned
subordinated loans.
303 His Honour stated, at [3268], that the absence of record of the on-loans as
72 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

subordinated liabilities in the primary accounting records of journals and


ledgers could not be dismissed as an immaterial consideration, but then
added, the absence of such a statement in the annual accounts, while still of
concern, may be less worrying because there is a description of subordination in
the note relating to the convertible bond issues. The reasoning relied upon to
support the latter comment is not readily apparent. The primary accounting
documents contained no record of subordination and, therefore, no foundation
existed for the annual accounts of TBGL to state that loans from BGNV to
TBGL and BGF were subordinated. The description of subordination of rights
of Bondholders in the relevant notes to the annual accounts relating to
convertible bond issues said nothing about subordination of BGNVs rights
under loans made by BGNV to TBGL or BGF.
304 Not only were the primary accounting records not able to be dismissed as an
immaterial consideration, they had to be regarded as the material consideration
unless other cogent dispositive evidence existed. The absence of that evidence
dictated a conclusion that the normative, ordinary course of inter-company
lending on an unsubordinated basis applied to the loans made by BGNV to
TBGL and BGF.
305 His Honour then said, at [3268], that he noted a lack of consistency in the
treatment of the BRF-BGF loan, (so far as concerns an express note of its
subordinated status) in the annual accounts of TBGL and of BGF as at
30 June 1988. With regard to that loan the primary document in the form of the
BGF ledger recorded that the lenders rights were subordinated and the
published accounts of the public company of which BGF was a wholly owned
subsidiary disclosed the existence of a subordinated loan to a subsidiary by an
associated company. It is difficult to see what lack of consistency of any
substance his Honour perceived in the foregoing, certainly nothing to justify
attributing lack of weight to the clear terms of the accounting records.
306 Finally, his Honour said, at [3268]: Coming back to the source materials,
there are other documents, such as the 1988 borrowing position spreadsheets
that, in my view, fall to be read as encompassing the on-loans and which refer
to the liabilities as subordinated. The date of this document [610.44.0056] was
5 February 1988.
307 First, it is apparent that the 1988 borrowing position spreadsheets were not
source material in the sense of a primary accounting record. Second, the items
in the spreadsheet document that his Honour said [fell] to be read as
encompassing the on-loans were items listed under the heading Subordinated
Borrowings of the TBGL NP Group. They comprised three liabilities described
as Convertible Bonds and a liability headed Subordinated Loan
Heytesbury being the loan from HHL to BGF referred to above.
308 On its face, therefore, the spreadsheet document did not record loans from
BGNV to TBGL and BGF as Subordinated Borrowings. As discussed earlier
Subordinated Borrowing was a defined term in the NP Guarantee and the
stated borrowing position set out in the spreadsheet document was prepared for
the purpose of the NP Guarantee. Total Liabilities of the TBGL NP Group as
defined in the NP Guarantee included the contingent liability of TBGL as
guarantor for the three Bond Issues and the direct liabilities of BGF and TBGL
as Issuers of Bonds, all of which were within the defined term Subordinated
Borrowings in the NP Guarantee. The liability of TBGL as guarantor of BGNV
and BGF arose under borrowing transactions effected by the issue of the Bonds
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 73

and the undertaking of [a] financing liability by TBGL. That undertaking of a


financing liability was expressly defined as a subordinated liability in the Bond
Issue documents. The spreadsheet document duly reflected that circumstance.
309 It was not open to his Honour to disregard the clear meaning of the
spreadsheet document. The document did not record recognition of the
subordination of BGNVs right to recover the loans BGNV had made to TBGL,
BGF.
BGF (ACT) Ltd
310 The remaining part of his Honours reasons on the question of subordination
that requires consideration is his Honours treatment of correspondence from
TBGL to the Banks in September 1987 in relation to the consent of the Banks to
a subsidiary of BGF being included as a Nominated Borrower under the NP
Guarantee.
311 It was not contended by the Banks that the correspondence contained a
representation that contracts of loan between BGNV and TBGL, BGF included
a term subordinating BGNVs right to recover those loans. As his Honour put it,
at [3016], the main relevance of the correspondence was in relation to
questions of reliance and detriment in the [B]anks estoppel case.
312 It followed that if the representations pleaded as constituting the estoppel
case were not made out relevance of the correspondence fell away.
313 The first letter was dated 3 September 1987 addressed to Lloyds Bank. It was
not sent to the Australian Banks. The letter was signed by S Wilson as
Corporate Solicitor. The letter advised that the Bell group was considering
issuing long term unsecured subordinated notes convertible into shares in
[TBGL], described as Convertible Notes, and that forming a subsidiary of
TBGL in the Australian Capital Territory to issue the notes was an option being
considered. The letter invited comments on the suggestion.
314 The letter also included the following sentence:
Monies received by the Canberra company would be onlent to BGF, again on a
subordinated basis.
315 On 4 September 1987 Wilson provided a copy of that letter to Cahill,
Assistant Treasurer of the Bell group. His Honour, at [3019], described this
copy as a further draft but it was, in fact, a copy of the letter sent to Lloyds by
Wilson.
316 On 7 September 1987 Cahill made changes to that letter by omitting some
words and paragraphs and adding new paragraphs and by putting the new draft
in his name. He did not remove the sentence relating to the on-lending of
moneys to BGF on a subordinated basis but did remove the word again from
that sentence. A copy of that redraft was sent to Wilson.
317 On 10 September 1987 Cahill produced another draft of the letter which
increased the scope of the object of discussion in the letter from convertible
notes to debt instruments such as debentures and convertible notes. It deleted
the statement that on-loans to BGF would be on a subordinated basis. The draft
was given to Wilson for perusal who apparently wrote several minor changes in
wording on the draft that were incorporated by Cahill into the letter which he
sent to Lloyds Bank and to the Australian Banks on 11 September 1987. That
letter stated that TBGL would use BGF (ACT) Ltd to issue debt instruments and
formally nominated BGF (ACT) Ltd as a Nominated Borrower under the NP
Guarantee.
74 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

318 Cahill gave evidence as a witness called by the Banks. When asked in
cross-examination about Wilsons letter to Lloyds Bank Cahill could not explain
why the Corporate Solicitor had been sounding out the Banks on financial
arrangements.
319 No evidence from Wilson was provided to his Honour.
320 Although, at [3024], his Honour stated that the letters were not
determinative of the question whether the BGNV on-loans were subordinated,
he expressed the opinion, at [3025], that the letter dated 3 September 1987, was
consistent with the view that relevant officers of Bell believed (in
September 1987) that the on-lending of funds that had come from a
subordinated source was itself subordinated. Mistakenly his Honour thought
the draft dated 4 September 1987 was a separate and further expression of
such a view and that it reinforced the opinion his Honour had formed. As noted
above it was merely a copy provided to Cahill on the following day of Wilsons
letter to Lloyds Bank dated 3 September 1987.
321 As set out earlier in these reasons, the records of the Bell group in respect of
inter-company loans did not show that any on-loans of funds received from a
subordinated source had been subordinated. That would contradict a
supposition that the foregoing correspondence could reflect a view of relevant
officers of TBGL that such on-loans were subordinated.
322 His Honour, at [3025], then stated that the terms of the letter dated
3 September 1987 support[ed] the proposition that the BGNV on-loans
were made on a subordinated basis and that changes made in the letter dated
11 September 1987 [did] not detract from that proposition.
323 His Honours reliance on the letter prepared by Wilson as representing the
belief of relevant officers who were involved in the raising of funds for the issue
of Bonds and who dealt with the Banks in respect of those matters was
misplaced in the absence of any evidence that Wilson was one of those officers.
The terms of Cahills letter dated 11 September 1987 did not confirm such a
belief of relevant officers either at the time the contracts of loan were made or at
the time of the representations said to be made by TBGL as pleaded by the
Banks.
324 Insofar as the questions of reliance and detriment were concerned, Wilsons
letter, which went only to Lloyds Bank and sought comment on a prospective
proposal, was overtaken by Cahills letter of 11 September 1987. That letter was
distributed to all Banks and sought approval of an actual proposal. It followed
that no reliance or detriment on the part of the Banks in respect of the pleaded
representations could properly be attributed to the letter dated 3 September
1987. Where his Honour took into account the contents of the drafts referred to,
that material could not have been relevant to determination of issues of reliance
and detriment on the part of the Banks, and if used for that purpose it involved
error.
Contracts
Contracts inter se

a) Inferred contractual term


325 No formal contract was created for the loans made by BGNV to TBGL or
BGF. It was not in issue, however, that a relationship of lender and borrower
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 75

had been established between those parties. That is, contracts of loan were able
to be inferred from evidence of conduct and the evidence contained in
documents.
326 The content of an inferred contract is ascertained by determining the extent of
the mutual assent of the parties, that is, the actual intent of the parties
manifested by their words, acts and conduct: see Hawkins v Clayton (1988) 164
CLR 539 at 570 per Deane J; Byrne v Australian Airlines Ltd (1995) 185 CLR
410 at 422 per Brennan CJ, Dawson and Toohey JJ.
327 Given the acceptance of the contracting parties that BGNV was not to receive
any profit from the contracts of loan, the basic terms of the contracts able to be
inferred related to the duration of the loans, repayment of principal and payment
of interest that were consistent with BGNVs obligations to Bondholders.
328 As already noted in these reasons, his Honour found that neither party gave
any consideration to subordinating BGNVs right to recover the loans from
TBGL and BGF to the rights of other creditors of TBGL and BGF.
329 That finding should have dictated the further conclusion that it [could not]
be inferred or assumed as a matter of actual fact that the parties ever directed
their minds to that question or that there was any actual joint intention which
[could] be expressed as a contractual term: Griggs v Noris Group of
Companies (2006) 94 SASR 126 at 135 per White J (Perry J agreeing).
330 However, by construing documents by use of the constructs bonds means
proceeds and effective subordination, his Honour found, at [3242], that the
request of TBGL to the Banks to treat the Bonds as equity was to be read as a
request to have the sums borrowed by TBGL and BGF from BGNV treated as
equity.
331 From that conclusion his Honour then found he was able to infer that it was a
term of the contracts of loan between BGNV and TBGL and BGNV and BGF
that BGNVs right to recover the loans was subordinated to the rights of the
creditors of TBGL and BGF, the content of that term being the terms and
conditions applying to the bonds per se (at [3286]).
332 As explained earlier in these reasons, the meaning applied by his Honour to
the word equity in relevant documents was not the proper meaning of the word
as used therein and led his Honour to form conclusions on the content of the
foregoing contracts of loan that involved error.
333 It follows that there was in fact no evidence from which his Honour could
properly infer that there had been mutual assent between BGNV and TBGL and
BGNV and BGF that BGNVs right to recover loans made to TBGL and BGF
respectively was subordinated to the rights of other creditors of TBGL and BGF,
in particular the Banks.
334 The cross-appeal from the finding that the contracts of on-loan contained
such an inferred term must be upheld.
b) Implied contractual term
335 His Honour, at [3332], stated that if necessary it would be open to imply a
term to the same effect.
336 As acknowledged in Breen v Williams (1996) 186 CLR 71 at 91 per Dawson
and Toohey JJ, The line between inference and implication will not always be
easy to draw.
337 Whereas the terms of an inferred contract represent a conclusion as to the
actual intent of the parties, an implied term is the finding of a presumed or
76 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

imputed intention of the parties made necessary to provide for the reasonable or
effective operation of a contract for which the parties have not attempted to
spell out the full terms: see Hawkins v Clayton (at 573) per Deane J; Byrne v
Australian Airlines (at 422) per Brennan CJ, Dawson and Toohey JJ, (at 442)
per McHugh and Gummow JJ.
338 The contracts of loan between BGNV and TBGL and BGF were not within a
class of contract where such a term was to be implied as a necessary legal
incident of the class: Lister v Romford Ice and Cold Storage Co Ltd [1957] AC
555 at 576 per Viscount Simonds. Therefore, the implied term relied upon was
said to be one required to provide business efficacy to the contracts.
339 His Honours finding that no party considered any ramifications arising from
loans by BGNV to TBGL and BGF militated against a finding of an implied
term as pleaded. In the instant case, as his Honour accepted, inter-company
loans did not, as a matter of course, include a term subordinating the right of the
lender to recover the loan to the liabilities of the borrower to other creditors.
Obviously it was not necessary to include such a term to make the contracts of
loan effective.
340 It may be accepted that if there is a need to imply a term to make a contract
effective that need will have arisen from the failure of the parties to turn their
minds to the inclusion of that term: Codelfa Construction Pty Ltd v State Rail
Authority (NSW) (1982) 149 CLR 337 at 346 per Mason J. But the failure of the
parties to consider whether it was appropriate to add the term to their contract
does not in itself make that term a term to be implied as part of the presumed
intention of the parties in respect of the content of their contract.
341 Although the task of considering whether a term is to be implied in an
informal contract may receive some assistance from the criteria identified in BP
Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 as those
to be satisfied before a term is implied in a formal contract in which the parties
have attempted to set out agreed terms, a term will only be implied in an
informal contract where it can be seen that it is necessary to do so for the
effective operation of the contract or it is a term that is so obvious in the
circumstances that it goes without saying: see Byrne v Australian Airlines
(at 442) per McHugh and Gummow JJ. The second criterion may be taken to
have a necessary connection with the first.
342 Although dicta of Lord Hoffman included in an advice of the Privy Council
in Attorney-General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988
at [21]-[27] cautioned against criteria such as those set out in BP Refinery being
given a life of their own (presumably a warning against treating those
requirements as restrictive) implication of a term in an informal contract is not a
licence to improve a contract without regard to the need to restrict implication
of a term to the extent necessary to give business effect to the contract and thus
the presumed intent of the parties: see also Cifuentes v Fugro Spatial Solutions
Pty Ltd [2009] WASC 316; Hughes v St Barbara Mines Ltd (No 4) (2010) 4
ARLR 99; Sam Management Services (Aust) Pty Ltd v Bank of Western
Australia Ltd [2009] NSWSC 676. It is not permissible to imply a term merely
because it appears reasonable to do so: Codelfa Construction (at 346) per
Mason J.
343 The contracts of loan made between BGNV and TBGL and BGF did not
require inclusion of a term that BGNVs right to recover the loans be
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 77

subordinated to the rights of other creditors of TBGL or BGF for the operation
of the contracts to be effective. Furthermore, by no means was such a term so
obvious in the circumstances that it went without saying.
344 His Honour should have concluded that the term pleaded by the Banks was
not a term able to be implied in those contracts of loan and the cross-appeal
from his Honours foreshadowed finding should be upheld.
c) Capacity of Banks to enforce contracts inter se
345 As noted earlier his Honour, at [3361], found that the Banks could not
enforce the foregoing contracts inter se because the terms of s 11(2) of the
Property Law Act 1969 (WA) (the PLA) did not apply to an informal contract.
346 The Banks contend that his Honour erred in law in that application of the
PLA. The Banks submitted that the proper construction of s 11(2) of the PLA
was one that permitted enforcement of a contractual benefit intended to be
conferred upon a third party, regardless of whether the contract was formal or
informal.
347 His Honour found that if s 11(2) of the PLA did apply to such contracts the
requirements of the section would have been satisfied to enable the Banks to
enforce the contracts. The respondents, and BGNV, did not raise a notice of
contention in respect of that finding although in their submissions on the Banks
grounds of appeal the respondents contended that his Honour should have found
that the Banks were not sufficiently identified for the purposes of s 11(2).
BGNV submitted that his Honour erred on various grounds in finding that the
requirements of s 11(2) were otherwise satisfied by the Banks.
348 Relevantly, s 11(2) of the PLA reads as follows:
(2) where a contract expressly in its terms purports to confer a benefit
directly on a person who is not named as a party to the contract, the
contract is enforceable by that person in his own name but
(a) all defences that would have been available to the defendant in an
action or proceeding in a court of competent jurisdiction to enforce
the contract had the plaintiff in the action or proceeding been
named as a party to the contract, shall be so available;
(b) each person named as a party to the contract shall be joined as a
party to the action or proceeding; and
(c) such defendant in the action or proceeding shall be entitled to
enforce as against such plaintiff, all the obligations that in the
terms of the contract are imposed on the plaintiff for the benefit of
the defendant.
349 As his Honour said, at [3348], there is an absence of direct authority on the
construction of this provision of the PLA. Given that 40 years have elapsed
since enactment that fact is, perhaps, surprising. After reviewing extrinsic
sources for assistance in constructing s 11(2), including the pre-legislative
history, his Honour concluded that the preponderant view was that s 11(2) of the
PLA only applied to contracts in writing: see Seddon NC and Ellinghaus MP,
Cheshire and Fifoots Law of Contract in Australia (8th Aust ed, LexisNexis
Butterworths, 2002), at [7.16] (fn 104); Grieg DW and Davis JLR, The Law of
Contract (LawBook Co, 1987), p 1045; Bradbrook A, MacCallum S and Moore
A, Australian Real Property Law (3rd ed, LawBook Co, 2002), at [18.02]; GD
Samuels QC, Contracts for the Benefit of Third Parties (1968) 8 West Aust L
Rev 378; Beswick v Beswick [1968] AC 58; Coulls v Bagots Executor &
Trustee Co Ltd (1967) 119 CLR 460. In reaching that conclusion his Honour
78 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

necessarily had regard to the terms of s 32 of the Interpretation Act 1984 (WA)
which provides that the headings of Parts, Divisions and Subdivisions form part
of the written law to be construed. Section 11(2) of the PLA is within Pt II that
has the heading Deeds and Other Instruments. His Honour noted that every
section in Pt II deals with written agreements and there was nothing in the Act
to indicate that instrument was intended to have a broader meaning than its
ordinary meaning.
350 As Kennedy J pointed out in Westralian Farmers Co-operative Ltd v
Southern Meat Packers Ltd [1981] WAR 241 at 250, the expressed purpose of
the PLA was to consolidate and amend the law relating to property.
Section 11(1) of the PLA was concerned with instruments relating to land or
other property and, historically, had its genesis in a provision concerned with
indentures. On the other hand, s 11(2) was a provision concerned essentially
with the law of contract rather than with the law of property. As his Honour
stated there was no doubt that the application of s 11(2) is likely, in particular
cases, to pose questions and difficulties.
351 That comment by Kennedy J in 1981 was echoed in the same year by a report
on Privity of Contract: A Report by the Contracts and Commercial Law Reform
Committee (Wellington: Department of Justice, 1981) which identified a
difficulty in the Western Australian provision in that the use of the word
expressly in its terms indicated that only written contracts were addressed by
the subsection.
352 It can be seen that s 11(2) as a provision applying to the law of contract
generally and using the broad descriptive term contract may be thought to
reduce the weight able to be given to the heading Deeds and Other
Instruments. But the words expressly in its terms as used in s 11(2) act as a
qualification upon the form of contract referred to in the subsection and suggest
that the contract with which the subsection is concerned is a formal contract
within the contemplation of the heading Deeds and Other Instruments.
Furthermore, s 11(2) and the heading to Pt II were part of the original enactment
and, therefore, no argument arises that s 11(2) was introduced to the Act by an
amendment that, by oversight, failed to recognise the need to amend the terms
of the heading of Pt II.
353 The law reform occasioned by the introduction of s 11(2) in 1969 was a
reform of revolutionary effect according to a view expressed by the House of
Lords in the year before the enactment: see Beswick v Beswick [1968] AC 58.
Perhaps it can be assumed that the Western Australian Parliament was only
prepared to apply a reform of revolutionary character to formal contracts so that
the terms of contracts to which the reform applied would be patent at the outset
and, in particular, would show that the parties to the contract had clearly
identified the person nominated by the parties to receive an enforceable right
under the contract.
354 As stated in Westina Corporation Pty Ltd v BGC Contracting Pty Ltd (2009)
41 WAR 263 at [46] per Buss JA (Wheeler, Newnes JJA agreeing), s 11(2) looks
to express terms in the contract and not the acquisition of a right by implication
and confers only limited recognition of third party rights.
355 No error was demonstrated in his Honours approach to the construction of
s 11(2) of the PLA by having regard to the meaning conveyed by the context in
which it appeared and by referring to such extrinsic material as was available to
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 79

obtain assistance in resolving any ambiguity. The limited meaning of the


subsection as construed by his Honour did not provide an absurd result.
356 This ground of appeal must be dismissed.
Contracts inter partes
357 Under this heading the Banks pleaded that three separate contracts existed,
confined in operation to the disposition of funds derived from Bond Issues 1, 2.
The first contract was said to have been made with the Australian Banks (other
than Hong Kong Bank Australia Ltd (HKBA)) [PLED.010.001, paras 11EK and
11EL], the second contract with the Lloyds Syndicate Banks [PLED.010.001,
paras 11EM and 11EN] and the third contract with all Banks (apparently other
than Skopbank) [PLED.010.001, paras 11EO and 11EP].
358 The parties said to have contracted with the Australian Banks (other than
HKBA) in the first contract were pleaded in the following alternatives:
(i) TBGL, TBGL NP Group and BGNV
or;
(ii) TBGL
or;
(iii) TBGL and BGNV
or;
(iv) TBGL and TBGL NP Group.
359 The parties said to have contracted with the Lloyds Syndicate Banks in the
second contract were said to be alternatively:
(i) TBGL, TBGL NP Group and BGNV
or;
(ii) TBGL
or;
(iii) TBGL and TBGL NP Group
or;
(iv) TBGL, BGF and BGUK
or;
(v) TBGL, BGF, BGUK and BGNV.
360 In the third contract the alternative parties said to have contracted with the
Banks were pleaded as:
(i) TBGL, TBGL NP Group and BGNV
or;
(ii) TBGL
or;
(iii) TBGL and TBGL NP Group
or;
(iv) TBGL and BGF
or;
(v) TBGL, BGF and BGNV.
361 The Banks pleaded that the first and third contracts were responses to
requests contained in the letters to the Banks from TBGL dated
11 December 1985 and 15 April 1987. It was pleaded that formation of the
80 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

second contract occurred in the circumstances of the preparation and


distribution to Lloyds Syndicate Banks of the Lloyds Information Memorandum
prepared by [Lloyds Merchant Bank Ltd] and TBGL.
362 According to those pleadings each contract was said to represent the
agreement of the respective Banks to treat the liabilities of TBGL, as a
member of the [TBGL NP Group], arising from the raising and deployment of
funds in and about [Bond Issues 1, 2] as equity when considering balance sheet
ratios for the purpose of banking covenants in consideration of the promise
of the party or parties contracting with the Banks that the liabilities of TBGL
arising from the raising and deployment of funds in and about [Bond Issues
1, 2] would in the event of liquidation of TBGL be subordinated to the liabilities
of TBGL to the [Banks].
363 Several comments are required in respect of that pleading.
364 First, as pointed out earlier in these reasons his Honour, at [3223]-[3224],
appeared to accept that under the NP Agreements the Banks were bound to
accept NP Reports prepared by the auditors for the TBGL NP Group when
considering balance sheet ratios for the purpose of banking covenants if those
accounts treated the Bonds issued in Bond Issues 1, 2 as an addition to the
equity of TBGL and not part of the Total Liabilities of the TBGL NP Group.
365 Second, neither TBGL nor BGF as debtors could promise to subordinate a
liability in the event of liquidation of either company. Only the creditor could
do so. Therefore, unless that creditor was a party to the agreement, there would
be no consideration in the terms defined in the pleading.
366 At [3391]-[3416], his Honour set out his findings on these pleadings. His
Honour accepted the argument advanced by the respondents that no intention to
create a legally binding contract between the Banks and TBGL, BGNV and the
TBGL NP Group was demonstrated in the letters dated 11 December 1985 and
15 April 1987, and the Lloyds Information Memorandum. His Honour found,
first, that it was to be inferred from the formal contracts that comprised the
various facility agreements, the NP Agreements, and the NP Guarantee, that
these documents were intended to comprise the entire contractual relationship
between the Banks, TBGL, and the TBGL NP Group (at [3404]). Second,
statements made in the letters and Lloyds Information Memorandum relied
upon were representational only, and not promissory in character (at [3401],
[3405]). Third, the contracts as pleaded lacked certainty because of the inability
to identify the entities said to be contracting with the Banks (at [3412]-[3413]).
367 On appeal, the Banks submitted that his Honour erred in finding there was no
intention to create legal relations concerning the pleaded contracts inter partes.
368 The Banks submitted that varying degrees of formality had been used to
record the facilities between the Banks and the TBGL NP Group and, therefore,
it was open to his Honour to have concluded that documents relied upon by the
Banks in their pleading were capable of reflecting an intent to create legal
relations. If there were any merit in this submission it was overtaken by two
factors. First, it was open to his Honour to find that the banking arrangements
between the parties that formed the entire contractual relationship between the
Banks and the TBGL NP Group were to be found in the documents specified by
his Honour (at [3404]).
369 Second, as found by his Honour, at [3401] and [3405], the letters dated
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 81

11 December 1985 and 15 April 1987 and the Lloyds Information Memorandum
were, at best, representational in character and were incapable of forming the
contracts pleaded.
370 As stated by Gibbs CJ in Hospital Products Ltd v United States Surgical
Corporation (1984) 156 CLR 41 at 61:
A representation made in the course of negotiations which results in a binding
agreement may be a warranty ie it may have binding contractual force in
one of two ways: it may become a term of the agreement itself, or it may be a
separate collateral contract, the consideration for which is the promise to enter into
the main agreement. In either case the question whether the representation creates
a binding contractual obligation depends on the intention of the parties. In JJ
Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 at 442 and Ross v
Allis-Chalmers Australia Pty Ltd (1980) 55 ALJR 8 at 10 and 11, it was said that
a statement will constitute a collateral warranty only if it was promissory and not
merely representational, and it is equally true that a statement which is merely
representational ie which is not intended to be a binding promise will not
form part of the main contract.
371 The letters 11 December 1985 and 15 April 1987, as found by his Honour
at [3405], contained no more than statements of existing fact in the
representation that the Bonds are a subordinated debt and no promissory
component of a contractual character. Furthermore, as noted by his Honour,
at [3405], the purpose of the letters as outlined therein was not promissory in
nature. It was a bare request that the Banks confirm the treatment of the Bonds
as equity for the purposes of banking covenants. Similarly, his Honour,
at [3406], correctly assessed the lack of promissory character in any statements
in the Lloyds Information Memorandum.
372 With regard to his Honours implied finding, at [3412]-[3413], that the
pleaded contracts lacked certainty as to the parties bound thereby, no error in
that finding was demonstrated. The Banks case as pleaded, [PLED.010.001,
para 11ED(72)], relied upon proving that TBGL had authority to make binding
promissory commitments on behalf of other members of the TBGL NP Group,
or BGNV or BGUK for any of such entitles to be shown to be a contracting
party in addition to TBGL. His Honour, at [3412]-[3413], appeared to be
unpersuaded that the Banks had satisfied that onus or that the material presented
suggested that there could have been another contracting party other than
TBGL.
373 The Banks grounds of appeal in respect of his Honours findings must be
dismissed.
Estoppel
374 The Banks pleaded, [PLED.010.001, para 11ER], that all respondents were
estopped from denying that the liabilities of TBGL and BGF pursuant to the
fundraising arrangements (ie as debtors to BGNV) were subordinated on the
terms set out in [PLED.010.001, para 11EE(2)-(4)]. The estoppel was said to
apply to the fundraising arrangements of Bond Issues 1, 2 and 3.
375 His Honour derived from the Banks pleadings and submissions that three
alternative forms of estoppel were relied upon: estoppel by representation;
estoppel by convention and equitable estoppel.
376 His Honour (at [4262]) found that estoppel by convention was overtaken by
equitable estoppel in that the foundation of all of the pleaded estoppels was the
representational character of statements made by TBGL. In other words it was
82 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

not a case of mutual assumption as to a state of affairs or relationship from


which an estoppel by convention arose but representation by TBGL as to future
conduct that provided the promissory character of equitable estoppel which also
absorbed any argument for common law estoppel by representation. His Honour
was careful to distinguish between the nature of promissory estoppel, per se,
and promissory representations displaying contractual intent or purpose: see
Equititrust Ltd v Franks (2009) 258 ALR 388 at [70]-[73] per Handley AJA.
377 The representations relied upon to support the pleading of estoppel, all of
which were said to be contained in documents, have been set out earlier in these
reasons at [65]. As already explained, the representations pleaded cannot be
found in the documents identified by the Banks.
378 However, his Honour was satisfied that the Banks (other than Skopbank and
Standard Chartered Bank Australia Ltd (SCBAL)) had made out a defence of
estoppel. Skopbank and SCBAL appeal from the finding that they had no
estoppel rights to enforce against BGNV [APPA.000.097, Gd 143].
379 The respondents by cross-appeal submit that his Honour erred in fact and law
in finding that estoppel had been established.
380 Before considering his Honours findings on estoppel it should be noted that
the Banks contention that the liquidators of TBGL, BGF and BGNV would be
bound by those findings may not be free of doubt: see Re Exchange Securities
Financial Services Ltd (in liq) [1988] Ch 46 at 59-60 per Harman J; Tanning
Research Laboratories Inc v OBrien (1990) 169 CLR 332 at 339-340 per
Brennan and Dawson JJ; Webb Distributors (Aust) Pty Ltd v Victoria (1993) 179
CLR 15 at 37-38 per Mason CJ, Deane, Dawson and Toohey JJ.
381 A claim by the Banks that the liquidators of TBGL or BGF were bound by
estoppel to administer the assets of those companies without regard to claims in
those liquidations by BGNV may face the response from the liquidators that,
having regard to their statutory duties to duly administer those liquidations, they
were not bound by such claims of estoppel if they formed the view that acts of
TBGL unjustly prejudiced the interests of BGNV as a creditor in those
liquidations.
382 The Banks also pleaded [PLED.010.001, paras 11EA(a)(2), 11EJ(2)] that
BGNV would have been estopped from asserting against TBGL or BGF that
loans to those companies were unsubordinated. His Honour at [4258] found it
unnecessary to consider that defence because he had found that the contracts of
loan between BGNV and TBGL and BGF contained a term that the loans were
subordinated, notwithstanding that the Banks had no standing to enforce those
contracts.
383 The Banks by notice of contention say that his Honour erred in not finding
that the pleaded estoppel was available to TBGL and BGF. It is difficult to see
how that contention can be made out by the Banks.
384 Quite apart from TBGL being the author of the representations said to ground
the equitable estoppel available to TBGL and BGF against BGNV there was a
lack of utility in his Honour making a finding in the terms pleaded, namely that
BGNV was estopped as at or up to 1990 from asserting that it had a right,
unsubordinated to the rights of other creditors, to prove in the liquidations of
TBGL and BGF in respect of the indebtedness of those companies to BGNV.
385 As at the date of the Transactions, 26 January 1990, the Banks may not have
been satisfied that undertakings from TBGL and BGF (that they would assert
rights in estoppel against BGNV if BGNV sought to prove in the liquidations of
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 83

those companies for the moneys owing on loans advanced) would bind the
liquidators of TBGL and BGF. Instead the Banks obtained an undertaking from
TBGL that it would use its best endeavours to have BGNV execute the BGNV
Subordination Deed prepared by the Banks in which BGNV would grant
subordination in terms required by the Banks in respect of BGNVs right to
recover the loans advanced to TBGL and BGF.
386 On 31 July 1990, at the request of the Banks, TBGL, BGF and BGNV altered
the terms of their relationship as borrowers and lender by becoming parties to,
and executing, the Deed prepared by the Banks in which BGNV and TBGL and
BGF agreed that the right BGNV had to recover loans advanced to TBGL and
BGF would be subordinated to the rights of the Banks. Thereafter, any finding
that as at or up to 1990 TBGL and BGF had a right to assert an estoppel
against BGNV became moot.
387 Execution of that Deed provided TBGL, BGF and the Banks with enforceable
rights in contract and of a defence of estoppel against BGNV continuing for the
benefit of TBGL and BGF thereafter. An order against the Banks preventing
them relying on a voidable Deed would not reinstate rights that the Banks had
caused TBGL and BGF to replace with rights perceived as improved or superior
rights. The adoption of such an inconsistent position is to be taken as a waiver
of the prior position: see Wilson v McIntosh (1894) 15 LR (NSW) 70;
Commonwealth v Verwayen (1990) 170 CLR 394 at 481-485 per Gaudron J;
Badat v DTZ Australia (WA) Pty Ltd [2008] WASCA 83 at [148]-[156].
388 In addition to the foregoing, all estoppels pleaded by the Banks were based
on the same alleged representations by TBGL and stood or fell together.
389 The case of the Banks in estoppel sought to avoid pari passu distribution
with BGNV in the liquidation of TBGL and BGF that would follow if the right
of BGNV to recover loans made to TBGL and BGF were not subordinated to
the rights of other creditors of TBGL and BGF. The Banks did that by pleading
that in letters from TBGL to the Banks dated 11 December 1985 and
15 April 1987 [PLED.010.001, paras 11ED(17)(h), (43)(j)] TBGL represented
that bondholder debt ranked behind bank borrowings of the [TBGL NP
Group] or, more particularly, that in the foregoing letters and the Lloyds
Information Memorandum April 1986 [PLED.010.001, paras 11ED(17)(i),
(30)(g), (43)(k)], liabilities of TBGL and BGF arising from deployment
of moneys in and about the [Bond Issues 1, 2] were subordinated to the
liabilities of those companies to the [Banks]. In other words the meaning of
subordination understood by TBGL and BGNV and the subject of
representation to the Banks, was not the subordination described in the Bond
Issue documents but another concept of subordination directed specifically to
the interests of the Banks. That is to say the representation made to the Banks
with the intention that the Banks act on it, was that in the making of the loans
from BGNV to TBGL and BGF the interests of the Banks had been considered
and the loans contained a provision that protected the Banks from any adverse
consequence. As discussed later in these reasons that argument became difficult
to sustain when his Honour found that no person had considered whether any
implications arose from loans made by BGNV to TBGL and BGF.
390 His Honour stated, at [3608], that there was no express representation in the
terms pleaded by the Banks. Whilst his Honour, at [3242], acknowledged that
[c]onsiderable difficulties are presented about construction of the language
and the concept involved in capital raising practices using unsecured notes,
84 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

convertible notes and the like his Honour went on to find that in the end I find
myself satisfied that the thesis bonds means proceeds, as contended for by the
Banks, [has] been made out, and then, at [3650], stated that he accepted the
[B]anks arguments concerning the concept of effective subordination.
391 At the outset three points can be made about the use of the foregoing theses
as an aid to construction of words used in relevant documents. First, they
involved application of asserted meanings to displace the ordinary meaning of
the terms used in the documents.
392 Second, they disregarded the separate legal personalities of BGNV, TBGL,
and BGF, and the separate character and consequences of the legal relationships
between BGNV, TBGL and the Bondholders under the Bond Issue documents
on the one hand, and between BGNV and TBGL and BGF under the contracts
of loan on the other. In the arrangements under the Bond Issue documents the
detriment to the Bondholders in subordination of the right to recover moneys
due to them under the Bonds in the event of liquidation of BGNV or TBGL,
was a price paid by Bondholders for the grant of the benefit of the attached
Conversion Bond in which the Bondholders obtained the right to elect to
convert the Bonds to shares in TBGL. The loan transactions between BGNV
and TBGL and BGF, were discrete and unaffected by the respective rights and
obligations of BGNV and the Bondholders under the Bond Issue documents,
save, perhaps, for the understanding between BGNV and TBGL and BGF that
terms of the loan contracts had to be consistent with maintenance of BGNVs
ability to perform its obligations under the Bond Issue Trust Deeds. The
statement contained in the offer document prepared for circulation to
prospective investors for each Bond Issue advising that BGNV would lend the
net proceeds of the Bond subscriptions to TBGL, or to the Bell group, carried
no representation that it would be a term of those loans that BGNVs right to
recover those loans would be subordinated to the rights of other creditors of the
borrowers.
393 Third, the words subordination of the Bonds wherever used in the Bond
Issue documents could only refer to subordination of the rights of Bondholders
to the rights of other creditors of BGNV, in the event of the liquidation of
BGNV, as expressly provided in the Bond Issue documents. That provision
could not ground an assertion that the right of BGNV to recover loans made to
TBGL and BGF, was subordinated to the rights of other creditors of TBGL and
BGF, in the event of liquidation of those companies. Moneys subscribed to the
Bonds were not subject to some concept of running subordination. The legal
relationships established by the relevant facts were not able to be ignored and
they circumscribed the legal arguments available in respect of matters arising
out of them (Polly Peck (at 444)).
394 His Honour seems to have been led into error by the evidence of Scudamore
from which his Honour extracted the proposition, at [2982], that the bonds
[were] treated as sounding in a monetary obligation. Thereafter, this statement
was extrapolated to ground a conclusion that the words bonds treated as
equity and subordinated bonds were to be read as on-loans treated as
equity and subordinated on-loans. These conclusions introduced a flaw in his
Honours reasoning on the issue of subordination.
395 In addition his Honour, at [2993]-[3007], placed reliance on the contents of
letters from TBGL to the ATO dated 25 November 1985 [TBGL.00930.010,
011] and from C&L to the Deputy Commissioner of Taxation (DCT) dated
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 85

5 December 1986 and 15 April 1988 [TBGL.00560.007; TBGL.00353.023;


TBGL.00353.006] which sought exemption from the incidence of taxation in
respect of payments of interest going out of Australia. Whilst his Honour,
at [3007], stated that he did not regard the letters as determinative in that
they [did] not establish, conclusively, that the on-loans were subordinated
nonetheless, in his Honours view, the letters were consistent with the
proposition that the intention was to on-lend on a subordinated basis and thus
they support[ed] the [B]anks case.
396 In their cross-appeal the respondents contended that his Honour erred in the
construction his Honour applied to this correspondence.
397 The principal letter relied upon was a letter to the ATO dated
25 November 1985 [TBGL.00930.010, 011] from the Office of the Chairman of
TBGL under the hand of the Company Secretary. The letter advised the ATO
that TBGL intended to make a Euro-Issue of Convertible Subordinated Bonds
through BGNV and attached a summary of the terms of this issue.
398 The relevant part of the letter read as follows:
It is proposed that the funds raised from this issue will be lent by [BGNV] to
[TBGL] on the same terms as the issue. [BGNV] would therefore act as a
financing intermediary and the Group would receive no taxation benefit from this
proposed structure.
We wish to obtain taxation clearance for the creation of the above financing
structure which will result in annual interest and any redemption payments, on the
same terms as the issue, to be made by [TBGL] to [BGNV]. It is proposed that
[BGNV] have an issued capital of US$10,000.00.
399 The assurance that the Group would receive no taxation benefit appears to
be a statement to the ATO that the structure was not a device to divert profit to
an entity in a tax haven [eg TBGL.00858.001]. That is, to make it clear that as
a financing intermediary BGNV would not earn a profit from the loan
transactions.
400 It would seem to be clear from the paragraphs of the letter set out above that
terms of the proposed loan from BGNV to TBGL would, in effect, mirror terms
applicable to the Bonds as far as interest and maturity dates (or dates of
repayment of principal) were concerned. The words on the same terms as the
issue were so clarified in the final paragraph of the letter which stated that the
above financing structure will result in annual interest and any redemption
payments, on the same terms as the issue, to be made by [TBGL] to
[BGNV].
401 The role of the final paragraph of the letter 25 November 1985 in defining the
use of the words on the same terms as the issue appears to have been
overlooked in the process of construction applied by his Honour.
402 As was made clear in that paragraph, the effect of the contract of loan would
be to match the payments of amounts of interest and payments of principal to be
made under the contracts of loan with those made under the terms of the Bonds
so that no profit would accrue to BGNV.
403 It may be noted that officers of the Office of the Chairman of TBGL had had
their attention drawn to appropriate terms for such a contract of on-loan earlier
that year. On 27 May 1985 a memorandum [TBGL.00816.005] from an
Accounting Officer in the Office of the Chairman addressed to another
Accounting Officer and to a Treasury Officer within that Office discussed
appropriate accounting treatment for Convertible Notes and attached an
86 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

extract from the Consolidated Balance Sheet of Elders IXL Ltd at 30 June 1984
as an illustration of how such finance arrangements could be recorded in
company accounts. The extract stated that convertible bonds issued by Elders
NV, a subsidiary of Elders IXL Ltd, had been included as part of shareholders
equity of Elders IXL Ltd and the following statement, which appeared as a
Note to the Elders IXL Ltd accounts was included in the extract:
The proceeds of the convertible bonds have been on-lent to Elders IXL Limited on
the following terms and conditions:
(a) Elders IXL Limited has agreed to reimburse Elders NV with all costs,
charges, fees and expenses incurred by Elders NV for the purposes of, or
in any way in connection with, the bonds or the arrangements relating to
the issue thereof; and
(b) Elders IXL Limited has agreed to repay principal and pay interest and
other expenses to Elders NV in such amounts, at such times and in all
respects and in such manner as will enable Elders NV fully and promptly
to discharge all of its obligations to pay or repay monies in respect of or in
any way in connection with the bonds.
404 The letter dated 5 December 1986 from C&L to the DCT on behalf of TBGL
sought the issue of a withholding tax exemption certificate pursuant to
s 128F(4) of the ITAA, at about the time the first payment of interest to
Bondholders in Bond Issue 1 became due. C&L requested that withholding tax
exemption apply to the interest payment to be made by TBGL to its offshore
subsidiary BGNV in order that the amount received by BGNV to pay interest to
Bondholders would not be reduced by the impost of withholding tax on TBGL.
The letter set out details of Bond Issue 1 and enclosed relevant documents in
respect of the Issue.
405 The part of that letter construed by his Honour read as follows:
Funds raised from the issue of the Bonds have been lent by BGNV to [TBGL] on
the same terms as the issue so that no profit will result to BGNV. BGNV therefore
acts as a financing intermediary only.
406 The letters dated 15 April 1988 were in similar terms seeking withholding tax
exemption certificates for BGF and were sent by C&L to the DCT in respect of
impending interest payments by BGF to BGNV on loans made by BGNV to
BGF from funds received by BGNV from Bond Issues 2, 3.
407 His Honour, at [3003]-[3004], appears to have accepted submissions made by
counsel for the Banks, that the three later letters assisted construction of the
letter dated 25 November 1985 from TBGL to the ATO in that, so it was
submitted, they made it clear that the words on the same terms as the issue,
extended to the term of subordination. It was submitted, apparently, that the
description Convertible Subordinated Bonds used in the letter dated
25 November 1985, and occurring in the heading to the summary attached
thereto, was a reference to a term of subordination to be taken to be within the
expression on the same terms as the issue.
408 The foregoing approach adopted by his Honour to the construction of the
letter dated 25 November 1985 appeared to be influenced by what his Honour,
in [3005], had regarded as a logical difficulty for the respondents in that letter
from TBGL to the ATO. The logical difficulty his Honour considered existed
reflected a misunderstanding on his Honours part of the respondents argument
on construction of that letter.
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 87

409 The respondents case was that the words on the same terms as the issue
were confined by the purpose of the communication, namely, to satisfy the ATO
that the financing structure of the Bonds was not designed to transfer profit
offshore to BGNV and that the requested taxation clearance could be granted.
This was made clear in the particulars of the respondents reply to the amended
defence and defence to counterclaim [PLED.007.001, para 3.2].
410 That contention appeared to have been acknowledged by his Honour, at
[2999], where it was stated that the respondents submission was that the words
concerned were to be understood as referring to terms that were relevant to the
taxation clearance required by TBGL. The respondents submitted to his
Honour that as the letter, and a summary of the terms of the Bonds Issue
attached to the letter, made no mention of subordination it must follow that a
term of subordination was not included within the phrase on the same terms as
the issue.
411 The respondents closing submissions at trial [SUBP.R06.004.002, paras 480,
583], whilst reiterating that construction of the letter was limited by the purpose
of obtaining a taxation clearance went on to state, perhaps a little loosely, that
the expression same terms was limited to the terms enumerated in the
attachment to the letter which did not include subordination. That submission
was not an abandonment of the case particularised by the respondents but it led
to a responsive argument based on the convertibility of the Bonds referred to
in the attachment.
412 Counsel for the Banks submitted to his Honour that reliance by the
respondents on the contents of the attachment necessarily brought with it
acceptance of conversion as a term of the contracts of loan.
413 The argument of the Banks built on that assertion by then submitting that the
terms of condition 3 endorsed on the Bonds meant that a term of
subordination had to follow as a term of the contracts.
414 Condition 3 of the Bonds consisted of an undertaking by TBGL and BGNV
that they would not create or have outstanding (or additionally in TBGLs case
would not guarantee) any other indebtedness for borrowed money convertible
into the equity of TBGL unless such indebtedness was subordinated and ranked
equally in all respects with, or junior to, the Bonds then being issued by BGNV
and guaranteed by TBGL. The Banks submitted to his Honour that that
condition of the Bonds would be breached by a term of conversion in the
on-loan contracts unless the contracts also included a term of subordination.
415 It was out of this submission that his Honour formed the view that the
argument of the respondents faced a logical difficulty in the content of the
letter of 25 November 1985. As his Honour put it (at [3005]):
The [respondents] contend that the terms of the on-loans were limited to the
conditions set out in the letters that were required to obtain a tax exemption
certificate, and subordination was not one of them. It would follow that it was a
term of the on-loans from BGNV to TBGL that the loan was convertible into
shares in TBGL (convertibility being one of the relevant terms set out in par 1 to
par 6 of the attachment).
416 His Honour, at [3217]-[3219], considered that support for the foregoing
approach was to be found in an internal TBGL memorandum dated
26 August 1987 forwarded by TBGLs Assistant Treasurer to Treasury and
Legal officers which read as follows:
88 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

Our Convertible Bond Trust Deeds for the public issues require that any
indebtedness for borrowed money convertible into TBGL equity be subordinated
and rank either equally with or junior to the convertible bonds. (Condition 3,
Undertaking, Terms and Conditions of the Bonds).
417 His Honour, at [3218], appears to have accepted the Banks submission that
the foregoing sentence constituted acknowledgment by TBGL officers that
indebtedness of BGF and TBGL as borrowers from BGNV had to involve
subordination of BGNVs right to recover those loans to meet the Condition 3
of the Bonds.
418 As can be seen the memorandum did no more than recite the Bond conditions
as part of a request for advice on a possible future finance proposal.
419 The memorandum made no reference, express or implied, to loans from
BGNV to TBGL and BGF. The submission that the literal meaning of the words
(or the unvarnished approach) could be replaced by a contextual treatment
and a gleaned meaning obtained by use of commercial reality as put by
counsel for the Banks (appeal ts 3484; 3487-3489, 3491) (and the plain meaning
of words ignored if necessary) was inapposite and should have been rejected by
his Honour.
420 It seems that the additional context relied upon by his Honour to apply a
construction beyond the terms of the words used in the memorandum were the
circumstances of logical difficulty discussed above.
421 Although his Honour did not decide that it was a term of the contracts of loan
between BGNV and TBGL and BGF that BGNV could convert the loans to
equity in TBGL, his Honour appears to have concluded that if officers of TBGL
held such an understanding it had to follow that they understood that it was a
term of the loans that BGNVs right to recover the loans was subordinated to
other creditors of TBGL and BGF.
422 It was obvious that the memorandum was dealing with the limitations
imposed by an undertaking not to create more indebtedness superior to the
indebtedness owed to the Bondholders where that additional indebtedness
included a right in the new creditor to convert the debt into TBGL shares.
423 Mere contracts of loan between BGNV and TBGL and BGF were not
contemplated by the memorandum. There was nothing to support a suggestion
that those contracts of loan contained a term that BGNV could convert the loans
to TBGL shares by directing TBGL and BGF to apply the loan moneys to the
purchase of TBGL shares and the Banks did not plead that loan contracts
contained such a term.
424 The summary attached to the letter referred to a term of the Bonds providing
for conversion of the Bonds to shares in TBGL. The relevant term in the Bonds
was the tripartite arrangement between Bondholders, BGNV and TBGL in
which TBGL issued Conversion Bonds for attachment to Bonds issued by
BGNV.
425 On their face the loan contracts between BGNV and TBGL and between
BGNV and BGF were bare informal contracts recording the terms of loan and
repayment of moneys lent and payment of interest thereon, such terms to be
consistent with BGNVs obligations under the Bonds and to satisfy the
requirements of the ATO for the issue of a taxation clearance.
426 There was no evidence before his Honour that TBGL had provided an
undertaking to issue Conversion Bonds, or to convert its debt to BGNV to
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 89

shares in TBGL. Of course, in respect of the loan contracts between BGNV and
BGF, TBGL was neither a party to those contracts nor had it given any
undertaking to issue shares in TBGL if BGNV sought to convert the debt owed
by BGF to shares in TBGL. Neither BGNV nor BGF was able to direct TBGL
to issue shares.
427 The loans from BGNV to TBGL and BGF did not become convertible into
equity by reason of the right of Bondholders to convert debts owed to them by
BGNV to equity in TBGL and the submission of counsel for the Banks (appeal
ts 3489) that the loans could be regarded as indebtedness which, as a matter of
commercial practicality could be converted into shares in TBGL was not a
submission of substance ignoring as it did the confines of the legal
consequences of the relevant arrangements.
428 It should have been apparent that a term providing for conversion by BGNV
of loan debts of TBGL and BGF to equity in TBGL would have been neither
necessary nor appropriate to gain the taxation clearance sought.
429 The content and purpose of the correspondence made the Banks submission
on the construction thereof untenable. The correspondence with the ATO sought
to state no more than that the loan arrangements between BGNV and TBGL and
BGF were on terms that gave equivalent effect in the contracts of loan to the
interest and principal repayment provisions of the Bond Issues so that no profit
would be retained by BGNV from the loan contracts made with TBGL and
BGF.
430 The erroneous construction applied by his Honour to the correspondence
removed any foundation for his Honours conclusion that the letters were
evidence of consistency of intention on the part of TBGL and that they provided
material that supported the Banks case.
431 His Honours conclusion as to a logical difficulty failed to properly apply
the respondents case and his Honour erred in accepting the Banks submissions
on construction of the letter dated 25 November 1985.
432 This ground of the respondents cross-appeal must be upheld.
433 As noted above, his Honour, at [3133] and [3379], found that no person,
including Bank officers, gave any consideration to the terms or implications of
loans made by BGNV to TBGL and BGF. It may be said that the overwhelming
content of the relevant evidence required such a conclusion. That evidence, and
his Honours finding, made it most improbable that additional findings could be
made that either TBGL made a representation as to the legal implications of
loans made by BGNV to TBGL or BGF, or that the Banks formed an
understanding as to the legal implications of those loans based on a
representation made by TBGL. There was a paucity of material capable of
supporting such additional conclusions. Documents that had not been received
by the Banks could not assist a contention that a representation had been made
or relied upon. Furthermore, in the absence of supporting contemporaneous
material little weight could be given to evidence adduced from witnesses as to
views now held having considered the issue, or now considered they would
have formed at the relevant time had it been necessary to consider the question
and form a view.
434 Notwithstanding those limitations, however, his Honour, at [3647] and
[3650], found that a representation of effective subordination had been made
and, with several exceptions, had been relied upon by the Banks. The question
now is not whether the conclusion of his Honour was less compelling than
90 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

competing conclusions available, but whether on the evidence, it was a


conclusion rationally open to his Honour or was beyond the capacity of the
available evidence to support.
435 On the evidence adduced and having regard to his Honours foregoing
findings of fact, it was not open to his Honour to reach the conclusion that such
a representation had been made upon which the Banks relied and changed their
position to their detriment by reason of that reliance.
436 It is noteworthy that where there was evidence of a Bank officer becoming
aware that there was a prospect that BGNVs right to recover loans made to
TBGL and BGF may rank equally with the rights of the Banks on liquidation of
those companies, that knowledge did not result in either:
(a) a claim by the Banks that a contrary representation had been made by
TBGL; or
(b) a claim by the Banks that they had relied on such a representation to
their detriment.
437 To the contrary the only reaction of the Banks was consideration of the steps
to be taken to address an acknowledged oversight. For example, on
9 January 1990 when Chadwick, then Chief Manager of the Corporate Banking
Division at the NSW Branch of Westpac was commissioned to provide a report
on the benefit to the Banks of obtaining security from the Bell group, he stated
that whilst the Convertible Subordinated Bonds issued by BGNV were
subordinated at the issuing company level, in a wash-up, the loans to TBGL
and BGF in fact rank equally with Banks and other creditors at the level of
TBGL and BGF [081.01.0001, p 8] (emphasis in original).
438 Whilst his Honour suggested that Chadwicks knowledge of the problem of
the on-loan issue (at [7114]) would have been received from another source,
namely, Weir (Manager, Corporate Banking Division, WA), the officer of
Westpac most closely involved with events, in terms of his knowledge and
dealings with the Bell group (at [2172]), it should not be overlooked that
Chadwick occupied that position (Manager, Corporate Banking Division, WA)
from 1983 to 1988 and would have been very familiar with TBGLs account
with Westpac that, relevantly, being the period in which all Bonds were issued
by the Bell group.
439 Equally significant was the reaction of SCBAL which had served a demand
on TBGL on 4 December 1989 for the repayment of the amount advanced by
that bank thereby precipitating the prospective liquidation of TBGL. On
15 December 1989 Aspinall spoke to officers of the parent company, Standard
Chartered Bank (SCB), who recorded that Aspinall had suggested that if TBGL
were placed in liquidation as a result of SCBALs demands, the Banks would
have to share pari passu with the subordinated debt holders, that is to say,
the Bondholders.
440 On 18 December 1989, SCBAL obtained urgent advice from its solicitors
which stated that there was a risk that the subordinated debt may rank
equally with unsecured creditors. The solicitors requested to see further
documents before providing a more definitive opinion.
441 No further instructions were provided by SCBAL and the notice of demand
was withdrawn on that day.
442 His Honour, at [7111], said that the failure of SCBAL to provide further
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 91

documents to or to obtain definitive advice from its solicitors, seemed


surprising. No contention was raised by SCBAL that any contrary
representations had been made by TBGL between 1985 and 1987.
443 The general spread of knowledge in the Banks of a real risk that, indirectly,
Bondholders may share pari passu with the Banks through the right of BGNV
to recover in a liquidation of those companies loans made to TBGL and BGF
brought no claims by the Banks of misrepresentation by TBGL: see
[TBGL.30644.018], [7147]-[7148], [7154], [7145], [7166]-[7169],
[091.07.0040]. All this evidence suggested late recognition of a problem rather
than belief as to a state of affairs brought about by misrepresentation by TBGL.
444 His Honour, at [9723], found that the Banks had no clear idea what their
rights were and the possibility that BGNV would receive in pari passu
distribution from the liquidators of TBGL and BGF frightened the [B]anks
and made them determined to proceed with the refinancing.
445 Such a conclusion is some distance from a finding of a clear and
unambiguous representation by a representor that caused a firm belief in a
representee as to the existing state of affairs between representor and
representee or as to future conduct by the representee.
446 The inherent problem for the Banks in the loans made by BGNV to TBGL
and BGF did not become a live issue for the Banks until the Banks replaced the
NP Agreements with the NP Guarantee and the obligations of all TBGL NP
Group companies as Indemnifying Subsidiaries ceased, the consequences of
which have been discussed earlier in these reasons. The problem was not
recognised until, in the course of the Banks requiring the provision of security
by the Bell group, the issue arose as to whether BGNVs right to recover loans
made to TBGL and BGF would be subordinated to the rights of the Banks in a
liquidation of those companies. At that point the Banks became aware that if
BGNVs claims against TBGL and BGF ranked equally with those of the Banks
upon liquidation of TBGL and BGF, then, because the indemnity obligations of
the TBGL NP Group had been dismantled, part of the funds that would
otherwise have been available to be applied to the discharge of TBGL NP Group
indebtedness to the Banks could flow in repayment of inter-company loans to
TBGL and BGF and from there, by way of in pari passu distribution with the
Banks, to BGNV in repayment of loans provided by BGNV to TBGL and BGF.
447 It appears that his Honour, at [3225], was satisfied that no relevant officers of
TBGL, BGF, BGNV or the Banks gave any attention to, or understood the
significance of, BGNV not being an Indemnifying Subsidiary at the time
loans were made by BGNV to TBGL and BGF, or addressed whether there were
legal implications for the Banks in those loans. Furthermore, having regard to
the absence of any suggestion in either a contemporaneous document or record
that the loans were on terms other than the usual terms of inter-company loans
for the Bell group, it was improbable that the loans could be regarded as other
than usual inter-company loans and equally improbable that the loan contracts
contained a specific express term intended to meet a circumstance not
considered by any party, namely, that BGNVs right to recover loans made to
TBGL and BGF may disadvantage the Banks unless those rights were
subordinated to the rights of other creditors of TBGL and BGF in the event of
liquidation of those companies.
448 It was not contended by the Banks that inter-company on-loans made by
TBGL and BGF from the moneys subscribed to the Bonds issued by TBGL and
92 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

BGF to Heytesbury Securities were made on other than usual terms. That is, the
loans contained no term subordinating the lenders right to recover the loans to
the rights of other creditors of the inter-company borrower. Thus the latent
representation with regard to subordination, claimed to be present in the TBGL
letters to the Banks dated 11 December 1985 and 15 April 1987 which sought
confirmation of acceptance of the treatment of all Bonds issued by TBGL, BGF
and BGNV as part of the equity of TBGL, was a representation that was
selective and particular in that it was to be taken to refer only to the
inter-company loans made by BGNV from moneys subscribed to Bonds issued
by BGNV.
449 In the light of the foregoing, an assertion that TBGL represented on behalf of
BGNV that contracts of loan made between BGNV and TBGL or BGF included
a term in which the right of BGNV to recover the loans was subordinated to the
rights of other creditors of TBGL and BGF in the event of liquidation of those
companies required cogent and unambiguous evidence to support it. Particularly
in the face of the finding that the circumstance said to require the inclusion of
that term, namely, the prospect of adverse legal implications for the Banks
arising from these loans, was neither considered nor anticipated by any party.
450 At [4242]-[4270] his Honour recapitulated conclusions on the subordination
issue. In particular, at [4253]-[4254], his Honour provided the following
reasons for finding subordination of BGNVs right to recover the loans it had
made to TBGL and BGF:
The gravamen of the plaintiffs case here is that a distinction must be drawn
between the bonds per se and the proceeds from the bonds. While the former were
subordinated, the latter were not. I do not accept that proposition. If it were the
case, the BGNV bondholders would not, in reality and effect, be subordinated
(although the domestic bondholder would be) and the commercial purpose of the
project (injecting funds into the NP group as equity rather than as debt) would be
at risk. To my mind, that is illogical and lacking in commercial reality and effect.
The bonds and proceeds thesis does not fit with the evidence. For example,
the negative pledge reports, despite their imperfections and the confusion evident
in some of them, do not support such a distinction. The contemporaneous
documentary material looked at in its entirety and the oral testimony of people
such as Griffiths, compel me to find that the on-loans were intended to be, and
were, subordinated. This applies to the first BGNV bond issue (and the on-loan)
and the TBGL bond issue. The same result ensues for the second BGNV bond
issue (and the applicable on-loan) and the BGF bond issue. Even without an
accompanying domestic issue, the same result must, in my view, flow through to
the third BGNV bond issue and the relevant on-loan.
451 Apart from what has been stated already in these reasons on the distinction
between the rights of BGNV and Bondholders under the Bonds on the one
hand, and the rights of BGNV as lender and TBGL and BGF as borrowers under
inter-company loans on the other, the following comments must be made on the
two principal points relied upon by his Honour in those paragraphs.
452 First, the ultimate beneficial owner of the domestic Bondholder referred to
was RHC and if he had perceived that his interests were at risk and warranted
action, he was in a position in December 1985 and May 1987 to have had
BGNV consider and, if it agreed, record express subordination of its right to
recover the loans to be made by it to TBGL and BGF. That step was not taken.
453 Second, where his Honour stated that the commercial purpose of the project
(injecting funds into the [TBGL NP Group] as equity rather than as debt) would
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 93

be at risk if proceeds from the bonds were not subordinated and that such a
risk would be illogical and lacking in commercial reality and effect, the
relevant facts do not support his Honours reasoning.
454 As stated earlier, C&L accepted that the proceeds of Bond Issues 1, 2 and 3
were to be accounted for in the TBGL NP Group as contributions to Bell group
capital by reason of the degree of prospect that the whole of the moneys
subscribed to the issued Bonds would be applied to the acquisition of shares in
TBGL thereby providing an accretion to share capital or reserves of TBGL in
the same amount. That was the manner of injecting funds and was the statement
made to the public and to shareholders and prospective investors in TBGL by
C&L as the accountants and auditors involved in overseeing the TBGL
published accounts.
455 As set out earlier in these reasons, C&L did not apply different accounting
principles to the preparation of accounts for the purpose of the six-monthly NP
Reports. The accounts for those reports adopted expressly the consolidated
accounts prepared for the Bell group with such adjustments as were required for
deconsolidation of companies that were not within the TBGL NP Group.
456 As the Notes to the TBGL Annual Accounts 30 June 1988 made clear,
treatment of the subscriptions to the Bonds as equity could no longer be made
once the prospect of conversion of those funds to the share capital of TBGL
became unlikely. That was the only risk to be considered in determining
whether Bonds were able to be treated as equity instead of debt. Obviously, the
question whether, in respect of inter-company loans made from moneys
subscribed to the Bonds, the lender subordinated its right to recover the loans to
the rights of other creditors of the borrower was irrelevant to the determination
of that risk.
457 Where his Honour, at [4254], suggests that the NP Reports do not support a
distinction between bonds and proceeds, this appears to be a reiteration of a
mistaken understanding that it was not the anticipated exercise of the rights of
Bondholders to convert the Bonds to shares that was treated as an addition to
the equity of TBGL in the audited accounts but the amount of the loans obtained
by TBGL and BGF from BGNV.
458 As already discussed that was not, and could not have been, the basis on
which the TBGL accounts were prepared.
459 His Honour, at [4254], states that it was the oral evidence of people such as
Griffiths (Treasurer) which compelled his Honour to conclude that the on-loans
were intended to be, and were subordinated. However, the relevant evidence
identified was at best equivocal and incapable of permitting the plain meaning
of correspondence and documentary records to be displaced.
460 At [2999]-[3000], his Honour records the outcome of cross-examination of
Griffiths on the absence in the TBGL letter to the ATO dated 25 November 1985
of any suggestion that subordination of BGNVs right to recover on-loans was a
term of the contracts of loan. Griffiths accepted that neither the letter nor the
attachment identified subordination as a relevant term for the on-loan, but
Griffiths suggested that subordination was raised in the letter and the
attachment by its appearance in the description of the Bonds as convertible
subordinated bonds.
461 Where his Honour, at [3000], stated that he did not understand Griffiths to
have conceded that the letter and attachment, as a whole, made no reference to
subordination as a relevant term of the issue for the purpose of the terms of the
94 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

on-loan from BGNV to TBGL, it is quite improbable that his Honour could
have regarded the foregoing oral testimony as compelling his Honour to find
that the on-loans were subordinated.
462 At [3176], his Honour recorded that Griffiths had agreed in cross-examination
that the statement by C&L in a letter to directors of BRL dated 3 February 1988
that whether bonds should be regarded as equity or debt at a point of time
during the life of the bonds depends on views as to the likelihood of future
conversion was an accurate statement certainly for accounting treatment.
463 Again that passage of oral testimony could not have been regarded by his
Honour as compelling a conclusion that treatment as equity depended upon
subordination.
464 As far as other oral testimony was concerned, it appears that his Honour
accepted, at [3178]-[3179], that Cahill (Assistant Treasurer) agreed that
convertibility alone was the reason for treating Bonds as equity.
465 Apart from the lack of cogency in the oral evidence referred to, this was not
an area in which the advantage enjoyed by his Honour in respect of such
testimony was likely to be of much assistance. His Honour had found that no
officer at relevant times had given any consideration to the ramifications of
on-loans by BGNV nor distinguished such loans from the usual manner of
conduct of inter-company lending.
466 Reconstruction by witnesses, rather than actual recollection of events that
occurred some 20 years earlier and to which events, it was conceded, no
consideration had been given at the time, was unlikely to help his Honour in the
construction of relevant documents or be able to displace the otherwise plain
meaning discernible on the face of correspondence or other contemporary
documents.
467 Analysis of the material relied upon by the Banks for the claims in estoppel
shows no foundation for the case pleaded and the respondents grounds of the
cross-appeal on those findings should be upheld and the grounds of appeal of
Skopbank and SCBAL dismissed.
Trade Practices Act 1974 (Cth)
468 As an alternative to reliance on a defence of estoppel the Banks, by
counterclaim, sought orders under s 80 (Injunctions) or s 87 (Other Orders) of
the Trade Practices Act 1974 (Cth) (the TPA) in respect of conduct of the
respondents (other than the liquidators) that was said to be misleading or
deceptive and to have contravened s 52 of the TPA.
469 The TPA was amended by the Trade Practices Amendment (Australian
Consumer Law) Act (No 1) 2010 (Cth) and Trade Practices Amendment
(Australian Consumer Law) Act (No 2) 2010 (Cth) and the short title to the Act
became the Competition and Consumer Act 2010 (Cth) (the CCA). The
transitional arrangements included in the amending legislation preserved the
operation of the TPA in respect of events prior to the commencement of the
amendments, save for injunctive relief which then became governed by the
terms of s 232 of the Australian Consumer Law which the amending legislation
established as Sch 2 to the CCA: see Australian Competition and Consumer
Commission v Yellow Page Marketing BV (No 2) (2011) 195 FCR 1 at [20]-[23].
470 The elements of the conduct relied upon for the pleading of a contravention
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 95

of s 52 of the TPA were the statements and representations said to have been
made by TBGL in the representational documents relied upon by the Banks for
the pleaded defence of estoppel.
471 His Honour, at [4272]-[4279], found it unnecessary to make any
determination on the entitlement of the Banks to the relief sought pursuant to
that pleading having found that in the contracts of on-loan BGNV had agreed to
subordinate to the rights of other creditors its right to recover the loans.
472 By notice of contention the Banks claim that if the respondents succeed in
their cross-appeal against his Honours finding on the issue of subordination
that the claim of the Banks under the TPA should be upheld and appropriate
relief granted.
473 Establishing misleading or deceptive conduct for the purposes of s 52 of the
TPA may not be as onerous as establishing a defence of estoppel based on
representations as to past or future conduct. The purpose of the statutory right of
action created by the TPA in respect of misleading or deceptive conduct by a
corporation in trade or commerce is to enforce a standard of conduct by
corporations that meets community expectations of fair dealing in business
activity. The statutory right of action that provides an entitlement to obtain a
remedy in a private cause is a means adopted by Parliament to advance the
public good and stands in lieu of the imposition of a penalty upon a corporation
for non-compliance with the Act: Fencott v Muller (1983) 152 CLR 570 at 599
per Mason, Murphy, Brennan, Deane JJ.
474 Under s 52 the conduct of a corporation is measured against an objective
view of what constitutes fair dealing in trade or commerce in the given
circumstances. Such conduct for the purposes of s 52 is not confined to the
making of a representation and is a term of wide import: Miller & Associates
Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357
at [19]-[23] per French CJ, Kiefel J.
475 The use of such a right of action to enforce a statutory norm expressed in
broad terms suggests that the right of action is likely to cover circumstances
beyond the confines of a claim at law or in equity, at least insofar as that right of
action relates to conduct that is misleading or likely to mislead: Campomar
Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45 at [97] per
Gleeson CJ, Gaudron, McHugh, Gummow, Kirby, Hayne, Callinan JJ.
476 Whilst it is not a requirement of s 52 that it be proved that a person has been
misled or deceived by the conduct of a corporation it must be shown, in respect
of the target of the conduct, that the conduct was likely to mislead or deceive
and was thereby inconsistent with the object of the TPA. A fundamental
requirement of the TPA as set out in s 52 is that there be a likelihood that the
conduct of a corporation would be misleading or deceptive having regard to all
relevant circumstances.
477 Such contravening conduct by a corporation may include a failure to act
where disclosure of further information would have been a realistic and
reasonable expectation arising out of the particular circumstances of the dealing
in trade or commerce in which the corporation was involved or engaged:
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 40-41 per Gummow J;
Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458 at 475-476 per
Gleeson CJ; Miller & Associates (at [19]-[23]) per French CJ, Kiefel J.
478 The width of the infringing conduct may extend to circumstances that involve
representations made to the public at large amongst whom gullible and
96 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

unworldly persons will be included and the capacity of that conduct to mislead
or to be likely to mislead will be taken to be more obvious: Taco Co of
Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 202-203 per Deane,
Fitzgerald JJ.
479 In the instant case the conduct the subject of the claim by the Banks occurred
as part of a relatively sophisticated commercial dealing between experienced
and knowledgeable business personnel. That is not to say that the party to
whom the conduct was directed was well able to identify and counteract sharp
practice but it does mean that both parties to the dealing shared a mutual degree
of knowledge and awareness of the field of commerce in which they were
engaged and the party to whom representations were allegedly made was
neither gullible or unintelligent. In such circumstances superior smartness in
dealing (W Scott, Fell & Co Ltd v Lloyd (1906) 4 CLR 572 at 580 per
Barton J) or hardness or obliquity in the bargaining process (Poseidon Ltd v
Adelaide Petroleum NL (1991) 105 ALR 25 at 26 per Burchett J; Miller &
Associates (at [21]) per French CJ, Kiefel J) remain part of the armoury of
commercial intercourse and do not infringe the requirements of s 52.
480 The Banks did not plead conduct that went beyond the making of
representations, being the representations already relied upon for the pleading of
estoppel. Therefore, the misleading or deceptive conduct alleged was confined
to those alleged representations and the Banks had to show that in the context of
the dealings in which the Banks and TBGL were engaged, and having regard to
the experience and competence of the personnel involved, that representations
in the terms pleaded were made by TBGL and that those representations were
likely to mislead or deceive the Banks.
481 As set out earlier in these reasons, where the pleaded representations by
TBGL were express statements, the Banks failed to show that they were other
than statements of fact without capacity to mislead. Where it appeared to be
contended that the pleaded representations were implied or latent
representations, the Banks failed to show that the pleaded documents used terms
that the parties mutually understood expressed secondary meanings that made
the representations contained therein conduct by TBGL that was misleading or
deceptive in the circumstances.
482 The subtextual meanings the Banks sought to attribute to the statements made
by TBGL in those documents depended upon the use of processes of
construction and reasoning that were inconsistent with the plain meaning of the
terms used and unsupported by context.
483 Although his Honour, by reason of the finding that the pleading of estoppel
had been established, may have been persuaded that a contravention of s 52 of
the TPA had been made out he was not satisfied that the Banks were entitled to
the relief sought under the TPA. His Honour had in mind that any consequence
of the contravening conduct had been overtaken and dissipated by
implementation of the Transactions and Scheme in and after January 1990.
484 It is unnecessary to resolve that issue being satisfied that the pleaded claim of
contravention of s 52 of the TPA, and therefore the notice of contention in that
regard, cannot be sustained.
Statutory Claims
485 The respondents sought declarations, and consequential relief, that certain
Transactions were either void under s 565 of the Corporations Act (as dealings
equivalent to settlements of property under s 120 of the Bankruptcy Act 1966
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 97

(Cth) (the Bankruptcy Act) or dispositions of property made with intent to


defraud creditors under s 121 of the Bankruptcy Act) or void under s 89 of the
Property Law Act 1969 (WA) (the PLA), or Pt 7 of Sch 2 to the Imperial Acts
(Substituted Provisions) Act 1986 (ACT) (carried forward by the Law Reform
(Miscellaneous Provisions) Act 1999 (ACT) and Civil Law (Property) Act 2006
(ACT)) (the ACT legislation) as dispositions of property made with intent to
defraud creditors.
486 His Honour upheld some of the respondents claims and dismissed the
remainder. The respondents cross-appeal from the orders of dismissal.
487 The Banks in their grounds of appeal challenge the findings made by his
Honour that upheld the respondents claims and by notices of contention submit
alternative grounds for the findings of his Honour challenged by the respondents
in their cross-appeal.
488 Before dealing with the issues raised in the appeal and cross-appeal, some
introductory remarks are required to explain the nature of the rights and
remedies provided by s 565 of the Corporations Act.
489 Whilst the parties accepted that for the purposes of argument the claims made
under s 565 of the Corporations Act could be described as claims made under
ss 120 and 121 of the Bankruptcy Act, they were, of course, rights of action
granted under and governed by the terms of the Corporations Act: see Kennedy
v Australian Securities and Investments Commission (2005) 142 FCR 343; R v
Frawley (2005) 152 A Crim R 336. It followed that the Corporations Act
defined the scope of remedial orders available to courts provided with
jurisdiction to determine claims made under s 565.
490 As at 28 October 2008 s 565 of the Corporations Act read as follows:

Undue Preference
(1) A settlement, a conveyance or transfer of property, a charge on property, a
payment made, or an obligation incurred, before 23 June 1993, by a
company that, if it had been made or incurred by a natural person, would,
in the event of his or her becoming a bankrupt, be void as against the
trustee in the bankruptcy, is, in the event of the company being wound up,
void as against the liquidator.
(2) For the purposes of subsection (1), the date that corresponds with the date
of presentation of the petition in bankruptcy in the case of a natural person
is the relation back day.
(3) For the purposes of this section, the date that corresponds with the date on
which a person becomes a bankrupt is the relation back day.
(4) Subject to Part 5.3A, a transfer or assignment by a company of all its
property to trustees for the benefit of all its creditors is void.

491 A statutory right to have an undue preference set aside had been available
to a liquidator under prevailing companies legislation over many years. It was
expressed as a right of the liquidator to have an act by or against a company
held void if that act done by or against an individual would have been held void
in the bankruptcy of that person.
492 The form of the right as it appeared in the uniform Companies Acts enacted
by the States in 1961 was carried forward and repeated in substantially the same
terms under the heading Undue Preference in subsequent co-operative or
national legislation schemes that replaced the Companies Acts of the States:
98 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

Companies Act 1961 (WA), s 293; Companies (Western Australia) Code 1981
(WA), s 451; Corporations (Western Australia) Act 1990 (WA); Corporations
Law 1990 (Cth), s 565; Corporations Act 2001 (Cth), s 565.
493 The Corporations Law operated as a national scheme under legislation of the
States and Northern Territory which applied as a law of the States or Territory
the Corporations Law applied to the Australian Capital Territory by legislation
enacted by the Commonwealth Parliament (Corporations Act 1989 (Cth) as
amended by the Corporations Legislation Amendment Act 1990 (Cth)).
Part 5.7B of the Corporations Law (inserted by Corporate Law Reform Act
1992 (Cth)) commenced operation on 23 June 1993 to provide a more extensive
class of rights able to be prosecuted by a liquidator to recover property or
compensation in an insolvent liquidation in respect of transactions that had been
detrimental to the interests of creditors. Thereafter, s 565 of the Corporations
Law only applied to events that had occurred prior to 23 June 1993 and Pt 5.7B
applied to subsequent events.
494 In 2001 the Corporations Act 1989 (Cth), and thus the Corporations Law,
was repealed by the Corporations (Repeals, Consequentials and Transitionals)
Act 2001 (Cth). Simultaneously the Corporations Act came into force to
substantially re-enact the terms of the Corporations Law in a Commonwealth
statute that provided direct national coverage by the Commonwealth of the field
of corporate regulation. This occurred after the High Court had declared invalid
that part of the national scheme of Corporations Law under which the State
legislatures had purported to confer state jurisdiction on federal courts: see Re
Wakim; Ex parte McNally (1999) 198 CLR 511.
495 Complementary legislation was enacted by States and Territories in a
Corporations (Ancillary Provisions) Act 2001. Section 7(2) of that Act provided
that if a person acquired, accrued or incurred a right or liability in substitution
for a pre-commencement right or liability, the pre-commencement right or
liability was cancelled at the date of commencement of the Corporations Act
and ceased to be a right or liability under a law of the State or Territory.
496 Replacement of the Corporations Law by the Corporations Act required
important transitional provisions to be enacted in respect of the rights and
liabilities cancelled by State laws and replaced by rights and liabilities provided
by the Commonwealth.
497 Accordingly, s 1400 of the Corporations Act provided as follows:
(1) Subject to subsection (4), this section applies in relation to a right or
liability (the pre commencement right or liability), whether civil or
criminal, that:
(a) was acquired, accrued or incurred under a carried over provision of
the old corporations legislation of a State or Territory in this
jurisdiction; and
(b) was in existence immediately before the commencement.
However, this section does not apply to a right or liability under an order
made by a court before the commencement.
(2) On the commencement, the person acquires, accrues or incurs a right or
liability (the substituted right or liability), equivalent to the pre-
commencement right or liability, under the corresponding provision of the
new corporations legislation (as if that provision applied to the conduct or
circumstances that gave rise to the pre-commencement right or liability).
(3) A procedure, proceeding or remedy in respect of the substituted right or
liability may be instituted after the commencement under the new
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 99

corporations legislation (as if that provision applied to the conduct or


circumstances that gave rise to the pre-commencement right or liability).
498 Section 1371 of the Corporations Act defined carried over provision as a
provision of the Corporations Law of a State that:
(a) was in force immediately before the commencement of the Corporations
Act; and
(b) corresponded to a provision of the Corporations Act.
499 Upon commencement of the Corporations Act (15 July 2001) s 565 repeated
the terms of s 565 of the Corporations Law, save for insertion of the words
before 23 June 1993 in replacement of the words before the commencement
of Part 5.7B.
500 Section 565(2) was amended by the Corporations Amendment (Insolvency)
Amendment Act 2007 (Cth). The amendment came into force on 31 December
2007. The amendment appeared to be an attempt to clarify the operation of the
subsection rather than a substantive alteration to the operation of the section. It
was not contended that s 565 of the Corporations Law did not correspond to
s 565 of the Corporations Act in its amended form and that, therefore, it was not
a carried over provision.
501 The statement in s 1400(3) that a procedure, proceeding or remedy in
respect of the substituted right or liability may be instituted after the
commencement [of the Corporations Act] (as if that provision applied to the
conduct or circumstances that gave rise to the pre-commencement right or
liability) made it clear that the terms of the Corporations Act defined the scope
of the remedy applicable in respect of a substituted right provided by s 565.
Dispositions of property with intent to defraud
Corporations Act, s 565
(Bankruptcy Act, s 121)
502 The Transactions impugned under s 565 of the Corporations Act as
dispositions of property with intent to defraud, were the deeds of guarantee and
indemnity, mortgage debentures, share mortgages, directions and authorisations
concerning share mortgages, Principal Subordination Deed (PSD), BGNV
Subordination Deed, Australian Banks Facilities Agreement dated 26 January
1990 (ABFA), Australian Banks Supplemental Agreement dated 26 January
1990 (ABSA) and Lloyds Supplemental Agreement No 2 dated 26 January 1990
(LSA No 2) entered into by the plaintiff Bell companies, (other than BGUK):
see [9195].
503 Section 121 of the Bankruptcy Act had provided as follows at relevant times:
(1) Subject to this section, a disposition of property with intent to defraud
creditors, not being a disposition for valuable consideration in favour of a
person who acted in good faith, is, if the person making the disposition
subsequently becomes a bankrupt, void as against the trustee in the
bankruptcy.
(2) Nothing in this section shall be taken to affect or prejudice the title or
interest of a person who has, in good faith and for valuable consideration,
purchased or acquired the property the subject of the disposition or any
interest in that property.
(3) In this section, disposition of property includes a mortgage of property
or a charge on or in respect of property.
100 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

504 Those provisions were required to be read with s 6 of the Bankruptcy Act
which stated:
A reference in this Act to an intent to defraud the creditors of a person or to defeat
or delay the creditors of a person shall be read as including an intent to defraud, or
to defeat or delay, any one or more of those creditors.

Property Law Act 1969 (WA), s 89


505 The plaintiff Bell companies also challenged the same Transactions (other
than the BGNV Subordination Deed) under s 89 of the Property Law Act.
Section 89 provided as follows:
(1) Except as provided in this section, every alienation of property made,
whether before or after the coming into operation of this Act, with intent to
defraud creditors is voidable, at the instance of any person thereby
prejudiced.
(2) This section does not affect the law of bankruptcy for the time being in
force.
(3) This section does not extend to any estate or interest in property alienated
for valuable consideration and in good faith or upon good consideration
and in good faith to any person not having, at the time of the alienation,
notice of the intent to defraud creditors.
506 Operation of this provision does not depend upon occurrence of a subsequent
administration in insolvency but the terms of the section in other respects are
equivalent to s 121 of the Bankruptcy Act and the words intent to defraud
creditors can be taken to have the same meaning as they bore in s 121, at least
where a common factor of insolvency at relevant times is demonstrated.
507 Nothing turned on any difference in meaning between the words alienation
and disposition as operative words of the respective sections.
The ACT legislation
508 Clause 23 of the BGNV Subordination Deed provided that the Deed was
governed by the laws of the Australian Capital Territory (ACT). It was the only
Transaction sought to be avoided under the ACT legislation (at [9150]).
509 The purpose of the ACT legislation was to enact as part of the written law of
the ACT provisions described under the heading Alienation of Property with
Intent to Defraud Creditors or Subsequent Purchasers, being provisions that
formerly applied in the ACT as part of Imperial Statutes 13 Eliz I, c 5 (1571)
(the Statute of Elizabeth) and 27 Eliz I, c 4 (1585).
510 Those provisions of the Imperial Statutes were concerned with alienations
made with intent to defraud creditors (the Statute of Elizabeth) and with
fraudulent conveyances generally (27 Eliz I, cl 4 (1585)).
511 The operative provisions of the Statute of Elizabeth were extracted as follows
in PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515 at 521 per Wilcox,
Gummow, von Doussa JJ:
[T]ransfers of property for the purpose of delaying, hindering or defrauding
creditors or others of their lawful debts were to be clearly and utterly void,
frustrate, and of none Effect provided that the statute did not extend to
transfers of property
upon good Consideration and bona fide lawfully conveyed or assured to any
Person or Persons not having at the Time of such Conveyance or
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 101

Assurance to them made, any Manner of Notice or Knowledge of such


Covin, Fraud, or Collusion as is aforesaid.
512 As with s 89 of the Property Law Act the occurrence of a subsequent
insolvency administration was not a necessary element for the operation of the
ACT legislation. It was accepted that the words with intent to delay, hinder or
defraud as used in the provisions applied by the ACT legislation carried the
same meaning as in s 121 of the Bankruptcy Act and s 89 of the Property Law
Act, at least where insolvency at the time of transfer, disposition or alienation
was a common factor.
Onus of proof
513 His Honour, at [9188], considered that in respect of claims that had regard to
the terms of ss 120(1) and 121 of the Bankruptcy Act, the respondents bore the
onus of establishing absence of good faith and/or valuable consideration as the
parties seeking to impugn the Transactions. It has been stated often that where
relevant facts relating to the disposition have been known to both disponor and
disponee it is not a difficult task for the party bearing that onus to adduce
sufficient evidence to shift the evidentiary burden: see PT Garuda (at 527-528)
per Wilcox, Gummow, von Doussa JJ.
514 Section 120(2) of the Bankruptcy Act expressly provided that the parties
claiming under a challenged disposition to which that subsection applied bore
the onus of showing the existence of good faith and valuable consideration.
With regard to s 89 of the Property Law Act and the ACT legislation his Honour
accepted, at [9189], that the onus would have been on the Banks in respect of
those issues given that the legislative provisions recited those requirements as
provisos to, rather than elements of, substantive provisions: see Glegg v
Bromley [1912] 3 KB 474 at 492.
Applicability of s 565 of the Corporations Act to BGNV Subordination Deed
515 The Banks by notice of contention submitted that proper construction of
s 565 of the Corporations Act denied BGNV the right to assert a claim
equivalent to a claim under s 121 of the Bankruptcy Act [APPA.000.056, ground
25].
516 BGNV became registered as a foreign company under the Corporations Law
on 4 April 1996 [MISP.00020.008]. An order was made by this Court under the
Corporations Law on 26 March 1997 that BGNV be wound up
[MISP.00002.072] on an application to the court dated 21 March 1996.
517 The essence of the Banks argument, as to the proper construction of s 565 of
the Corporations Act, was that the word company as used in that section and
as defined in s 9 required the company participating in a transaction to which
s 565 applied to be a company registered under the Corporations Law at the
time of participation. BGNV was not registered as a foreign company at the
time it executed the BGNV Subordination Deed.
518 The temporal provision in s 565 was not directed at establishing the
registration status of a company at that time. The stipulated date fixed the time
by which events would have to have occurred for s 565 of the Corporations Act
to continue to have application to transactions of the type to which ss 120 to
121 of the Bankruptcy Act would have applied if they had involved a bankrupt.
519 Other provisions of the Corporations Act support that construction. Part of
the requirement imposed by s 601CE of the Corporations Act on a foreign
102 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

company seeking registration is that it provide with the application for


registration documents the detail of all charges created on the property of the
company as required by s 263(3) and (4) of the Corporations Act.
520 Obviously, creation of those charges would precede registration and could
include a charge created before 23 June 1993 which in turn could be a charge to
which s 565 of the Corporations Act applied.
521 Similarly the transactions of an insolvent company to which Pt 5.7B of the
Corporations Act applies would not be limited to transactions entered into by
the company after registration as a foreign company.
522 The plain meaning of s 565 is that it speaks of rights available to the
liquidator of a registered company in respect of which an order for liquidation
has been made by a court. The act of registration made the company amenable
to an order for liquidation by a court notwithstanding the foreign place of
incorporation of the company. The purpose of s 565 is to provide for due
administration of that liquidation and the past conduct of the company (before
or after 23 June 1993, and before or after registration) will be conduct of a
registered company for the purpose of s 565.
523 In other words, the substantive requirement for reliance upon s 565 is that
there be a company subject to a winding-up order and a liquidator to prosecute
a claim (and, therefore, that it be a registered foreign company if it is a foreign
company), and the requirement that conduct by that company occur before
23 June 1993 is merely a temporal requirement to limit the operation of s 565 of
the Corporations Act, not to require the company to have been registered as a
foreign company at all material times prior to 23 June 1993.
524 The terms of s 15AA of Acts Interpretation Act 1901 (Cth) set out below,
which apply to the Corporations Act, assist the foregoing construction. See s 5C
of the Corporations Act:
In the interpretation of a provision of an Act, a construction that would promote
the purpose or object underlying the Act (whether that purpose or object is
expressly stated in the Act or not) shall be preferred to a construction that would
not promote that purpose or object.

525 This ground of the Banks notice of contention must be rejected.

Intent to defraud

526 His Honour accepted, at [9085], that the words intent to defraud as used in
s 121 of the Bankruptcy Act were intended to include the meanings of to
defeat or to delay.
527 In Marcolongo v Chen (2011) 242 CLR 546 at [56] per French CJ, Gummow,
Crennan, Bell JJ it was stated that the words intent to defraud as used in an
analogous provision (Conveyancing Act 1919 (NSW), s 37A) included the
hindering or delaying of creditors. At [32] their Honours cited with approval the
decision of the Supreme Court of New Zealand in Regal Castings Ltd v
Lightbody [2009] 2 NZLR 433 at 456-457 which examined s 60 of the Property
Law Act 1952 (NZ), also expressed in analogous terms to s 121, where it was
held that intent to defraud involved intent to hinder, delay or defeat creditors.
528 It should be concluded, therefore, that intent to defraud as used in s 121 of
the Bankruptcy Act, s 89 of the Property Law Act and the ACT legislation
includes intent to hinder, delay or defeat creditors being the three elements of
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 103

the Fraudulent Conveyances Act 1571 (Eng) (13 Eliz I, c 5) from which s 121,
s 89 and the ACT legislation were derived: see PT Garuda (at 521) per Wilcox,
Gummow, von Doussa JJ.
529 His Honour also accepted, at [9146], that it was not necessary to establish
that intent to defraud was the sole intent of the disponor. Marcolongo (at [57])
has made it clear that not only is the proscribed intent not required to be the sole
intent, it is not necessary that it be the primary or predominant intent of the
disponor.
530 His Honour recorded, at [9146], that sufficient demonstration of the
defrauding of creditors was effected by showing that one creditor was
prejudiced and it was not necessary to show that creditors generally were
affected. That, of course, is consistent with the instruction contained in s 6 of
the Bankruptcy Act set out above. The expression creditors also extends to
potential liabilities and to future creditors: see Trustees of the Property of
Cummins (a bankrupt) v Cummins (2006) 227 CLR 278 at 290-291.
531 His Honour also accepted, at [9146], that the essence of the concept of
defrauding creditors lies in a disposition which subtracts from the property
which is the proper fund for the payment of the debts, an amount without which
the debts cannot be paid. His Honours words reflected a statement made by
Lord Hatherley LC in Freeman v Pope (1870) LR 5 Ch App 538 at 541,
repeated with approval by Brennan CJ and McHugh J in Cannane v J Cannane
Pty Ltd (in liq) (1998) 192 CLR 557 at [12] as a description of circumstances
from which an actual intent to defraud creditors may be inferred where there has
been an impugned disposition, although whether such an inference is drawn will
depend upon the circumstances of the particular case.
532 For example, in Williams v Lloyd (1934) 50 CLR 341 it was inappropriate to
draw such an inference when the act of disposition and subtraction from assets
occurred at a time when the disponor was in a financially sound position. And in
Cannane such an inference was not available because the disposition relied
upon was not a subtraction from the assets of the disponor but a diversion of
assets to prevent them becoming part of the disponors property.
533 The foregoing elements accepted by his Honour were not in issue in the
appeal. It was the element his Honour determined to be a requirement for
establishing intent to defraud that was challenged by the respondents in their
cross-appeal.
534 His Honour accepted the Banks submission that the meaning of intent to
defraud required proof of conscious wrongdoing, dishonesty or impropriety,
expressed by his Honour, at [9141], as some subjective element approaching
dishonesty.
535 In his Honours opinion the construction applied to the words intent to
defraud creditors in Hardie v Hanson (1960) 105 CLR 451 and in Cannane
required that conclusion.
536 In Hardie v Hanson the provision under consideration (s 281 of the
Companies Act 1943 (WA)) was not one providing for the avoidance of
disposition of property made with intent to defraud creditors, but one providing
for a director to be made personally liable for the debts of a company in
liquidation where the director had been a knowing party to the carrying on of
the business of the company with intent to defraud creditors. The section
proceeded to make such conduct by the director an indictable offence liable to
imprisonment.
104 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

537 Obviously, in that case very little of intent to defraud could be inferred from
the bare fact of the carrying on of business by the company. Furthermore,
knowledge of the director of the intent to defraud was an express requirement of
that section. As Dixon CJ pointed out (at 458) the section made it clear that the
intent to defraud to which the director was a knowing party had to be an
express, actual or real intent with the director actuated by a conscious fraudulent
purpose. A constructive, imputed or implied intent on the part of the director
would not do for that provision.
538 Considerable care would be necessary before attempting to apply dicta from
Hardie v Hanson to the construction of s 121 of the Bankruptcy Act and
analogous provisions. As Gummow J stated in Cannane (at [54]) the
expression with intent to defraud does not have any universal connotation
applicable in all statutory contexts in which it is found.
539 It is to be noted that although in Cannane (at [14], [15]) Brennan CJ and
McHugh J referred to the statement of Dixon CJ in Hardie v Hanson (at 456)
that the intent to defraud suggested that present or future creditors of a company
will be cheated of their rights if the intent is effectuated, their Honours made it
clear that such an inference of intent could be easily drawn where there had
been a subtraction from assets by a person who became bankrupt after that
disposition put assets beyond the reach of present and future creditors.
Gaudron J (at [31]) considered that a finding of real intent for the purposes of
s 121(1) would take very little to justify where the person or company
concerned disposes of assets when facing financial difficulties.
540 A comprehensive review of the history, and a cogent account of the operation,
of s 121 was provided by the Full Court of the Federal Court in PT Garuda
(at 520-526 per Wilcox, Gummow, von Doussa JJ). Their Honours referred to
the comment of Dixon J in Williams v Lloyd (at 372), that there must exist a
real intent to defeat or delay creditors, and to the remarks of Gibbs J in Re
Barnes; Ex parte Stapleton [1962] Qd R 231 at 237 that actual fraud is to be
established being actual intention to defeat or defraud creditors. Their
Honours concluded that real or actual intent to defraud, defeat or delay creditors
may be readily inferred where that is the necessary consequence of the
disposition of property made by a debtor to stave off action by another creditor.
541 Any doubt as to the operation of the words intent to defraud in s 121 may
be said to have been resolved in Marcolongo where French CJ, Gummow,
Crennan and Bell JJ (at [31]) rejected the proposition that it was necessary in
the proof of actual intent to show awareness that the transaction would have
an effect on the ability of creditors to recover from the disponor and (at [28],
[53]) rejected the assumption that it was appropriate to fortify the requirement
of an intention to defraud by some notion of dishonesty involving a desire to
cheat or swindle those prejudiced.
542 If dishonesty is a separate element to be proved, it is satisfied by showing
conduct that falls short of fair dealing. For example, if an intent to hinder, delay
or defeat creditors has been inferred from an act or acts that prejudice the
interests of creditors at a time when financial circumstances require the
respective rights of creditors in a possible bankruptcy or liquidation to be taken
into account, dishonesty will be an element of that inferred intent. It is not
necessary to prove awareness on the part of the debtor or director of the extent
to which that conduct has fallen short of the standards of ordinary, decent
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 105

people. In Marcolongo (at [32]-[33]) French CJ, Gummow, Crennan and Bell JJ
endorsed the following statement in Farah Constructions Pty Ltd v Say-Dee Pty
Ltd (2007) 230 CLR 89 at [173]:
As a matter of ordinary understanding, and as reflected in the criminal law in
Australia [Macleod v The Queen (2003) 214 CLR 230 at 242 [36]-[37]], a person
may have acted dishonestly, judged by the standards of ordinary, decent people,
without appreciating that the act in question was dishonest by those standards.
543 His Honour found that the respondents could not succeed in a claim under
s 121 of the Bankruptcy Act, s 89 of the Property Law Act or the ACT
legislation, because the respondents had disavowed that the statement of claim
made any allegation that the directors had engaged in conscious dishonesty or
conscious wrongdoing.
544 In making that determination his Honour misdirected himself as to the
operation of the relevant statutory provisions.
545 As set out above, it was not a requirement for a claim under s 121 of the
Bankruptcy Act or the other statutes that the respondents establish conscious
dishonesty or conscious wrongdoing to satisfy the meaning of the words intent
to defraud. It followed that his Honour failed to duly determine the
respondents case.
546 As set out below, his Honour should have found on the material presented
that intent to defraud had been established for the purposes of s 121(1) of the
Bankruptcy Act, s 89 of the Property Law Act and the ACT legislation.
547 With regard to the proof required of the intent of the plaintiff Bell companies
to defraud creditors clear inference of such a fact was available from the
primary facts, namely, the knowledge of the directors of the parlous financial
position of the companies and of the effect on other creditors of the disposition
of property of the companies to the Banks, that is to say, the subtraction of that
property from the property able to provide funds for rateable distribution to
creditors in liquidations of the companies. The outcome of the foregoing
conduct, namely, the hindering, delay or defeat of creditors other than the Banks
could be said to be so obvious that the intent to bring about that consequence
could be inferred as an actual intent of disponor members of the Bell group.
548 However, in this case, there was direct evidence of that intent which made it
unnecessary to rely upon such an inference.
549 As noted earlier in these reasons, at the time the Transactions were being
negotiated in December 1989, SCBAL had served notices on BGF, and upon
TBGL as Guarantor, which demanded repayment of moneys advanced to BGF
by SCBAL.
550 TBGL and BGF were unable to pay that debt. By correspondence and
discussions with SCBAL, and its parent SCB, TBGL and BGF sought to have
SCBAL withdraw the notices and to have SCBAL agree to the Transactions
then being negotiated with the Banks completed. That communication made it
clear that unless the notices were withdrawn, SCBALs action would cause all
lenders, including the Bondholders, to require immediate payment of moneys
payable to them and liquidation of TBGL, BGF and the Bell group would
follow.
551 His Honour, at [7100], accepted that Aspinall, who conducted the
communication with SCB and SCBAL, had stated to SCBAL that it was
possible in such a liquidation that the Banks as creditors might rank equally
with the Bondholders.
106 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

552 His Honour did not find that this claim represented Aspinalls belief but said
the statement was made as a lever to win ground in a commercial negotiation.
In other words, the representation that the Banks risked ranking equally with
Bondholders in a liquidation was an attempt by Aspinall to have SCBAL agree
not to act on its notices of demand and allow the disposition of property to the
Banks as offered by the Bell group to proceed. The claim that the Banks would
rank equally with Bondholders in a liquidation was, of course, a colloquial
description of the risk. The actual risk was that the claims of BGNV as lender to
TBGL and BGF would rank equally with claims of the Banks in a liquidation of
those companies and that a distribution to BGNV in those liquidations would, in
the absence of claims of other creditors of BGNV with priority over the claims
of the Bondholders, provide funds able to be distributed by BGNV to the
Bondholders.
553 At that time the sum of the loans BGNV had made to TBGL and BGF was
approximately $400 million which exceeded substantially the amount advanced
by the Banks to the Bell group, in round terms $260 million.
554 His Honour, at [7110], found that Aspinalls tactic succeeded and that, after
preliminary advice from solicitors which confirmed the risk, SCBAL
withdrew its demand. His Honour also found, at [7112], that the possibility
that the bonds might not be effectively subordinated became common
knowledge amongst the Banks thereafter. By that statement his Honour may be
taken to mean that the Banks were aware of the possibility that the on-loans
from BGNV to TBGL and BGF may not have been subordinated. Indeed the
lead Banks, Westpac and Lloyds Bank, saw a clear risk that the on-loans were
not subordinated and that BGNVs claims would rank equally with the Banks:
see [7110]-[7183].
555 His Honour then found, at [9723], that the claim by Aspinall that it was
possible that the Banks ranked equally with Bondholders frightened the
Banks and caused them to seek completion of the Transactions. The
Transactions, of course, had the purpose and effect of subordinating the claims
of all other creditors of the Bell group to the claims of the Banks and delivering
title in, or charges over, the assets of the Bell group.
556 The foregoing evidence, and his Honours findings, therefore, provided a firm
foundation for a conclusion that a real or actual intent at the time the Bell group
disposed of property to the Banks when unable to pay debts, was, by execution
of the Transactions, to remove the right of all other creditors (whoever those
creditors may be) to participate in rateable distribution of the assets of the Bell
group so that, in consideration of execution of the Transactions by Bell group
companies, the Banks would refrain from making demands for repayment of
their advances to the Bell group.
557 Such circumstances could be said to have presented an overwhelming case
of intent to defraud: see PT Garuda (at 525) per Wilcox, Gummow, von
Doussa JJ.
558 The Banks submitted that the intent of the directors in acquiescing in the
prejudice imposed on other creditors was based on a belief that ultimately the
prejudice could be dissipated by use of the time provided by the Transactions in
an attempt to effect sales of assets at maximum values thereby increasing the
prospect of return to those creditors.
559 But that contention disregarded the extent of the prejudice imposed and the
fact that the conduct undertaken was directed to removing the particular risk
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 107

that the claims of BGNV in a liquidation of TBGL and BGF would be of equal
rank to those of the Banks. Furthermore, his Honour found, at [6065], that the
directors had no concern for the interests of other creditors, and made no finding
that there was any rational basis on which the directors could have been
satisfied that the participation by those creditors in a distribution of any funds
remaining after satisfaction of claims of the Banks would provide a better return
to those creditors than rateable distribution with the Banks in an orderly and
early liquidation: see World Expo Park Pty Ltd v EFG Australia Ltd (1995) 129
ALR 685 at 698 per Fitzgerald P, Derrington J.
560 Finally, even if it had been shown that the directors acted with such a
concurrent belief or intent that fact could not nullify the disqualifying
consequence of the intent demonstrated by the evidence set out above. This
conclusion is reinforced by authorities considered under the heading Equitable
Fraud later in these reasons.
561 His Honour, at [9151], stated that if he were in error in his construction of the
words with intent to defraud, he doubted that he would have found the
requirements of the ACT legislation satisfied in the case of the BGNV
Subordination Deed because there was:
insufficient evidence that Ruoff, the sole director of Equity Trust knew or
believed that on-loans were unsubordinated. Nor is there evidence that he
appreciated the BGNV Subordination Deed was changing the status of the
indebtedness. The inference that BGNV had the necessary intent to defraud would
therefore arise solely from the natural and probable consequences of the
transaction. If, as I have found, the on-loans were, in fact, subordinated, it would
be difficult to draw such an inference.

562 It can be seen that his Honours finding that the loans from BGNV to TBGL
and BGF were subordinated affected his Honours conclusion as to Ruoffs state
of mind. In particular, his Honour, at [6028], stated that for a finding to be made
that Ruoff suspected, or ought to have known, that the loans were not
subordinated would be a finding that Ruoff held a state of mind contrary to
facts. In fact Ruoff, who, as the sole director of Equity Trust, was, in effect, the
sole director of BGNV, at no time expressed any knowledge or understanding of
the existence of a term of subordination in the BGNV on-loans.
563 By a letter transmitted by facsimile on 22 December 1989 [TBGL.04991.120]
a TBGL legal officer finance (Tagliaferri) informed Ruoff that there was
doubt between the Banks and TBGL as to whether BGNVs right to recover its
loans to TBGL and BGF had been subordinated and asked Ruoff to check
whether the terms and conditions of the loans had been recorded. It appears
there was no response to that communication. That caused his Honour,
at [5973], to doubt that it had been received and his Honour stated that it had
been directed to an incorrect fax number. As counsel for BGNV pointed out
on the hearing of the appeal (appeal ts 2914), that conclusion was not available
on the face of the documents. Although the facsimile transmission report
[TBGL.04991.118] did not record the number to which the document had been
sent the cover sheet [TBGL.04991.119] did show the correct number at the time
of transmission and the transmission report did not record that transmission of
the document had failed. Furthermore, there was evidence that confirmed that
Ruoff received facsimiles on that number until 24 January 1990
108 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

[TBGL.04991.114; TBGL.08041.143]. Counsel for BGNV also pointed to


Equity Trusts letterhead which, as at 28 December 1989, listed the number in
its contact details [TBGL.08041.207].
564 By letter dated 24 January 1990 from TBGL (Simpson) to BGNV
[TBGL.04991.115], Ruoff was informed that:
The Directors of [TBGL] have arranged a re-financing of the existing Bell Group
of companies debt. The lenders to the facility have requested that all companies in
The Bell Group enter into a Subordination Agreement whereby all inter-company
debt is subordinated to that of the lenders.
The subordination will be on the basis that none of the inter-company debt may
be repaid and no interest may be paid on it (although interest may be accrued on
it) until the whole of the debt to the lenders is repaid.
We would be grateful for your advice, as a matter of urgency, as to whether or
not [BGNV] would be able to enter into such an agreement.
565 It appears that a handwritten draft of this letter was submitted by Simpson to
Sly & Weigall for approval before it was sent to BGNV and that the fax number
intended to be used for transmission to BGNV was the number used by
Tagliaferri on 22 December 1989 [TBGL.04991.116; TBGL.04991.117].
566 Despite that advice from Simpson that under the refinancing arrangement
no interest would be paid to BGNV, Ruoff replied on 26 January 1990 that there
was no objection in principle to BGNV becoming a party to an arrangement
subordinating recovery of inter-company loans but he required a draft of the
proposed document to put to Netherlands Antilles solicitors for advice
[TBGL.08010.059]. It is to be noted that there was no suggestion in this
exchange of correspondence that BGNV had already subordinated its rights of
recovery of loans to TBGL and BGF to other creditors of TBGL and BGF.
567 On 11 April 1990 Simpson forwarded a copy of the PSD that had been
executed on 15 February 1990 by 66 Bell group companies as Subordinated
Creditors, 25 of which also executed the PSD as Security Providers. The
BGNV Subordination Deed subsequently presented to BGNV for execution
repeated the substantive provisions of the PSD. The recitals to the PSD
disclosed that implementation of the refinancing arrangement had not been
subject to satisfaction of conditions precedent other than those required to be
met to fix the Operative Date. According to the terms of the BGNV
Subordination Deed, the Operative Date was 1 February 1990. Therefore,
when execution of the PSD occurred on 15 February 1990, the refinancing
arrangement was already on foot. There was no requirement expressed in any
document provided to Ruoff that BGNV had to agree to subordinate its rights as
a creditor for the refinancing arrangement to be continued by the Banks.
568 His Honour, at [5980], noted that the copy PSD provided to Ruoff showed
that it had been executed by all relevant parties on 15 February 1990, but then
his Honour went on to state, Only BGNV was left to sign. It is not clear what
understanding his Honour had in making that comment. The PSD did not
include BGNV as a party as a Subordinated Creditor nor was the PSD
conditioned upon execution of a like instrument by BGNV.
569 The PSD subordinated the claims of all Subordinated Creditors as creditors
of the Security Providers to the claims of the Banks. The object of the PSD
was to prevent funds moving from Security Providers to Subordinated
Creditors and thus diminishing the capacity of Security Providers to meet the
terms of the Guarantees and Indemnities they had provided to the Banks. As
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 109

noted above all Security Providers (which included TBGL and BGF) were
also Subordinated Creditors and the terms of the PSD effectively prevented
TBGL or BGF obtaining funds to be able to discharge their indebtedness to
BGNV.
570 The terms of the letter dated 24 January 1990 received from Simpson would
have alerted Ruoff to the fact that BGNV faced default under the terms of the
Bonds it had issued in May 1987 and July 1987 if it did not receive the interest
payable on the loans BGNV had made to TBGL and BGF to enable it to meet
the interest on those Bonds due in May 1990 and July 1990. Simpsons letter
informed Ruoff that there could be no payments of interest to BGNV until the
whole of the debt due to the Banks had been discharged. The question Ruoff
had to ask immediately in response to that letter was whether TBGL and BGF
were able to pay the debt due to the Banks and pay interest to BGNV to allow
it to meet the interest payable to Bondholders in May 1990 and July 1990.
571 Subordination of BGNVs right to recover loans from TBGL and BGF could
not have been considered by Ruoff until that question had been answered. Ruoff
did not make that inquiry.
572 The Banks, under strong pressure from TBGL, but as his Honour held,
at [6983], principally in protection of their own interests, released funds from
moneys distributable to the Banks to allow payment of the interest due from
BGNV to Bondholders on 7 May 1990. The payment to Bondholders was made
on 11 May 1990 within a seven day period of grace (at [530]).
573 On 1 June 1990 Ruoffs legal advisor in Curacao wrote to TBGL (Simpson)
stating his understanding that if BGNV did not cooperate with the
subordination of the inter-company debts the Banks may execute the assets
and securities held by [TBGL] [sic] and render the loans made by BGNV
worthless. The letter sought confirmation that execution of the BGNV
Subordination Deed would therefore be an act to preserve the value of the
assets of [BGNV] and not ultra vires [BGNVs] purpose.
574 On 22 June 1990, Simpson replied to Ruoffs legal advisor that he did not
totally understand [the] comment in relation to the cooperation with the
subordination of the inter-company debts. Simpson stated that the
subordination demanded by the Banks had been completed and that it was up to
the director of BGNV to decide whether the additional subordination requested
by the Banks was to be provided by BGNV. Simpson advised Ruoffs legal
advisor that TBGL had required the Banks to accept that although TBGL would
use its best endeavours to obtain execution of a subordination deed by BGNV, it
was up to the director of BGNV to decide whether BGNV would do so.
575 His Honour, at [5993], stated that [he did] not understand why Simpson did
not properly answer the question posed.
576 With respect to his Honour the response by Simpson had pointed out that
failure of BGNV to execute the BGNV Subordination Deed would not provide
cause under the refinancing arrangements for Banks to execute upon the
securities they had obtained. Furthermore, it was implicit in Simpsons reply
that TBGL could not confirm that execution of the BGNV Subordination Deed
was an act to preserve the value of the assets of BGNV or an act not ultra vires
[BGNVs] purpose. Simpson made it clear that whether BGNV executed the
deed was a matter on which the director of BGNV had to be satisfied that it
[was] legally able to do so.
110 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

577 Ruoffs legal advisor did not ask Simpson for any additional information
upon receipt of that letter.
578 On 14 July 1990 payment of interest was credited to BGNV and distributed
to Bondholders on the due date from sources other than funds distributable to
the Banks (at [5299]). No payment of interest to Bondholders was made after
execution of the BGNV Subordination Deed on 31 July 1990.
579 Determination of whether there had been intent to defraud had to be based
on an objective examination of facts as they stood at the time of execution of
the BGNV Subordination Deed on 31 July 1990. At that time Ruoff had
received a copy of the solicitors advice provided to TBGL dated 1 June 1990
which stated that whilst TBGL had promised to the Banks to use reasonable
endeavours to have BGNV execute the deed [u]ltimately it is up to [BGNV] as
to whether it will execute the document. The copy of the PSD executed on
15 February 1990 by various Bell group companies would have shown Ruoff
that operation of the PSD was not conditioned upon the grant of subordination
to the Banks by BGNV. Furthermore, Ruoff knew from the terms of the BGNV
Subordination Deed that it would effect extensive subordination to the Banks of
BGNVs interests. There was no evidence that Ruoff had any knowledge or
awareness of a pre-existing form of subordination that placed BGNVs interests
in the loans made to TBGL and BGF behind those of other creditors of TBGL
and BGF.
580 Notwithstanding the foregoing circumstances Ruoff decided to have BGNV
accept the risk of prejudicing the rights of its creditors by executing the BGNV
Subordination Deed.
581 It was not open to his Honour to conclude that there was no evidence that
execution of the BGNV Subordination Deed by BGNV would not change
BGNVs capacity to recover debts payable to it by TBGL and BGF, or would
not prefer the interests of the Banks over the interests of BGNV, or that Ruoff
could hold a rational belief that the terms expressed in the Deed matched
existing circumstances for BGNV. Inference of an intent to defraud by acting to
delay, hinder or defeat creditors of BGNV would not have been difficult to draw
and should have been drawn.
582 In any event, as his Honour stated, at [6049], it would have been all over bar
the shouting had his Honour determined that the on-loans were not
subordinated at the time of execution of the Transaction documents. It follows
that in respect of the conduct of Ruoff his Honour, properly instructed by a
finding that the on-loans were not subordinated, would have found that the
BGNV Subordination Deed was executed by BGNV with intent to defraud
creditors.
Good faith
583 Where his Honour found, at [9723], that the Banks were frightened by the
possibility that the bonds might not be effectively subordinated and that that
circumstance made them determined to proceed with the refinancing that, in
effect, amounted to a finding by his Honour that the Banks were determined to
have the Transactions executed to prevent the risk of rateable distribution
between the Banks claims and the claims of BGNV in a liquidation of TBGL
or BGF. That finding disclosed that in entering the Transactions the Banks
accepted that they would refrain from taking any step based on the Bell groups
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 111

inability to pay its debts and would participate in the hindering, delaying or
defeating of other creditors that would be effected by the execution of the
Transactions.
584 The existence of that purpose denied the prospect of any finding under
s 121(1) of the Bankruptcy Act, s 89 of the Property Law Act, or the ACT
legislation that the Banks acted in good faith when dispositions or alienations of
property were made in their favour by the Bell Participants.
585 His Honour made no finding on whether the Banks had acted in good faith
for the purposes of those statutory provisions.
586 His Honour did find for the purposes of s 120 of the Bankruptcy Act that the
Banks did not act in good faith. It may be assumed that his Honour would have
so found for the purposes of s 121 and the analogous statutory provisions if he
had considered himself required to do so. It is unnecessary to determine
whether, or the extent to which, the requirements for the establishment of good
faith under ss 120 and 121 of the Bankruptcy Act correspond: see Wansley v
Edwards (1996) 68 FCR 555 at 563 per Olney, Whitlam, Sundberg JJ; cf PT
Garuda (at 528) per Wilcox, Gummow, von Doussa JJ; World Expo Park
(at 703) per Fitzgerald P, Derrington J; Offcial Trustee in Bankruptcy v Mitchell
(1992) 38 FCR 364 at 371-372 per Burchett, French, Einfeld JJ.
587 In the instant case, the facts that satisfied his Honour that the Banks had not
acted in good faith as required by s 120, namely, knowledge of the inability of
the Bell group debtor companies to pay their debts to the Banks and that
execution of the Transactions prejudiced all other creditors, present or future, of
Bell group companies, necessarily established absence of good faith for the
purposes of s 121 and the other statutory provisions, that is to say that the
Banks had notice of the intent of the Bell group companies to hinder, delay or
defeat other creditors by execution of the Transactions.
588 Therefore, the respondents cross-appeal [APPR.000.021, ground 123;
APPB.000.005, ground 31] seeking a finding of lack of good faith on the part of
the Banks should be upheld. The Banks filed no notice of contention in respect
of his Honours treatment of this issue.
Valuable consideration
589 His Honour, at [9182]-[9186], was satisfied that a similar concept of valuable
consideration applied wherever that term was used in ss 120 and 121 of the
Bankruptcy Act and in s 89(3) of the Property Law Act. The ACT legislation
referred to good consideration rather than valuable consideration. His
Honour found, at [9183], that valuable consideration as understood in the
Bankruptcy Act and Property Law Act provisions remained an essential element
of the ACT legislation. That finding was not contested on the appeal.
590 His Honour, at [9214], found that the Banks had established that they had
provided valuable consideration in the Transactions. The cross-appeals of the
respondents and BGNV challenge that finding.
591 The claimed valuable consideration for the security and other benefits
provided to the Banks by the Transactions was said to be the extension of time
provided by the Banks to the Bell group debtor companies. His Honours
finding, at [9214], read as follows:
[T]here was valuable consideration, within the terms of the statute, provided by
the [B]anks. The Australian [B]anks converted an on-demand facility to a fixed
one; and the Lloyds [B]ank [S]yndicate enlarged the time for repayment of its
112 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

facilities. They were the terms of the agreements. The plaintiffs say in their
submissions that this extension of time was not in the nature of valuable
consideration because the Bell group companies fell into default immediately
following the implementation of the Transactions. That the situation developed in
that way was certainly true but it does not detract from the fact that there was a
grant of an extension of time by the [B]anks.
592 The principal thrust of the respondents submissions on their cross-appeal
[APPR.000.021, grounds 121 and 122] was that numerous findings made by his
Honour in the course of his reasons were to the effect that if there had been
provision of any consideration by the Banks it was no more than nominal,
trivial or colourable and it was submitted that those findings denied the ultimate
finding made by his Honour that valuable consideration had been supplied.
593 The Transactions viewed as a whole constituted the provision of security and
other benefits to the Banks by members of the Bell group in respect of advances
made by the Banks to BGF and BGUK as borrowers, such advances being
guaranteed by TBGL and the advances to be used as working capital for the
businesses of the Bell group.
594 In their component parts, however, the Transactions involved provision of
securities to the Banks over the assets of various companies which were not
debtors to the Banks, thereby prejudicing creditors of those companies.
595 Underlying the formation of the Transactions and Scheme was the awareness
of the Banks of the parlous financial position of the debtor members of the Bell
group, namely, TBGL, BGF and BGUK.
596 The claimed valuable consideration for the security and other benefits
provided to the Banks by the Transactions was said to be the extension of time
provided by the Banks by converting the at call facility provided by the
Australian Banks to TBGL and BGF and the facility payable on 19 May 1991
provided to BGF and BGUK by the Lloyds Syndicate Banks to facilities
payable on 31 May 1991.
597 For valuable consideration to justify a disposition of property made with
intent to defraud creditors it is necessary not only that the consideration be more
than nominal, trivial or colourable, but also have real and substantial value in all
the circumstances (Barton v Offcial Receiver (1986) 161 CLR 75).
598 Forbearance to sue by a creditor in return for provision of security may be
sufficient consideration for the disposition to the creditor of that security (see
Wigan v English & Scottish Law Life Assurance Association [1909] 1 Ch 291
at 303; Re Abbott [1983] Ch 45), but all relevant circumstances must be taken
into account before the worth of that consideration can be evaluated,
particularly where the consideration consists of such an intangible item as the
provision of time.
599 A review of all relevant circumstances in this matter shows absence of any
real worth or value in the claimed consideration said to have been provided by
the Banks.
600 The Scheme, as accepted by his Honour, was the means by which the Banks
obtained security over assets of 23 companies other than the debtor companies
and the means by which various covenants and undertakings were provided by
debtor and non-debtor companies to advance the Banks interests by
subordination of all inter-company claims of the 66 companies named as
Subordinated Creditors in the PSD Transaction.
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 113

601 In fact, the degree of control of management of the affairs of the Bell group
companies provided to the Banks by the interlocking Transactions of the
Scheme constituted, as his Honour found, at [6063], an informal administration
or work-out of the companies of the Bell group under the supervision of the
Banks. The extension of time was not intended to permit the debtors to have
freedom to conduct their affairs as going concerns with the object of
maintaining or improving solvency, but to provide time for the Banks to utilise
the provisions of the Scheme to have the assets of the companies liquidated and
all funds therefrom remitted to the Banks and applied to the elimination of the
Bell group indebtedness to the Banks. No access to replacement loans was
contemplated or provided under the terms of the Scheme by which the Bell
group could be assisted in maintaining or expanding its businesses. The
Transactions were executed with knowledge of the insolvency, or practical
insolvency, of the debtor companies. Notwithstanding the recital to the PSD
which stated that there were no outstanding demands by Australian Banks for
the payment of Australian Bank loans, there was awareness by the Banks that
demand for such payment had been made by an Australian Bank (SCBAL) on
BGF and TBGL within the two months prior to the execution of the PSD and
that BGF and TBGL had defaulted on that demand.
602 All of the foregoing pointed to the extension of time for payment of the loans
not being an accommodation able to be utilised by the Bell group to strengthen
its position as a going concern but for the Banks to have a sufficient period in
which to see the securities granted in the foregoing circumstances hardened
and their position as secured creditors strengthened. For that security to
harden it was important that demands not be made that would lead to the
liquidation of Bell group companies. The time said to constitute the
consideration provided by the Banks was the period anticipated by the Banks as
appropriate to allow for completing an informal administration under which the
debts due to the Banks would be recovered from orderly sale of assets of the
Bell group conducted by TBGL officers for the benefit of the Banks under the
terms of the Scheme.
603 An extension of time for that purpose to avoid liquidation of the Bell group in
circumstances of insolvency could not be regarded as true or valuable
consideration justifying the disposition of property that would otherwise have
been available for rateable distribution to creditors.
604 There had to be practical benefit to the Bell group companies executing the
Transactions and some practical detriment moving from the Banks before mere
extension of the period of a finance facility could be regarded as valuable
consideration sufficient to meet the requirements of the respective statutory
provisions and the purpose of the respective statutes: see World Expo Park
(at 701) per Fitzgerald P, Derrington J.
605 The absence of the required character of valuable consideration was well
described in the following findings made by his Honour.
606 At [9214] his Honour accepted that Bell group companies were in default of
the refinancing facility immediately following implementation of the
Transactions.
607 As his Honour found, at [1673], on execution of the Transactions TBGL had
neither the right nor the expectation to obtain access to proceeds of sale of the
assets of the Bell Participants to meet the debts of those companies as they fell
due and, at [4314] and [4335], control over any attempt at restructure of the
114 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

affairs of Bell group companies had been transferred from TBGL to the Banks.
As his Honour stated, at [8672], time was afforded in a technical sense but at
the expense of control over a vital component of [TBGLs] ability to carry on as
a going concern. His Honour, at [4309], rejected the contention of the Banks
that the Transactions provided the Bell group with time to implement a
restructure. His Honour described that argument as, at best, nebulous and then
stated:
Real control over vital elements of the capacity to devise and implement a
restructure were ceded to the [B]anks. The companies were placed in a position
where they were immediately at the mercy of the [B]anks and unable, without the
consent of the [B]anks (all of them, not just a majority), to meet their known
commitments. The commitments I have in mind are the costs and fees of the
refinancing, the interest due to the [B]anks at the end of February 1990 and each
following month and the bondholder interest due in May 1990. Unless they could
satisfy their immediate obligations any restructure plans would be academic.
608 The cross-appeals of the respondents and BGNV seeking the setting aside of
his Honours finding that valuable consideration had been established should be
upheld.
Dispositions by way of settlement
Corporations Act, s 565
(Bankruptcy Act, s 120)
609 Transactions made by TBGL, BGF, Bell Publishing Group Pty Ltd (BPG)
and Wigmores Tractors were challenged by the respondents at trial as
settlements of property that would have contravened s 120 of the Bankruptcy
Act if that legislation had been applicable.
610 Section 120 read as follows in relevant respects:
(1) A settlement of property, whether made before or after the commencement
of this Act, not being:
(a) a settlement made before and in consideration of marriage, or
made in favour of a purchaser or encumbrancer in good faith and
for valuable consideration; or
(b) a settlement made on or for the spouse or children of the settlor of
property that has accrued to the settlor after marriage in right of
the spouse of the settlor;
is, if the settlor becomes a bankrupt and the settlement came into operation
after, or within 2 years before, the commencement of the bankruptcy, void
as against the trustee in the bankruptcy.
(2) A settlement of property, whether made before or after the commencement
of this Act, not being a settlement referred to in paragraph (1)(a) or (b) or
a settlement that is void as against the trustee by reason of the operation of
that subsection is, if the settlor becomes a bankrupt and the settlement
came into operation after, or within 5 years before, the commencement of
the bankruptcy, void as against the trustee in the bankruptcy, unless the
parties claiming under the settlement prove:
(a) that the settlor was, at the time of making the settlement, able to
pay all his debts without the aid of the property comprised in the
settlement; and
(b) that the settlors interest in the property passed to the trustee of the
settlement or to the donee under the settlement on its execution.

44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 115

(8) In this section, settlement of property includes any disposition of


property.
611 At relevant times, s 5 of the Bankruptcy Act stated that:
property means real or personal property of every description, whether situate in
Australia or elsewhere, and includes any estate, interest or profit, whether present
or future, vested or contingent, arising out of or incident to any such real or
personal property.

612 The Transactions made by TBGL and BPG were attacked under the terms of
s 120(1) of the Bankruptcy Act, the winding-up orders having been made in
respect of those companies within two years of the date of the Transactions. The
Transactions made by BGF and Wigmores Tractors were challenged under the
terms of s 120(2) of the Bankruptcy Act. Those companies were subject to
winding-up orders made more than two years but less than five years after the
dates of the Transactions (at [9156]). Presumably, the dates of those
Transactions were also more than two years before the respective dates of filing
of the applications for winding-up (Corporations Act, s 9 relation-back day,
s 565(3)).
Settlement of property
613 A settlement of property for the purposes of s 120 of the Bankruptcy Act is a
dealing with property with the intent that some form of interest in the property
be retained for the settlor or an intent that, with the interests of the settlor in
mind, the recipient of the property retain the property in substance, although
empowered to deal with it: see Re Tankard; Ex parte Offcial Receiver [1899] 2
QB 57; Re Plummer [1900] 2 QB 790; Re Branson; Ex parte Moore [1914] 3
KB 1086; Williams v Lloyd (at 375) per Dixon J.
614 Under s 120(8) a settlement of property may include any disposition of
property and the meaning of disposition of property for the purposes of that
subsection may be taken to be at least as wide as the meaning ascribed to that
term in s 121.
615 The object of s 120 is to prevent the assets of a party facing insolvency being
put beyond the reach of creditors by a means that still retains for the debtor
some interest or expectation in respect of the property.
616 The existence of a settlement of property, therefore, may depend upon
elements of intent and understanding not apparent on the face of the dealing: see
Barton v Offcial Receiver (at 78).
Relevant transactions
617 His Honours findings that the challenged Transactions were settlements of
property for the purposes of s 120 are subject to appeal by the Banks in respect
of the Transactions dealt with below.
a) Share mortgages executed by TBGL as trustee and authorisations executed
by beneficial owners
618 The relevant facts were recorded by his Honour at [462]-[470] and his
Honours findings appear at [9197]-[9201].
619 Share mortgages were executed as part of the provision of security to the
Banks in the Transactions. Some of those share mortgages related to the Bell
116 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

group shareholding in BRL. The share mortgages applied to 216,727,342 fully


paid ordinary BRL shares and 23,141,272 convertible preference BRL shares, a
total of 239,868,614 shares.
620 TBGL was registered as the holder of 218,568,188 BRL shares but pursuant
to Declarations of Trust dated 30 June 1989 they were held by TBGL as trustee
for the beneficial owners Dolfinne, Industrial Securities, Neoma and Maranoa
Transport.
621 Two of the four beneficial owners, Industrial Securities and Neoma, were
participants in the Transactions in that they undertook obligations to the Banks
as Security Providers and had executed instruments of Guarantee and
Indemnity in favour of the Banks, a circumstance stipulated as a condition
precedent to the operation of the Facility Agreements. The other beneficial
owners, Dolfinne and Maranoa Transport, were not Security Providers and had
undertaken no liabilities to the Banks.
622 It is to be noted that the BRL shares held by TBGL on trust for Dolfinne and
Maranoa Transport amounted to 190,638,707 of the 239,868,614 BRL shares
mortgaged.
623 On 1 February 1990 TBGL executed a share mortgage prepared by, and in
favour of, the Banks.
624 On 1 February 1990 the beneficial owners executed documents prepared by
the Banks described as an Authorisation and Direction and Confirmation (the
authorities) in which the beneficial owner stated that it confirmed that TBGL as
mortgagor had been authorised and directed to grant and execute the mortgage
dated 1 February 1990 over the property the subject of that mortgage.
625 The mortgage executed by TBGL on 1 February 1990 did not include the
23,141,272 convertible preference shares beneficially owned by Dolfinne.
Another share mortgage was executed by TBGL on 29 March 1990 in respect of
that shareholding. No Authority and Direction and Confirmation was
executed by Dolfinne in respect of that mortgage.
626 His Honour found the foregoing provision of security by TBGL to be
settlements of property contrary to s 120 of the Bankruptcy Act and made orders
setting aside the relevant Transactions, namely, the foregoing authorities and the
share mortgages.
627 In their appeal the Banks challenged those findings [APPA.000.007, grounds
131-133].
628 The Banks submitted that any settlement of property effected by the
authorities and share mortgages had been a settlement of property of the
beneficial owners and not of TBGL and that, furthermore, the winding-up of the
beneficial owners had not commenced until five years after the date of the
Transactions, so those Transactions could not be challenged by liquidators of
those companies.
629 At the time of execution of the Transactions, on 1 February 1990, the Banks
were aware that TBGL held the BRL shares as trustee for disclosed beneficial
owners. The documentation prepared by the Banks was drawn to effect a
transfer to the Banks, as mortgagee, of the whole of the legal and beneficial
interest in the shares with a right to redeem that interest exercisable by TBGL.
The share mortgages stated that TBGL as the legal and beneficial owner of the
shares, mortgaged, charged and assigned to the Banks all the estate, right, title,
and interest whatsoever of [TBGL] into and out of the Shares. TBGL bound
itself by the terms of the mortgage to deposit with the Banks all certificates and
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 117

other documents of title or evidence of ownership in relation to the Shares and


covenanted to the Banks to execute and deliver to the Banks concurrently with
execution of the mortgage executed share transfer forms to enable the Banks to
be registered as the owner or otherwise obtain a legal title to the Shares and
undertook if requested by the Banks to procure registration of the Banks as
transferee on the register of members of BRL.
630 The Banks, through their agent Westpac, became registered on the BRL share
register as owners of the shares on or about 28 August 1990 (at [9597]).
631 In due course the Banks exercised the title they acquired as mortgagee by
executing the rights provided by the mortgage, selling the shares and conveying
as transferor full title to the purchasers. Of the $59.8 million obtained by the
Banks from the sale of the BRL shares $47.6 million was provided by the shares
previously held on trust by TBGL for Dolfinne and Maranoa Transport
(at [9598]).
632 The details set out above show that the Banks were satisfied that confirmation
of the execution of the mortgage in the foregoing terms amounted to a vesting
by the beneficial owners in TBGL of their beneficial interests in the shares for
the purpose of TBGL charging or assigning the full title to the Banks to better
secure performance of the obligations of TBGL in respect of the discharge of
Bell group indebtedness to the Banks.
633 As far as the Banks were concerned control of the beneficial interests in the
shares was ceded by the beneficial owners to TBGL and full title charged and
assigned by TBGL to the Banks. A right of redemption remained with TBGL
but, unless and until that right was able to be exercised, the Banks had received
from TBGL the right to convey beneficial interest and title in the shares.
634 Unless the Banks were able to contend that the authorities the Banks had
presented to Dolfinne and Maranoa Transport for execution delivered the
beneficial interest in the shares to TBGL to enable TBGL to mortgage the shares
in its own right and convey the entire interest therein to the Banks, the Banks
may have faced a claim by the liquidators of those companies that the Banks
had participated in a breach of trust by TBGL as trustee in respect of disposal of
the beneficial interests of Dolfinne and Maranoa Transport. TBGL could be said
to have committed a breach of trust by purporting to deal with the interests of
those beneficial owners by volunteering a conveyance of that interest to the
Banks, those beneficial owners having no obligation to provide that interest to
the Banks. In other words TBGL, to the knowledge of the Banks, would have
made a disposition of that property for an ulterior purpose and contrary to its
trust obligations.
635 Furthermore, as noted above no authority was executed by Dolfinne in
respect of the preference shares the subject of the share mortgage executed by
TBGL on 29 March 1990. For the reasons set out above, the liquidator of
Dolfinne may have argued that the Banks obtained no more than a voidable title
to the shares under that mortgage until the Banks disposed of their interest to a
bona fide purchaser for value without notice. The liquidator may then have
argued that the Banks remained liable to account to the liquidator for their
knowing participation in a breach of trust by TBGL. As noted above the Banks
prepared the authorities and presented them for execution by the beneficial
owners and return to the Banks as part of the Transaction documents. The
118 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

Banks, therefore, were well aware of the need for TBGL to obtain such
authority before TBGL could purport to convey to the Banks the legal and
beneficial interest in shares beneficially owned by Dolfinne.
636 Insofar as his Honour expressed a view at [9200] consistent with the above
analysis, he did not err. Notwithstanding that his Honours argument was not
assisted by the example postulated in [9200], his Honour correctly stated the
relevant principle, namely, that the interdependent operation of the Transactions
constituted a disposition of property that infringed s 120 of the Bankruptcy Act.
637 Although the following authorities relied upon by the respondents (Caddy v
McInnes (1995) 58 FCR 570; Offcial Trustee in Bankruptcy v Baker [1994]
FCA 530; Donnelly v McIntyre [1999] FCA 450) all concerned a disposition of
property to which the bankrupt had always been entitled at relevant times, the
principle underlying those decisions has equal application to the facts of this
case where settlement of property was effected by interdependent acts which
together resulted in the obtaining and disposition of property by an entity
subsequently placed in liquidation.
638 The relevant grounds of appeal (131-133), therefore, fail.
639 In their amended submissions in response to the appellants amended grounds
of appeal [APPR.000.043 at 1998-2000], the respondents claim that TBGL was
both trustee and equitable lienee of the BRL shares held by it on behalf of
Dolfinne and Maranoa. The respondents did not raise this argument in their
notice of contention nor did Owen J consider that argument in his reasons. The
issue can be dealt with quite shortly. There was no suggestion in any material
that TBGL was purporting to exercise, or evidence capable of establishing the
existence of, such a lien. The contention cannot be sustained and must be
dismissed.
b) PSD
640 As noted earlier the PSD [TBGL.00002.013] was executed by 66 Bell group
companies as Subordinated Creditors, 25 of which also executed the PSD as
Security Providers.
641 His Honour, at [9202]-[9203], found that the PSD consisted of a disposition
of property to which the terms of s 120 of the Bankruptcy Act applied in that
subordination of a right to recover property diminished, and thereby disposed
of, property of the Subordinated Creditors.
642 The Banks appeal from that finding [APPA.000.007, ground 134] save for the
provisions of the PSD which attached trust obligations to moneys received by
the Subordinated Creditors. The Banks accept that such provisions may
constitute settlements of property for the purpose of s 120 but submit that they
may be severed from the PSD. The relevant clauses of the PSD were cll 2, 3 and
4. They are important and it is necessary to set them out in full:
2. SUBORDINATION
(a) For the consideration expressed in the recitals each party agrees with
each other party that the Subordinated Liabilities and the rights of each
Subordinated Creditor in respect of the Subordinated Liabilities are hereby
subordinated to the Senior Liabilities and to the rights of the Security
Agent and the Finance Parties in respect of the Senior Liabilities, and that
no part of the Subordinated Liabilities is due for payment or capable of
being declared due for payment (other than in respect of a Permitted
Payment) unless:
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 119

(i) the Senior Liabilities are satisfied or repaid in full; or


(ii) in respect of the Subordinated Liabilities of a Security Provider, an
Event occurs in respect of that Security Provider.
(b) Notwithstanding anything contained in Clause 7(a), if any Event occurs in
respect of a Security Provider the Subordinated Liabilities of the relevant
Security Provider are payable immediately.
(c) If an Event occurs in respect of a Security Provider prior to the repayment
or satisfaction in full of the Senior Liabilities, each Subordinated Creditor
agrees, on request from the Security Agent, to:
(i) prove for the whole of the Liabilities due to it by the relevant
Security Provider; and
(ii) immediately send to the Security Agent a copy of its notice of
proof.
(d) A Subordinated Creditor may not prove in competition with the Security
Agent or any Finance Party for the Liabilities due to it by the relevant
Security Provider except following a request from the Security Agent
under Clause 2(c) and in any event shall hold all moneys received in
respect of those Subordinated Liabilities upon trust for the Security Agent
in accordance with Clause 3(a).
(e) Notwithstanding any term of the Subordinated Liabilities, each party
agrees with each other party that until the Senior Liabilities have been paid
or satisfied in full the Subordinated Liabilities are not repayable other than
in accordance with this Clause (including in respect of a Permitted
Payment).
3. PAYMENTS
Until the Senior Liabilities have been paid or satisfied in full:
(a) if any payment or distribution or security or the benefit or proceeds thereof
are received by a Subordinated Creditor in respect of any Subordinated
Liabilities or any amount is paid to any person in connection with any
Subordinated Liabilities (other than in respect of a Permitted Payment),
that Subordinated Creditor will forthwith deliver the same to the Security
Agent in precisely the form received (except for endorsement or
assignment by the relevant Subordinated Creditor where necessary)
without the need for demand, for application against or retention on
account of the Senior Liabilities, and any moneys so received by the
Security Agent and not applied by it from time to time against or on
account of the Senior Liabilities shall be held by it in a suspense account
bearing interest (which shall accrue and be credited to such account) at a
rate considered by the Security Agent to be a fair market rate. Until so
delivered to the Security Agent, any money or other property received by a
Subordinated Creditor in respect of any Subordinated Liabilities shall be
held in trust by the relevant Subordinated Creditor for the benefit of the
Security Agent. In the event of the failure of the Subordinated Creditor to
make any such endorsement or assignment, the Security Agent or any of
its officers or employees, are hereby irrevocably authorised to make the
same on behalf of that Subordinated Creditor. After the payment in full of
the Senior Liabilities any amount remaining to the credit of such suspense
account shall be paid to the relevant Subordinated Creditor.
(b) If the benefit of any right of set-off or counterclaim accrues to or is
received by a Subordinated Creditor prior to the satisfaction in full of the
Senior Liabilities, (other than in respect of a Permitted Payment), that
Subordinated Creditor will forthwith pay to the Security Agent an amount
equal to the value of the benefit received by that Subordinated Creditor;
and
120 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

(c) no Subordinated Creditor shall exercise any right of contribution,


subrogation, indemnity or other claim whatsoever against the Security
Agent or any other Subordinated Creditor by virtue of any payment made
by it, or sums received or recovered from it in connection with, or
otherwise by reason of its liability under, any guarantee or other
obligations undertaken on its behalf or otherwise.
4. LIQUIDATION
Until the Senior Liabilities have been paid or satisfied in full:
(a) In the event of any distribution, division or application, partial or
complete, voluntary or involuntary, by operation of law or otherwise, of all
or any part of the assets of a Security Provider or the proceeds thereof, to
creditors of that Security Provider, by reason of the occurrence of an Event
in respect of that Security Provider then and in any such event the
Subordinated Liabilities shall be postponed and subordinated to the Senior
Liabilities and any payment or distribution of any kind or character,
whether in cash, securities or other property which shall be payable or
deliverable upon or with respect to the Subordinated Liabilities or any part
thereof shall be held in trust by the relevant Subordinated Creditor for the
benefit of the Security Agent and shall forthwith be paid or delivered
direct to the Security Agent for application against or retention on account
of the Senior Liabilities until the Senior Liabilities shall have first been
fully paid and satisfied. Any moneys paid to the Security Agent and not
applied by it from time to time against or on account of the Senior
Liabilities shall be held by the Security Agent in a suspense account
bearing interest (which shall accrue and be credited to such account) at a
rate considered by the Security Agent to be a fair market rate. After the
payment in full of the Senior Liabilities any amount remaining to the
credit of such suspense account shall be paid to the relevant Subordinated
Creditor.
(b) For the purpose of enabling the Security Agent to enforce this Deed, each
Subordinated Creditor hereby irrevocably authorises and empowers the
Security Agent to demand, sue and prove for, collect and receive every
payment division, distribution or application and give acquittance therefor
and to file claims and take such other proceedings, in the Security Agents
own name or in the name of the relevant Subordinated Creditor or
otherwise, as the Security Agent may deem necessary or advisable for the
enforcement of this Deed and the relevant Subordinated Creditor will
execute and deliver to the Security Agent such powers of attorney, as may
be requested by the Security Agent for all or any of the matters or things
specified above. The liquidator of each Security Provider is authorised to
apply any assets or moneys received by him in accordance with the terms
of this Deed and the subordinations hereby effected.
643 Subordinated Liabilities was defined in cl 1.1 of the PSD (exception
excluded) as the liabilities of each Security Provider to any Subordinated
Creditor.
644 Event was defined in cl 1.1 as the happening of any of the following:
(a) an order is made that a Security Provider be wound up; or
(b) a liquidator or an official manager is appointed in respect of a Security
Provider; or
(c) a provisional liquidator is appointed in respect of a Security Provider and
the provisional liquidator is ordered or required to admit all debts to proof
or pay all debts capable of being admitted to proof proportionally; or
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 121

(d) a Security Provider enters into, or resolves to enter into a scheme of


arrangement or composition with or assignment for the benefit of all of
any class of its creditors; or
(e) a Security Provider resolves to wind itself up or otherwise dissolve itself.
645 The choses in action of the Subordinated Creditors, consisting of their right to
recover debts owing to them by the Security Providers, met the definition of
property. The question his Honour had to resolve was whether the
postponement and payment over provisions diminished the choses in action in
their character as property.
646 The Banks contended that such terms did not comprise a disposition of
property for the purposes of the Bankruptcy Act.
647 An agreement to subordinate the right to recover a debt from a debtor to the
rights of another creditor of the debtor involves an intangible subtraction from,
and diminution of, the property constituted by the chose. On its face, the
postponement was intended to deliver something of value to the superior
creditor of the debtor. At that point the value received may be incapable of
accurate calculation but a transfer of some part of the benefit of the chose in
action has been effected by the agreement.
648 Principally, the intended operation of the subordination is in a circumstance
of insolvency and the effect of subordination of the Subordinated Creditors
claims, and of concomitant prevention of competition in that insolvency with
the claims of the Superior Creditor, is to allow pari passu distribution of the
debtors assets to creditors other than the Subordinated Creditor. The
subordination of a debt, therefore, may constitute the disposition of the entire
value of the debt: see Re NIAA Corporation Ltd (in liq) (1993) 33 NSWLR 344
at 358 per Santow J; Re Maxwell Communications Corporation plc (1993) 11
ACLC 3,149 at 3,160-3,161 per Vinelott J.
649 Accordingly, the diminution in worth of the chose, whether a contingent
event or otherwise, constitutes a disposition and settlement of the property of
the Subordinated Creditor.
650 The payment over provisions, with or without the express attachment of
trust obligations, reinforce the foregoing conclusion.
651 The banks rely upon the consideration of subordination provisions undertaken
in Manning v AIG Europe UK Ltd [2005] 1 BCLC 1 by Lloyd J where his
Honour found that no right in property in the nature of a charge was created by
such provisions. His Honour was not required to consider whether any
disposition of property occurred contrary to statutory provisions relating to
insolvency enacted to protect the position of creditors (at [46]) and made no
finding that the arrangements in that case were incapable of constituting a
disposition of property (at [44]).
652 With regard to the Banks submission that the trust provisions could be
severed from the payment over obligations imposed by the PSD, the relevant
clause of the PSD (cl 21) relied upon for that argument read as follows, under
the heading Severability:
If any provision of this Deed is prohibited or unenforceable in any jurisdiction,
such prohibition or unenforceability shall not invalidate the remaining provisions
in that jurisdiction, nor any of the provisions of this Deed in any other jurisdiction.
653 The clause does not purport to provide for severance of the offending term. It
appears to record an agreement by the parties that neither will contend that such
122 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

prohibition or unenforceability of a term will invalidate any other provisions


of the agreement and that the agreement is to continue unmodified for
presentation in any other jurisdiction.
654 In any event, a disposition of property under the relevant term of the PSD
was effected on execution of the PSD. That disposition, by operation of statute,
became void against the liquidator at the date of commencement of the
winding-up, being the date of the filing of the application. At all times thereafter
the liquidator would hold title to the property the subject of the disposition
unless it were determined that the PSD at execution did not contain the
offending clause and that, therefore, no disposition of property had been effected
by the Deed.
655 The terms of cl 21 do not provide for that result and speak against imposition
of such a consequence by court order or declaration.
656 Furthermore, it is apparent that the trust provisions are not terms that may be
severed without affecting the utility of the remaining contractual provisions.
Even if the unenforceable provisions were restricted to those imposing
obligations of trust, severance of those items would not be sufficient to sterilise
the remaining provisions. For example, even without express provisions
imposing trust obligations, it may be argued that the content of the balance of
relevant clauses is sufficient to revive such obligations in the form of
constructive trust.
657 Furthermore, for the reasons set out below severance of the provisions would
not remove non-compliance of the PSD with s 120 of the Bankruptcy Act.
658 Clauses 3 and 4 in combination appeared to provide at least an equitable
assignment to the Banks of the right of a Subordinated Creditor to recover a
debt due to it by a Security Provider. First, the whole of the amount receivable
by the Subordinated Creditor, whether a debt payable by the Security Provider
or a division or distribution in an insolvency or scheme of arrangement in
respect of the Security Provider, was payable to, or to be held by the
Subordinated Creditor for, the Banks. There was a separate undertaking by the
Banks to pay to the Subordinated Creditor any balance held by the Banks after
the moneys assigned to the Banks had been applied to satisfaction in full of the
Senior Liabilities due to the Banks. Second, under cl 3(a) the Banks were
authorised to make any endorsement or assignment of property receivable by
the Subordinated Creditor in respect of the debt necessary to deliver the same to
the Banks and, under cl 4(b), were authorised to demand, sue and prove for,
collect and receive property receivable by the Subordinated Creditor and, at
their election, to take proceedings in the name of the Banks or in the name of
the Subordinated Creditor.
659 Although cl 4(b) was included under the heading Liquidation it was
expressed as a provision enabling the Banks to enforce the Deed generally and
was not confined to the operation of cl 4(a). Furthermore, it provided the Banks
with power to demand, and sue for, a payment receivable by the Subordinated
Creditor. That was a power appropriate for recovery of the debt due to the
Subordinated Creditor from the Security Provider but not relevant to a
distribution receivable by the Subordinated Creditor from a scheme of
arrangement or liquidation of the Security Provider. Even if the provision were
read down and restricted in application to the rights of a Subordinated Creditor
in a scheme of arrangement or liquidation of a Security Provider it would be an
equitable assignment of those rights and would not be limited to an obligation
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 123

on the Subordinated Creditor to hold for, and pay to, the Banks a distribution
received from that scheme of arrangement or liquidation: see United States
Trust Co of New York v Australia and New Zealand Banking Group Ltd (1995)
37 NSWLR 131 at 144-145 per Sheller JA.
660 The trust provisions in those clauses, therefore, were ancillary to the principal
object of the clauses and severance of those provisions would have had no effect
on the disposition of property otherwise effected by the PSD.
661 The intended operation of cl 2(a), which if confined to its own terms provided
for simple subordination of the right of a Subordinated Creditor to recover a
debt owed to it by a Security Provider, had to be determined by consideration of
the entire context of cl 2 and of the associated provisions of cll 3 and 4. Perusal
of that context reveals that the subordination effected by cl 2(a) was an integral
part of the operation of cll 2 to 4 and was an essential component of the
disposition of property effected thereby.
662 His Honour did not err in his finding that the PSD effected a settlement of
property contrary to the terms of s 120 of the Bankruptcy Act and this ground of
appeal must fail.
c) Guarantee and Indemnity
663 An agreement entitled Guarantee and Indemnity [TBGL.00069.014] (the
Guarantee) was executed by the Security Providers on 1 February 1990. Under
the Guarantee, (cl 2.1), each Security Provider guaranteed to the Banks payment
by the Borrowers of the Secured Liabilities, and, on demand, to make good any
default by a Borrower in regard to such a payment. Further, the Security
Provider indemnified the Banks against loss arising from, inter alia, breaches of
covenant of the Guarantee and Facility Agreements by any person, other than
the Banks, and against any action prosecuted by a Borrower against the Banks
in respect of the Guarantee or the Facility Agreements.
664 Although the Guarantee was expressed to provide security for the whole of
the Secured Liabilities, the liability of a Guarantor was said to be limited to the
gross assets of the Guarantor.
665 The Guarantee (cl 2.2) also provided that the Guarantor indemnified the
Banks against loss suffered if, inter alia, the Secured Liabilities were not
recoverable by the Banks from the Borrower or the Security Provider because
of any transaction relating to the Secured Liabilities being void, voidable or
unenforceable whether or not [the banks] knew or should have known anything
about the transaction.
666 The respondents contended that the Guarantees executed by TBGL, BGF and
BPG were void against the liquidators under s 120 of the Bankruptcy Act. His
Honour, at [9204], upheld that contention.
667 The decision of his Honour appeared to be based on the conclusion of
Demack J in Re Pacific Projects Pty Ltd (unreported, Qld Sup Ct, Demack J, 11
November 1988) that the securing against loss and assumption of liability for
debts amounted to a disposition of a contingent interest in personal property to
be held for the enjoyment of [the creditor] for an indefinite period of time
(at 15).
668 The Banks submitted that the decision of Demack J was wrong and that his
Honour erred in applying it. The argument of the Banks appeared to be confined
to the operation of the instrument as a guarantee. It was submitted that the
124 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

Guarantee did not operate as a settlement of property under s 120 of the


Bankruptcy Act being no more an unsecured contractual promise from which
no interest in the Guarantors property was obtained.
669 A promise by the Guarantor to pay to the Banks moneys payable by a
Borrower on the occurrence of the contingency of the Borrowers default and
the acceptance by the Guarantor of liability to indemnify the Banks for loss
suffered by reason of defaults and actions of the Borrower created, and vested in
the Banks, the enforceable rights of choses in action.
670 Thus, the Guarantee both created property in the form of such choses in
action and disposed of that property to the Banks: see Pacific Brands Sport &
Leisure Pty Ltd v Underworks Pty Ltd (2006) 149 FCR 395 at [39]-[43] per
Finn, Sundberg JJ.
671 This raises the question whether the creation of property in the form of a
chose in action which provides a right to obtain judgment in a money sum
against the Guarantor in respect of debts or sums owed to the recipient of the
chose by a debtor, but does not then alienate the Guarantors interest in any of
its assets, can stand as a settlement of property for the purposes of s 120 of the
Bankruptcy Act.
672 The liabilities undertaken by the Guarantors in the creation and disposition of
the choses thereby introduced to the estate of each Guarantor contingencies that
had the effect of diminishing the worth of the estate of the Guarantor
notwithstanding that the Guarantor retained the assets of the estate. Given the
purpose of s 120 as discussed above, it may be said that the Guarantee came
within a settlement of property contemplated by s 120.
673 It is not necessary that the disposition of the chose in action in such
circumstances be accompanied by a charge or grant of security or that there be
a vesting in the recipient of the chose of an interest in defined assets of the
settlor.
674 Furthermore, and importantly in the circumstances of this case, the choses in
action were provided to the Banks under concurrently executed Transactions
that created a package of proprietary rights designed to have the combined
effect of quarantining for the use of the Banks the estates of the Guarantors: see
Caddy v McInnes (at 582) per Beaumont, Whitlam, Tamberlin JJ.
675 In addition to the foregoing, the Guarantee was more than a bare guarantee.
The Guarantor provided a covenant not to exercise rights of subrogation against
the Banks; not to claim as a creditor in an insolvency of a Borrower or a
Security Provider in competition with the Banks; and, to hold in trust for the
Banks any payment received by the Guarantor from a Borrower or Security
Provider (cl 3.7). Express terms in cl 10 secured performance of the Guarantors
obligations under cl 3.7 by appointment of the Security Agent as attorney for
the Guarantor, the appointment effected by execution of the Guarantee by the
Guarantor.
676 As discussed in the examination of the terms of the PSD above, the effect of
cl 3.7, reinforced by cl 10, was at least a contingent diminution of assets of the
Guarantor and, therefore, a disposition and settlement of property of the
Guarantor for the purposes of s 120.
677 Whilst no submission was made on the severability of cl 3.7 it is necessary to
address the point.
678 Clause 12.8, under the heading Severability, read as follows:
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 125

If any term of this Guarantee is or becomes invalid or unenforceable for any


reason under the law of any jurisdiction or in relation to the Guarantor, such
invalidity or unenforceability shall not effect its validity or enforceability in any
other jurisdiction or invalidate or make unenforceable any other term hereof or the
terms hereof in relation to the Guarantor.
679 Although it did not repeat the words of the Severability clause of the PSD
it expressed the same purpose and similar comments apply, principally, that it
does not purport to sever a term affected by invalidity or to alter the contractual
terms existing between the parties.
680 Clause 12.8 operates to protect the terms of the agreement in two ways. First,
the parties agree that all terms of the agreement continue to be the terms that
bind the Guarantor irrespective of the invalidity or unenforceability of any term.
Second, the parties agree that invalidity or unenforceability of a term will not
invalidate or make unenforceable any other term of the agreement. The reasons
set out above in respect of the analogous provision in the PSD apply here,
namely, that the severability clause does not contemplate modification of the
Guarantee as at the time of execution of the agreement nor the making of a
court order or declaration to that effect.
681 It would follow that a disposition effected upon execution of the Guarantee
that is contrary to s 120 would vest title in the liquidator as at the date of
application for an order for winding-up of the Guarantor.
682 But apart from the limited operation of cl 12.8 the width of the operation of
cl 10 appointing the Security Agent as attorney of the Guarantor presents a
fundamental difficulty for any argument for the severability of cl 3.7.
683 The powers granted to the Security Agent upon appointment as attorney are
significant. In particular, they permit the Banks to obtain what is otherwise
granted by the Guarantor under cl 3.7. That is to say if cl 3.7 were severed
that step would not reduce the control over, and access to, property of the
Guarantor provided by the Guarantee: see News Ltd v Australian Rugby
Football League Ltd (1996) 64 FCR 410 at 582.
684 For example, the Security Agent, instead of exercising a power of the
Security Agent (a power alluded to in cl 3.7(b)) to direct the Guarantor to
exercise a right of set-off or to claim a payment due from any Borrower or
Security Provider and to pay that sum to the Security Agent, has power as
attorney to act in the name of the Guarantor and demand and receive directly, as
agent for the Banks, the benefit of any set-off and any moneys payable to the
Guarantor by a Borrower or Security Provider.
685 It has not been submitted that cl 10 is a severable clause of the Guarantee.
686 To put the issue another way, it could not be submitted that in combination
cll 3.7 and 10 were severable. Such an order would alter fundamentally the
operation of the Guarantee and could not be said to reflect the accord reached
by the parties on formation of the contract. The terms of the Guarantee suggest
that it was agreed at the time of execution of the Guarantee that cl 10 was a
provision of importance in the operation of the agreement. It did not become
severable thereafter by court order at the option of one of the parties exercising
some form of waiver: Whitlock v Brew (1968) 118 CLR 445; New South Wales
v Banabelle Electrical Pty Ltd (2002) 54 NSWLR 503 at [33] per Einstein J.
687 When the Guarantee is read as a whole substantial rights in, or control over,
126 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

property of the Guarantor have been transferred or assigned to the Banks by the
Guarantee, supporting his Honours conclusion that the Guarantee effected a
settlement under s 120 of the Bankruptcy Act.
688 It follows that his Honour did not err in his findings on this issue and the
ground of appeal must be dismissed.
d) Mortgage Debentures floating charges
689 Documents described as Mortgage Debentures (the Debentures) were
executed by BGF and BPG on 1 February 1990. Contemporaneously Notices of
creation of charges were lodged for registration pursuant to the provisions of the
relevant company law. The Notices stated that the charges created were fixed
and floating and that the property charged consisted of all assets, rights and
property of the chargor company as at 1 February 1990 situated in Western
Australia and all future assets wherever situated.
690 His Honour found, at [9210], that the mortgage debentures constituted
settlements of property. The Banks appeal from that finding insofar as his
Honour found that the floating charges of the Debentures were settlements of
property under the terms of s 120 of the Bankruptcy Act. The Banks submitted
that whilst there was some authority capable of supporting his Honours finding,
the weight of authority was to the contrary. The respondents contended that a
floating charge was properly regarded as the creation of an equitable interest in
property and that his Honour had not erred.
691 The Debentures were executed by BGF and BPG as part of their obligation as
nominated Security Providers. The Debentures constituted a significant element
of the security provided to the Banks pursuant to the Transactions.
692 The Debentures stated that they had been provided as security for the
payment of the Secured Liabilities. The Secured Liabilities were, inter alia, the
liabilities incurred by BGF and BPG as Guarantors under the instruments of
Guarantee and Indemnity, which included liability for the indebtedness to the
Banks of the Borrowers, principally BGF and BGUK. BPG was not a Borrower.
693 The security provided consisted of three components in the instrument
executed by BPG and two components in that executed by BGF. The two
common components were a fixed charge and a floating charge. Additionally,
BPG provided a mortgage over shares it held in its subsidiaries.
694 By way of amplification of the description of charged property contained in
the registered Notices it is to be noted that the fixed charge was granted over all
assets that consisted of freehold or leasehold interests in land and buildings and
the proceeds of sale thereof; plant and machinery; goodwill; licences held in
connection with the business of the chargor; uncalled capital; intellectual
property rights; rights under insurance policies; and all accounting records of
the business of the chargor.
695 The floating charge, save for the assets charged by the fixed charge, was in
respect of the whole of the undertaking of the chargor and all present property
assets and rights owned by the chargor in Western Australia and all future assets
wherever situated.
696 The floating charge, therefore, covered debts payable to BGF and BPG by
other Security Providers. But in respect of those debts, as noted earlier, it may
be argued that the PSD, executed by BGF and BPG as Subordinated Creditors
and as Security Providers, effectively assigned to the Banks the debts payable to
BGF and BPG by a Security Provider. If so, then upon execution of the PSD on
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 127

15 February 1990, the terms of the PSD may be said to have fixed the floating
charge in respect of those debts: see Norgard v Deputy Commissioner of
Taxation [1987] WAR 15 at 22-24 per Burt CJ.
697 It is also to be noted that crystallisation of the floating charge as a fixed
charge was not postponed to the appointment of a receiver by the Banks under
the Debenture.
698 The floating charge became a fixed charge automatically and immediately
if an Enforcement Event occurred. The term Enforcement Event was
defined as the making of a declaration by the Security Agent of the Banks that
any part of the Banks loans was due and payable, or the making of a demand
by the Security Agent for the repayment of the loans.
699 Alternatively, if at any time in the reasonable opinion of the Security Agent it
was necessary to protect and preserve the rights held under the Debenture
including the priority of the charge over Mortgaged Property, the Security
Agent could convert the floating charge to a fixed charge in respect of any
assets by delivering notice of the conversion to the chargor. Mortgaged
Property was defined as all assets, rights and property of the chargor the
subject of the Debenture.
700 Under the heading Negative Pledge, cl 4 of the Debenture, in effect, limited
the freedom of the chargor to deal with property the subject of the floating
charge. Only the disposal of stock in trade in the ordinary course of business of
the chargor permitted under the Financing Documents could be carried out
without the consent of the Banks. That is, the Debenture did not reserve a right
in BGF or BPG to carry on business in the ordinary way in respect of all assets
subject to the floating charge. Only the property that consisted of stock in trade
could be dealt with in that manner. In all other respects BGF or BPG, as
chargor, could deal with property that was subject to the security of the floating
charge only with the consent of the Banks first obtained, although that consent
was not to be withheld if the agent of the Banks was satisfied on specified
matters. In short, as discussed earlier in these reasons and as found by his
Honour, upon execution of the Transactions the ability of BGF or BGP to deal
with property under the floating charge was subject to the strict control of the
Banks.
701 It can be seen that in respect of the preponderance of assets and property
subject to the floating charge, the chargors did not have freedom to act and deal
with that property as if no charge existed. This fact had to be taken into account
in determining the true nature of the interest created by the floating charge. As
Wickham J stated in Landall Holdings Ltd v Caratti [1979] WAR 97 at 109, in
discussing the character of the interest created by a floating charge, the nature
of the equitable interest will, of course, depend in particular cases upon the
construction of the deed which creates it.
702 The terms of the Debenture make it apparent that the nature of the equitable
interest created by the Debenture by the grant of the floating charge carried
hallmarks that were consistent with the grant of a fixed charge. The interest
created foreshadowed, without the need for crystallisation, the grant of an
immediate injunction in equity restraining relevant parties if the chargor
attempted to deal with assets that were subject to the floating charge without the
consent of the Banks. The requirement of consent kept all charged assets under
the notice and control of the Banks. That fact, coupled with the power of the
Banks to better secure their interests by converting forthwith the floating charge
128 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

to a fixed charge over any assets, gave the Banks practical control of that
charged property equivalent to that exercised by a fixed charge. The floating
charge was constructed in the Debenture as an active equitable interest and not
as a dormant interest, insofar as the latter expression assists in the description of
a floating charge: see Illingworth v Houldsworth [1904] AC 355 at 358 per
Lord Macnaghten.
703 The particular facts of this case provide compelling reasons to conclude that a
disposition of property in the nature of a settlement of property for the purposes
of s 120 of the Bankruptcy Act occurred on the creation of the floating charge on
execution of the Debentures.
704 The learned disquisition of the relevant law provided by Wickham J in 1978
in Landall Holdings v Caratti (at 107-109) in which a floating charge was held
to create an equitable interest in property was recapitulated in the reasons of
Finkelstein J in Wily v St George Partnership Banking Ltd (1999) 84 FCR 423
at 429-435 and has been supported in recent years by the development of the
opinion of learned authors: see Sykes EI and Walker S, The Law of Securities
(5th ed, Lawbook Co, 1993), p 959; Goode RM, Legal Problems of Credit and
Security (3rd ed, Sweet and Maxwell, 2003), at [4-01]; Gough WJ, Company
Charges (2nd ed, Butterworths Law, 1996), p 354; Tyler T, Young P and
Croft C, Fisher and Lightwoods Law of Mortgage (2nd Aust ed, LexisNexis,
2005), at [8.11].
705 The Banks sought to rely upon Tricontinental Corporation Ltd v Federal
Commissioner of Taxation [1988] 1 Qd R 474 and Lyford v Commonwealth
Bank of Australia (1995) 130 ALR 267 where those cases decided that a floating
charge could not be more than a mere equity until crystallisation created a
proprietary interest. In Lyford Nicholson J relied upon that conclusion to further
determine that a floating security could not give rise to a disposition of
property for the purposes of s 120 of the Bankruptcy Act. It is not necessary to
examine those cases in detail, not only because the preponderant view now is to
the contrary but because the significant facts in this case disclose that a
disposition of property was effected by the interest created by the Debenture and
described therein as a floating charge. As Burt CJ stated in Norgard v DCT
(at 23); the nature of the charge is not finally determined by what the parties
call it. It depends upon the terms of the agreement.
706 It is to be noted that Landall Holdings v Caratti; Norgard v DCT; Evans v
Rival Granite Quarries Ltd [1910] 2 KB 979; Tricontinental v FCT; Clyne v
Deputy Commissioner of Taxation (1981) 150 CLR 1 were all cases in which
the issue for determination was the priority of competing equities.
707 The ranking in equity of a floating charge in a contest of priorities is not an
issue required to be determined for the purposes of s 120 of the Bankruptcy Act
in deciding whether a disposition of property occurred by creation of the
floating charge.
708 In the Debenture the floating charge was an equitable interest in property
capable of controlling the assets without formal crystallisation or conversion of
the charge to a fixed charge. The interest created was not confined to a mere
equity with a prospect of maturity into an equitable interest.
709 An example of how the equitable interest obtained by a chargee under a
floating charge can, prior to crystallisation of the charge, sustain rights in
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 129

equity exercisable by a secured creditor in respect of the charged property is


provided in Re Bartlett Estates Pty Ltd [1989] 2 Qd R 175 at 180-181 per
Dowsett J.
710 It follows from the foregoing that his Honour held correctly that execution of
the Debentures constituted, in all relevant respects, settlements of property for
the purposes of s 120 of the Bankruptcy Act.
Relief on Statutory Claims
711 By their cross-appeal the respondents contend that compensatory orders
could, and should have been, made in respect of the Statutory Claims. His
Honour, at [9219], found it unnecessary to consider the question of what relief
was available on the successful Statutory Claims because of his Honours
conclusion that appropriate relief was embodied within the orders for primary
relief.
712 It may be accepted that it is probably unnecessary to determine the scope of
the equitable relief that would flow from a declaration of invalidity of
Transactions pursuant to the Statutory Claims given that such relief would be
subsumed within the equitable compensation provided if the Barnes v Addy
claims prevail.
713 However, some short comments may be made. Jurisdiction in bankruptcy
commenced as an exclusive equitable jurisdiction (see Meagher RP, Heydon JD
and Leeming MJ, Meagher, Gummow & Lehanes Equity: Doctrines &
Remedies (4th ed, LexisNexis Australia, 2002), at [1-080]). The statutory claims
not only have their genesis in that bankruptcy jurisdiction but are likely to
include conduct over which equity would exercise jurisdiction as a court of
conscience and for which entitlement to relief in equity would follow.
714 The invalidity as against a liquidator of transactions caught by the statutory
claims is the means adopted at law to counteract the engagement in such
practices that prejudice the interests of creditors of insolvent corporations.
Demonstration of such conduct in equity would permit equity to control that
conduct by injunction or orders for remedial constructive trusts and by
appropriate orders to redress harm suffered therefrom: see Fouche v
Superannuation Fund Board (1952) 88 CLR 609 at [337]-[338] per Dixon CJ,
Fullagar J; Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at [48];
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at [253].
715 The principal point of argument on this question was whether the decision of
the High Court in Brady v Stapleton (1952) 88 CLR 322 foreclosed an argument
that personal liability in equity attached a disponee of property of a disponor
with notice that the disponor had alienated that property with the fraudulent
purpose of defeating, delaying or hindering his or her creditors.
716 The relevant facts in Brady v Stapleton involved fraudulent conduct by a
bankrupt carried out to avoid the payment of penalties and income tax. In the
Federal Court of Bankruptcy Clyne J found that the bankrupt, his wife, and
Brady were active participants in a daring and scandalous scheme to swindle
the Commissioner of Taxation by disposition of a large part of the property of
the bankrupt. Clyne J found that none of those dispositions were settlements
caught by the terms of s 94 (precursor to s 120) of the Bankruptcy Act, but did
find that dispositions to Brady, the bankrupts wife, and other individuals had
created trusts in favour of the bankrupt and declarations to that effect were
made. Clyne J found also that dispositions of property of the bankrupt to a
company in which the bankrupt had a substantial shareholding, also the subject
130 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

of a disposition, were alienations made with intent to defraud creditors contrary


to applicable legislation that reproduced the Statute of Elizabeth and made
declarations accordingly. The company was taken to have received the property
of the bankrupt with notice of the fraudulent character of the assignment (at 332
per Dixon CJ, Fullagar J). The property fraudulently alienated consisted of both
realty and personalty and, in two cases, moneys of the bankrupt used by the
company to acquire realty. Save for one item, all property so alienated or
acquired by the company with funds of the bankrupt was sold by the company.
The declaration of fraudulent alienation in respect of property acquired with
moneys of the bankrupt had the effect of following the money of the bankrupt to
the proceeds of sale of that property (at 332 per Dixon CJ, Fullagar J).
717 Clyne J did not order that any of the foregoing dispositions were void and no
orders for consequential relief were made except for the one instance where the
alienated property had not been sold.
718 At the hearing of the appeal in the High Court the appeal against the orders
made by Clyne J was dismissed for want of prosecution.
719 The respondent, as trustee of the bankrupts estate, presented a cross-appeal
and was the only party to make submissions to the court. The respondent
contended that Clyne J erred in failing to make an order that the company pay
to the respondent a sum equal to the proceeds of sale of the properties the
subject of the declarations of fraudulent alienation.
720 Therefore, the claim against the company as presented by the respondent on
the cross-appeal was restricted to a claim at law for an order for repayment of
moneys had and received pursued by the respondent as a claim in personam and
not as a claim to follow or trace the property in question (at 331) per
Dixon CJ, Fullagar J.
721 Dixon CJ and Fullagar J (at 332-333) accepted that whilst a disponee
obtained no better than a voidable title to property disposed of with an intent to
defraud creditors, the disponee was able to convey full title to the property to a
bona fide purchaser without notice, as acknowledged in statutory provisions
such as the Statute of Elizabeth. But, the trustee in the bankruptcy of the
original disponor was entitled in equity to recover from the original disponee
the proceeds of sale of that property where that disponee was a person who had
notice of the fraudulent alienation and where the proceeds of sale remained
identifiable for the purpose of following or tracing. Their Honours cited Re
Mouat; Kingston Cotton Mills Co v Mouat [1899] 1 Ch 831 in support of that
principle. Re Mouat (at 833-835) confirmed the jurisdiction of equity to assist
creditors in the recovery and protection of property alienated by debtors in
transactions that the Statute of Elizabeth made voidable at law and in equity.
Whilst their Honours expressed caution in respect of an alternative order made
in Re Fasey; Ex parte Trustees [1923] 2 Ch 1, namely, that the disponee pay the
value of the alienated property if that property were not handed over, the facts
in that case did not involve resale of the alienated property or loss of identity of
that property. The alternative order for payment of value in lieu of return of the
property would appear to have been clearly available in equity whilst the
property remained in the hands of the disponee and was consistent with the
principles applied in Re Mouat. Fasey was cited with approval, albeit on
another point, in Marcolongo (at 567) per French CJ, Gummow, Crennan,
Bell JJ.
722 However, it had been found by Clyne J and not challenged in the
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 131

cross-appeal, that the proceeds of sale were no longer identifiable and no other
right in personam against the disponee was provided at law or in equity.
723 McTiernan J, in dissent (at 342-343), was satisfied that where the proceeds of
sale could not be traced there remained a right to obtain orders in equity. In his
Honours view the fact that at the outset the respondent trustee had held the
right to an equitable remedy in rem meant that equity would enforce a right in
personam to recover a sum equivalent to the proceeds of sale received by the
disponee as an aid to enforcing an order for moneys had and received
notwithstanding that the actual proceeds of sale were no longer identifiable.
724 No doubt had Clyne J declared that the company had held on trust for the
bankrupt the property it sold, it would have been held that there was no
impediment to granting equitable relief in the form of an order in personam that
the company account for the trust property by accounting for the proceeds of
sale thereof (at 332 per Dixon CJ, Fullagar J).
725 In that circumstance, of course, the right to proceed in equity for the breach
of trust would be independent of any right to obtain orders in equity to assist
enforcement of an entitlement at law to recover moneys had and received: see
Fouche (at 637) per Dixon, McTiernan, Fullagar JJ.
726 Indeed, the second limb of the cross-appeal related to alienated shares
declared to have been held on trust for the bankrupt. The respondent contended
that Clyne J should have granted consequential equitable relief by ordering that
the shares be transferred to the respondent instead of an order that the disponee
pay a sum of money in lieu thereof. Dixon CJ and Fullagar J described the wide
powers exercisable in equity and, in particular, the continuation of extensive
rights to relief in equity notwithstanding loss of identity of the property. Their
Honours stated in Brady v Stapleton (at 337-338):
it would be a great mistake to suppose that the great case of Re Halletts Estate
[(1879) 13 Ch D 696] lays down a doctrine peculiar to money. On the contrary, it
extends to money paid into a bank account, and so losing its identity as money, a
doctrine which equity would never have had the slightest hesitation in applying to
money physically existing or to any other kind of personal property to which it
could, as a matter of practical possibility, be applied. And there is no difficulty,
and we do not think that equity would ever have had the least difficulty, in
applying the same doctrine to shares or bonds.
727 Consistent with the foregoing analysis is the following comment by
Wickham J in Landall Holdings v Caratti (at 108):
The common law had difficulty in accepting that a proprietary right could be
acquired or conferred in relation to a thing which was not yet in existence or in
relation to a thing when the proprietary right was in another nemo dat quod non
habet. That is partly, although not entirely, due to the concrete and denotative
language of the common law which tends often, although not always, to speak of
the thing itself rather than rights and interests recognizable by the law in respect to
the thing. Equity on the other hand is concerned mostly, although not exclusively,
with rights and interests in relation to the thing as distinct from the thing itself.
728 The adoption by Dixon CJ and Fullagar J of the principle of equity set out in
Re Halletts Estate (1880) 13 Ch D 696 and the reasons provided earlier by
their Honours (at 332-333) show that had the facts in Brady v Stapleton
extended to the mingling of proceeds of sale of fraudulently alienated property
(taken by the original disponee with notice) with other funds it would have been
accepted by their Honours that a claim for moneys had and received could have
132 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

been enforced by application of the remedies available in equity such as those


described in Re Halletts Estate by placing a charge on the mixed fund or
following the sale proceeds in the fund.
729 In the instant case, the Banks incorporated the proceeds of sale in the
circulating funds of their businesses and no argument arises, perhaps with the
exception of Gentra, that imposition of a charge on those funds would or could
not be an effective remedy. The time of vesting of the right of the liquidator to
pursue such a claim would not be material to the grant of that equitable remedy.
730 In any event, additional regard must be given to the nature of the remedy
intended to be provided by the Statutory Claims in the form in which they now
exist.
731 The instructive remarks of Gummow J in Marks v GIO Australia Holdings
Ltd (1998) 196 CLR 494 at [99]-[102], upon the ascertainment of the scope of
the statutory form of relief provided by s 82 of the Trade Practices Act 1974
(Cth) have equivalent application to s 565 of the Corporations Act being a
legislative provision giving effect to matters of high public policy and
establishing comprehensive regulation and control of the conduct of
corporations:
The TP Act is a fundamental piece of remedial and protective legislation which
gives effect to matters of high public policy [ICI Australia Operations Pty Ltd v
Trade Practices Commission (1992) 38 FCR 248 at 256]. It is to be construed so
as to give the fullest relief which the fair meaning of its language will allow
[Bull v Attorney-General (NSW) (1913) 17 CLR 370 at 384; Devenish v Jewel
Food Stores Pty Ltd (1991) 172 CLR 32 at 44; Webb Distributors (Aust) Pty Ltd v
Victoria (1993) 179 CLR 15 at 41].
Section 82 applies across a spectrum of diverse legal norms created by Pts IV
and V. A number of these will have no direct analogue in the general law. Given
the objective of the legislation that is not surprising. However, it does emphasise
the need for caution against treating a provision such as s 82 as a mere
supplement to or eking out of pre-existing law [Pound, Common Law and
Legislation, Harvard Law Review, vol 21 (1908) 383, at 388. See also Frith v
Gold Coast Mineral Springs Pty Ltd (1983) 65 FLR 213 at 231-233]. To the
contrary, as Mason P put it, the courts should not be fearing to move far from the
familiar coastline of traditional common law and equitable approaches [Akron
Securities Ltd v Iliffe (1997) 41 NSWLR 353 at 364].
In Janssen-Cilag Pty Ltd v Pfizer Pty Ltd [(1992) 37 FCR 526 at 529-530],
Lockhart J said:
Section 82 is the vehicle for the recovery of loss or damage for multifarious
forms of contravention of the provisions of Pts IV and V of the [TP] Act. It
is important that rules laid down by the courts to govern entitlement to
damages under s 82 are not unduly rigid, since the ambit of activities that
may cause contravention of the diverse provisions of Pts IV and V is large
and the circumstances in which damage therefrom may arise will vary
considerably from case to case.
What emerges from an analysis of the cases (and there are many of them)
is that they do not impose some general requirement that damage can be
recovered only where the applicant himself relies upon the conduct of the
respondent constituting the contravention of the relevant provision.
Also, a perusal of the provisions of Pts IV and V, the contravention of
which gives rise to an entitlement to an applicant for compensation for loss
or damage, points to the conclusion that applicants may claim
compensation when the contraveners conduct caused other persons to act
in a way that led to loss or damage to the applicant. Examples are s 46
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 133

which concerns the misuse of market power by corporations; s 47 relating


to the practice of exclusive dealing; also s 48 which is concerned with
resale price maintenance. As to s 47(1) and (6) relating to third line forcing
see Castlemaine Tooheys Ltd v Williams and Hodgson Transport Pty Ltd
[(1986) 162 CLR 395 (High Court) and (1985) 7 FCR 509 (Full Federal
Court)]. See Hubbards Pty Ltd v Simpson Ltd [(1982) 60 FLR 430 and
(1982) 69 FLR 392 (on appeal)] with respect to s 48. See also Australasian
Meat Industry Employees Union v Mudginberri Station Pty Ltd [(1987) 18
IR 355] where contraventions of s 45 of the [TP] Act were involved and
they concerned contracts, arrangements or understandings or restrictive
dealings which adversely affected competition. Also in Pt IV are sections
such as s 60 and s 63A. Section 60 prohibits corporations from using
physical force or undue harassment or coercion in connection with the
supply of goods or services to consumers or the payment therefor.
Section 63A prohibits corporations from sending unsolicited credit cards to
persons.
These considerations, reflecting the apparent scope and purpose of the statute,
militate against the presence of any legislative intention that before the court
comes to assess the amount for which applicants are to be compensated under s 82
it first must identify any relevant general common law rules or analogies,
understand the reasons that led to their development, and then seek to adapt or
adopt them consistently with the scope and purpose of the legislation.
732 The following commentary on interpretation of the Corporations Law also
acknowledges the importance of having regard to policies underlying the
introduction of the comprehensive regulatory scheme of the Corporations Law,
in determining the purpose and object of the provisions of that legislation:
In particular the question is how we can use the features of modern regulatory
schemes, such as pre-enactment policy, legislative structure, operational effect and
post-enactment regulatory policy to illuminate the purpose and object of
legislation. These are features of modern regulation not evident in older statutes
where coherence or fit [See Dworkin R, Taking Rights Seriously (1977); Laws
Empire (1986)] with existing law was considered important. Most regulatory
schemes, while they assume continuation of the general law to a greater or lesser
degree, effect a distinct rupture in the flow of law in an area. Instead of a string of
emendations to existing law, modern regulation is the basic architecture of vast
areas of legal control, bringing with it a distinctive program of policy justification,
agency implementation, discretions and rules, and throwing into uncertainty the
contribution to meaning available from the general law. This all has telling
implications for interpretive law and practice.
Kingsford Smith D, Interpreting the Corporations Law Purpose, Practical
Reasoning and the Public Interest (1999) 21 Syd LR 161, pp 163-164; see also
Edwards v Attorney General (NSW) (2004) 60 NSWLR 667 at [69]-[77] per
Young CJ in Equity.
733 Section 565 of the Corporations Act defines neither the form of the
proceeding nor the remedy for the right it provides. Whilst those matters are left
at large some assistance in determining the nature of the remedy contemplated
by the Corporations Act in respect of the right provided to obtain a remedy may
be found in the correlative provisions of Pt 5.7B which supplanted the
provisions of s 565 for events that occurred after 23 June 1993.
734 Part 5.7B of the Corporations Act defines a proceeding in respect of a right
granted under that Part as a recovery proceeding (s 588E(1)) and sets out the
orders a court may make on a recovery proceeding in respect of voidable
134 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

transactions (ss 588FF(1) and 588FE). The remedial orders available under
s 588FF(1) are expressed in broad terms and include an order that there be paid
to the company an amount, that in the courts opinion, fairly represents some or
all of the benefits received because of the transaction.
735 The Explanatory Memorandum for the Corporate Law Reform Bill 1992
provided the following account of the purpose of s 588FF (at paras 1055-1056):
Proposed section 588FF is an enabling provision, giving the Court very wide
powers to make appropriate orders in respect of voidable transactions to fit the
particular circumstances.

Under the Bankruptcy Act, the characterisation of the transaction as being one
to which sections 120 to 122 apply renders the transaction void against a trustee in
bankruptcy and, by virtue of Corporations Law section 565, void against a
liquidator. Consequently, the Court is not involved and therefore there is less
flexibility to do justice between the parties, when one or more may be innocent of
any wrong doing.
(House of Representatives Explanatory Memorandum, Corporate Law Reform
Bill 1992.)
736 Section 109H of the Corporations Law required the provisions of that scheme
to be interpreted to promote the purpose or object underlying the law. That
provision, in effect, repeated the terms of s 15AA of the Acts Interpretation Act
1901 (Cth) and upon enactment of the Corporations Act, s 15AA of the Acts
Interpretation Act applied directly to that legislation: see s 5C of the
Corporations Act. Similarly, s 109J of the Corporations Law permitted resort to
extrinsic material to assist in resolution of ambiguity or confirmation of the
meaning of provisions of the Scheme. That section repeated the terms of
s 15AB of the Acts Interpretation Act which also applied directly to the
Corporations Act upon enactment of that legislation.
737 Whilst those provisions may not have been accompanied by a clear statement
of relevant purpose or object, it can be said that the terms of Pt 5.7B of the
Corporations Act did identify a clear purpose of that legislation, namely, to
assist liquidators to obtain orders to rectify the effect of transactions that prevent
fair distribution of the assets of an insolvent company to creditors and to
empower courts to make necessary orders to achieve that purpose.
738 Conduct involving knowledge of intent or purpose of defrauding, delaying or
hindering creditors or knowledge of the likelihood of insolvency of a party
whose property is being dealt with providing a right to obtain relief under s 565
of the Corporations Act is likely to involve conduct for which equity would
exercise jurisdiction to provide an appropriate remedy. It should be assumed
that s 565 contemplates incorporation of a full panoply of remedies as a
statutory response to circumstances that involve the use of fraudulent conduct
and the need for assertion of public policy.
739 Whatever the approach to interpretation of the precursor to s 565 of the
Corporations Act may have been, it is plain that the substituted rights acquired
by liquidators under s 565 of the Corporations Act were intended to receive the
benefit of a purposive construction consistent with that reflected in the terms of
Pt 5.7B: see Newcastle City Council v GIO General Ltd (1997) 191 CLR 85.
740 That is to say, whilst the scope of the new rights provided by s 565 of the
Corporations Act may continue to be informed by past development of the law
relating to bankruptcy, the remedies able to be applied to enforce the rights
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 135

provided by s 565 should not be treated as trammelled by principles of law


applied to prior rights that existed outside the Corporations Act: see Brennan v
Comcare (1994) 50 FCR 555 at 571-573 per Gummow J.
741 In other words, to assist achievement of the purpose of the provisions of the
Corporations Act courts should read the provisions of s 565 as contemplating
the use of all appropriate remedial orders including those that would be
regarded as appropriate in equity: see Morley v Statewide Tobacco Services Ltd
[1993] 1 VR 423.
742 That means that where property dealt with in a dealing contrary to s 565
consists of money, the right to obtain remedial orders will not depend upon a
continuing ability to identify the object dealt with. To meet the purpose of the
Corporations Act it is to be assumed that s 565 contemplates that a court may
order that a party at fault account for the use of moneys obtained by reason of a
dealing contrary to the provisions of s 565(1).
743 By definition, the business of the Banks involved mixing of moneys in an
amalgam of funds which led to loss of identity of the property concerned. But in
that circumstance an order may be made that the Banks account and make
compensation for the use of that money whilst it was held from the liquidator
for due distribution in the insolvency.
744 Such an order would return the creditors, including unduly preferred
creditors, to the position they would have been in but for the dealing in property
of an insolvent company in contravention of s 565.
Equitable fraud
Claims of respondents other than BGNV
745 In addition to relying upon the Statutory Claims for orders for relief against
the Banks the respondents also sought relief based on claims of equitable fraud.
His Honour, at [4839], noted that the claims were advanced on four grounds
and, at [8933]-[9063], found that none of the grounds had been established.
746 For the respondents (other than BGNV) only the first of the four grounds
referred to above remains relevant to this proceeding. The essence of that
ground was set out by his Honour, in [4839], as follows:
The banks conduct in entering into the Transactions and the Scheme constituted
an imposition and deceit (and therefore an equitable fraud) on the non-bank
creditors of the Bell group generally, including LDTC.
747 In their cross-appeal the respondents contend that his Honour erred in failing
to find that equitable fraud occurred by an imposition and deceit on non-bank
creditors as pleaded in that ground [APPR.000.021, ground 94].
748 The claim of equitable fraud as pleaded was said to be within the [fourth]
kind of fraud described by Lord Hardwicke LC in Earl of Chesterfield v
Janssen (1751) 2 Ves Sen 125; 28 ER 82, namely, agreements made between
parties that effect an imposition and deceit on persons not parties to the
transaction.
749 It is apparent from the paragraphs of his reasons set out below that his
Honour accepted that the first ground as pleaded was sufficient to raise a claim
of equitable fraud for imposition and deceit effected by a fraud on creditors by
conduct contrary to public policy. Although, at [4901], his Honour stated that he
had refused to grant leave to the respondents to further amend the statement of
claim by adding a fraud on the bankruptcy laws as an additional ground in the
136 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

equitable fraud cause of action, it is to be noted that the conduct said to be


contrary to public policy relied upon by the respondents was the pleaded
conduct of the Banks in entering the Transactions and the Scheme. That conduct
in itself amounted to a pleading of attempted circumvention of insolvency laws.
It follows that failure to expand the grounds of equitable fraud by including a
specific plea of fraud on the bankruptcy laws was of little consequence for the
respondents case as pleaded.
750 His Honour set out his understanding of the respondents pleading in the
following paragraphs:
4863 The plaintiffs contend that it is the effect of the Transactions on property
held by LDTC or rights held by Bell Participants and non-bank creditors
that creates the equitable right. The plaintiffs do not say that this is a
composition case. But they say that Earl of Chesterfield sets down a broad
principle, based on public utility. They say that, by analogy to the
composition cases, the circumstances of this case fit within the broad
principle.

4865 I think the plaintiffs are correct when they say that that the fourth limb of
Earl of Chesterfield is not limited to cases regarding deeds of composition.
Historically, the fourth limb exemplified equitys role in preventing a
person from taking advantage of the weakness or necessity of another.
Case law developed on the fourth limbs classifications of imposition and
deceit to facilitate this role. The concept of public utility has been a
critical factor in equitys development of the fourth limb.

4870 The composition cases, about which I will have more to say shortly, are
also rooted in the idea of public utility. The rationale is described in Story,
Commentaries on Equity Jurisprudence (3rd ed, 1920) [379]:
There is great wisdom and deep policy in the doctrine, and it is
founded in the best of all protective policy, that which acts by way
of precaution rather than by mere remedial justice; for it has a
strong tendency to suppress all frauds upon the general creditors by
making the cunning contrivers the victims of their own illicit and
clandestine agreement.

4883 Secondly, the principle that underlies the fourth limb is public utility. Is the
conduct of such a nature that it ought to attract the intervention of equity
to protect some aspect of the proper functioning of society? This may
involve a lack of honesty, deception or other moral vice on the part of the
perpetrators. But the proper functioning of society might still be
imperilled even though there is no moral vice. For example, in Hall v
Potter (1695) Shower 76; 1 ER 52, a marriage brokerage contract was set
aside notwithstanding a finding that the match was a proper one.
4884 The same can be said of the composition cases. The decision to involve
some only of the creditors may be made out of the basest of motives. It
might equally have come about through other undisclosed conduct that
could not be described as base, but is nonetheless offensive to conscience
and thus prone to attract equitys attention.
4885 I am satisfied that the use of the terms underhand bargain and mala
fide in Earl of Chesterfield does not import an actual intention to deceive
in a fourth limb case. But the circumstances must still be so offensive to
public utility as to demand the intervention of equity.

44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 137

4905 Of course, one way of looking at the plaintiffs case is to say that it is a
common dealing situation. The financial predicament of the Bell group
companies was so precarious that an obligation arose to bring all creditors
in to the arrangements. They did not do so, but the obligation was
nonetheless there and the consequences of dealing solely with the banks
and without telling the other creditors are the same. As I said at the
commencement of this section, I am reluctant to give a definitive ruling in
the abstract about whether the fourth limb extends to cases of this type. I
will return to the analysis in the course of dealing with the factual matrix.

4910 One of the grounds on which the banks dispute the public utility
argument is by saying that that the legislature has taken care of any such
doctrine by enacting protective provisions within the Corporations Law
and the Bankruptcy Act. The banks say that the plaintiffs invite the Court
to recognise an equitable cause of action to strike down commercial
contracts for an ill-defined public policy reason, without citing any
precedent or principle in support of the invitation. I do not accept that
argument. Just because the legislature has prohibited certain types of
conduct does not mean that there is no room for equity. Public policy has
long been a touchstone of the supervisory jurisdiction of the courts. If the
legislature wished to oust that jurisdiction it could only do so by very clear
language. I do not detect such language in those statutes.

4915 Finally, the banks argued that the instances described by Lord Hardwicke
in the fourth limb were particular manifestations of wrongs in the social
environment of 18th century England. The common factor was the
protection of the interests of landed gentry and aristocratic wealth from
undermining by those who would take advantage of their position to work
on the weakness, passions, affections and human frailties of members of
those upper classes. The practice of paying for a recommendation for
public office was another class of arrangement of then contemporary
relevance.
4916 According to the banks, this social context explains why courts employed
public utility to classify these sorts of agreements as illegal. But they also
point out that the instances mentioned in the fourth limb caused or were
productive of causing a misrepresentation or deceit on an innocent third
party. This may be so. But it does not mean the concept of public utility
has been left behind in the 18th century. It remains a touchstone for
equitable intervention in the 21st century if and when intervention is
required and subject to overriding stricture that equity is not a loose
cannon: it develops and operates according to established and recognised
principles.
751 Examples of the [fourth] kind of fraud provided by Lord Hardwicke in Earl
of Chesterfield were:
(1) marriage-brokage contracts;
(2) agreements to refund to a parent or guardian of a spouse part of the
portion of the wife or provision for the husband;
(3) payments by a debtor to a creditor to induce participation in a deed of
composition; and
(4) payments by an applicant to an official to obtain preference for
appointment to public office.
752 All of the above examples were grounded in the need for equity to intervene
to maintain adherence to good conscience and public policy.
138 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

753 The first example, participation in marriage-brokage contracts, did not


become subject to objection at common law until well into the 19th century, but
equity always treated such arrangements as underhand wagering contracts of
particular mischief tending to introduce improper matches in marriage and
inimical to the wellbeing of society. Accordingly equity would make
restitutionary orders even if the contract had been completed by a marriage: see
Hermann v Charlesworth [1905] 2 KB 123 at 129-133 per Collins MR; 137-138
per Cozens-Hardy LJ; Story J, Commentaries on Equity Jurisprudence (13th ed,
1908) (Bigelow MM), at [261].
754 The second example was regarded in equity as equally improper conduct in
that it was antithetical to social harmony.
755 Both of those examples no longer define equitable fraud, having been
rendered irrelevant by development of the law with regard to the property rights
and the status of women and the evolution of societys attitudes and
expectations in respect of marriage bargains.
756 The conduct specified in the third and fourth examples, however, remains
conduct contrary to public policy and is as improper in equity today as it was in
the 18th century.
757 It should be noted that several years after Lord Hardwickes description of
the [fourth] kind of fraud, Lord Mansfield in Worseley v Demattos (1758) 1
Burr 467 at 474-475; 97 ER 407 at 411 made it clear that such type of equitable
fraud was not limited to the examples provided by Lord Hardwicke:
But valid transactions, as between the parties, may be fraudulent by reason of
covin, collusion, or confederacy to injure a third person: for instance A buys an
estate from B and forgets to register his purchase deeds: if C with express or
implied notice of this, buys the estate for a full price, and gets his deeds
registered; this is fraudulent, because he assists B to injure A. Or, if a man
knowing that a creditor has obtained a judgment against his debtor, buys the
debtors goods, for a full price, to enable him to defeat the creditors execution: it
is fraudulent. Again, if a man knowing that an executor is wasting and turning the
testators estate into money, the more easily to run away with it, buys from the
executor, with that view, though for a full price; it is fraudulent.
Marriage-brocage bonds, secret agreements, different from the open treaty of
marriage, and many other cases that might be put, though for a true and valuable
consideration, as between the parties, are fraudulent, by reason of deceit or injury
consequentially brought upon third persons.
758 Indeed, it was apparent that Lord Hardwicke had anticipated expansion of
this class of equitable fraud when in 1759 and subsequent to his retirement as
Lord Chancellor, he stated:
As to relief against frauds, no invariable rules can be established. Fraud is infinite;
and were a Court of Equity once to lay down rules how far they would go, and no
farther, in extending their relief against it or to define strictly the species or
evidence of it, the jurisdiction would be cramped and perpetually eluded by new
schemes, which the fertility of mans invention would contrive.
See Story, Commentaries on Equity Jurisprudence (13th ed, Vol 1, 1908)
(Bigelow MM) at [186].
759 Other conduct held subsequently to be within the [fourth] kind of fraud has
included contracts in restraint of trade and payments to reward or influence the
making of dispositions by a testator. Again the need for equity to act to protect
public policy determined treatment of that conduct as equitable fraud.
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 139

760 In the second and third of Lord Hardwickes examples, and in respect of
agreements for improper payments to influence a testator, the parties to such
transactions may be taken to know, or at least be able to ascertain, third parties
disadvantaged by the transaction. But in the first and fourth examples, and in
respect of contracts in restraint of trade, it would not follow necessarily that the
transacting parties would have any third party within contemplation at the time
of contracting or have notice that a third party would be disadvantaged by the
transaction undertaken.
761 Thus acting mala fide against third parties does not stand as the elusive
specific principle or unifying factor that grounds equitable intervention in
the examples provided of the [fourth] kind of fraud: see Meagher RP, Heydon
JD and Leeming MJ, Meagher, Gummow & Lehanes Equity: Doctrines &
Remedies (4th ed, LexisNexis Australia, 2002), at [12-050].
762 Apart from all of the foregoing examples being regarded as transactions with
objectives that were contrary to public policy and, therefore, actionable, the
additional important common factor that constituted the fraud in equity and
gave particular justification for the intervention of equity to make remedial
orders and restore, if possible, the transacting parties to their original positions
and to remove disadvantages imposed on third parties, was the underhand or
improper conduct involved in the formation of the transactions.
763 Whilst the learned author in Sheridan LA, Fraud in Equity (Pitman, 1957),
pp 7-9, 169, 174 doubted that the [fourth] kind of fraud described by
Lord Hardwicke represented a separate class of equitable fraud, it was
recognised that equity would provide relief where a transaction visited fraud on
third parties. Indeed as Sheridan stated (pp 7-8) all frauds are contrary to
public policy, which is why they are redressed.
764 The definition of fraud in equity adopted by Sheridan (at 203) assists in
identifying the character of improper conduct that equity will redress where
third parties are disadvantaged by a dealing by others. Sheridan suggests that
equitable fraud consists of two principal components. First, an advantage
obtained by one party at the expense of, or the suffering of loss by, another and,
second, the use of improper means to cause that disadvantage or loss. Whilst
Sheridan acknowledges that those elements may be common to all litigiable
claims, it is the degree of impropriety in the conduct that causes the
disadvantage or loss that distinguishes fraud from other grounds of redress.
765 Therefore, to identify the degree of impropriety in conduct that makes the
conduct offensive to equity and justifies the grant of remedial orders, it is
necessary to assess the extent to which the conduct breaches public policy and
demands the exercise of equitys discretion. Conduct contrary to public policy
has continued to be treated as equitable fraud notwithstanding that express
jurisdiction to grant corrective orders may have been provided by legislation for
such conduct: see Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd
(2005) 226 ALR 510 at [235]-[238] per Campbell J.
766 In the third example provided by Lord Hardwicke the conduct offensive to
equity was the extra bargain the debtor made with a creditor to undertake to pay
in full the debt due to the creditor and thereby get that creditor to participate in
the deed of composition. The creditor, of course, had notice of the inability of
the debtor to pay its debts in full. In that case equity did not act to relieve the
debtor from the side agreement as a bargain made under undue pressure from
the creditor, or under a significant disadvantage of lack of bargaining power. It
140 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

intervened to prevent performance of a bargain that was based on improper


conduct by the debtor and the creditor and to restore equality of treatment of
creditors as required by law and as provided for in the deed.
767 Formal administration in insolvency, or a deed of composition, will not be
essential before impropriety of conduct can occur in respect of a corporation in
a situation of insolvency. Once it appears that a company is insolvent, creditors
of the company are regarded as having a direct interest in the company (Re New
World Alliance Pty Ltd; Sycotex Pty Ltd v Baseler (No 2) (1994) 51 FCR 425
at 444 per Gummow J) in the sense that (as was made clear in Kinsela v Russell
Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722), an obligation will then be
imposed on the company not to prejudice the interests of its creditors. The
fiduciary duty of a director to act bona fide in the best interests of the company
would require the director not to have the company ignore or attempt to defeat
that obligation to creditors.
768 The foregoing is set out in the following passage in the reasons of Gummow
and Hayne JJ in Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226
CLR 507 at [67]:
The starting point must be the general duty of a director to act in the best interests
of the company [Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285, 289,
300-301]. The best interests of the company will depend on various factors
including solvency. In Kinsela v Russell Kinsela Pty Ltd (In Liq) [(1986) 4
NSWLR 722, 730], Street CJ said:
In a solvent company the proprietary interests of the shareholders entitle
them as a general body to be regarded as the company when questions of
the duty of directors arise. If, as a general body, they authorise or ratify a
particular action of the directors, there can be no challenge to the validity of
what the directors have done. But where a company is insolvent the
interests of the creditors intrude. They become prospectively entitled,
through the mechanism of liquidation, to displace the power of the
shareholders and directors to deal with the companys assets. It is in a
practical sense their assets and not the shareholders assets that, through the
medium of the company, are under the management of the directors
pending either liquidation, return to solvency, or the imposition of some
alternative administration.

769 Additional assistance is obtained from the following passage in the reasons of
Giles JA (Ipp and Basten JJA agreeing) in Kalls Enterprises Pty Ltd (in liq) v
Baloglow (2007) 63 ACSR 557 at [162]:
At least where the company is facing insolvency as well as considering the
companys interests the directors must consider the interests of its creditors:
Walker v Winborne (1976) 137 CLR 1; 3 ACLR 529; Kinsela v Russell Kinsela
Pty Ltd (in liq) (1986) 4 NSWLR 722; 10 ACLR 395. In Grove v Flavel (1986) 43
SASR 410 at 421; 11 ACLR 161 at 170 the Court said that the interests of
creditors must be considered where to the knowledge of the directors there is a
real and not remote risk of insolvency, and of course the risk includes the effect of
the dealing in question. (Grove v Flavel was disapproved in Spies v R (2000) 201
CLR 603; 173 ALR 529; 35 ACSR 500; [2000] HCA 43 at [95] so far as it
suggested a direct duty owed to and enforceably by creditors, but not as to this
matter.) It is sufficient for present purposes that, in accord with the reason for
regard to the interests of creditors, the company need not be insolvent at the time
and the directors must consider their interests if there is a real and not remote risk
that they will be prejudiced by the dealing in question.
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 141

770 Although the obligation of the insolvent corporation not to prejudice creditors
may be an imperfect obligation incapable of enforcement directly by creditors
(see Re New World Alliance (at 445) per Gummow J), that circumstance would
not affect the determination in equity of whether rights accrued to creditors by
engagement by the corporation and other parties with notice of the insolvency is
improper conduct designed to disadvantage those creditors.
771 Such recognition of the interests of creditors of a corporation is a
counterbalance to the statutory exclusion of liability of corporators for the debts
of the corporation. Until corporations legislation (Company Law Review Act
1998 (Cth) and Corporations Law, ss 254C and 1427) set aside the concepts of
par value for shares and authorised share capital the maintenance of share
capital of a corporation had been regarded as of prime importance for creditors
rather than for the corporation or its shareholders and the obligation of the
corporation to apply that capital only for the purposes of business was
sometimes said to be an implied contract with creditors: see Pilmer v Duke
Group Ltd (in liq) (2001) 207 CLR 165 at 179-180 per McHugh, Gummow,
Hayne, Callinan JJ.
772 Equality of treatment of creditors in an insolvency has been a well-known
statement of public policy in both bankruptcy and corporations legislation for
many years: see Keay A, In Pursuit of the Rationale Behind the Avoidance of
Pre-Liquidation Transactions (1996) 18 Sydney L Rev 55, pp 65-74. The fact
of insolvency means that the conduct of the debtor, and of creditors with notice
thereof, thereafter is constrained by obligations in equity.
773 His Honour, at [4865], accepted that the [fourth] kind of fraud that
involved equitable fraud on creditors was not limited to cases regarding deeds
of composition. At [4899], his Honour recognised that equity will act to ensure
a level playing field and stated that the binding effect on all creditors comes
from an element of common dealing provided by contract or by force of
statute to which could be added or provided by law or equity.
774 The need for a level playing field arises as a matter of public policy when
a corporation becomes insolvent. At that point it has long been a requirement of
corporations legislation that a company not be permitted to incur further trading
debts. Liabilities to compensate third parties have been imposed on directors
who breach their management duties to the company by failing to prevent
insolvent trading: see Companies (Western Australia) Code, s 556; Corpora-
tions Law, s 588G; Corporations Act, s 588G. It would follow that management
duties of directors would then include consideration of commencement of an
appropriate form of external administration. The object of those provisions was
to encourage directors to take early positive steps to commence an ordered form
of administration to deal with the insolvency: see Australian Law Reform
Commission General Insolvency Inquiry Report 45 (1988), at [53]; Deputy
Commissioner of Taxation v Clark (2003) 57 NSWLR 113 at 135-138 per
Spigelman CJ.
775 A creditor aware of the insolvency of a debtor is aware of the requirement
that creditors of the debtor are to be dealt with equally and of the obligation of
the debtor to creditors in that regard and is in a similar position of moral
obligation as a creditor party to a deed of composition.
776 The rights provided by s 565 of the Corporations Act, and by the
corporations legislation that preceded it (Companies Act 1961 (WA), s 273;
Companies (Western Australia) Code, s 451; Corporations Law, s 565), confirm
142 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

public policy that an insolvent corporation not provide a preference to a


creditor. For events occurring on or after 23 June 1993, Pt 5.7B of the
Corporations Law (and Pt 5.7B of the Corporations Act) replaced s 565 with
more detailed limitations upon dealings by an insolvent corporation that
emphasised the underlying purpose of entrenchment of equality in the treatment
of creditors of an insolvent corporation: see ss 588FA, 588FC, 588FE of the
Corporations Act; Edwards v Attorney General (NSW) (at [73]) per Young CJ in
Equity.
777 The legislation referred to sought to stop, from the onset of the insolvency, an
insolvent corporation engaging in dealings that may disadvantage creditors.
Thus a creditor with notice of the insolvency participating in dealings calculated
to hold off the operation of that legislation to the disadvantage of other creditors
would be engaged in conduct contrary to public policy. On an application by a
party with standing to have the company wound up in insolvency equity would
treat that conduct as grounding injunctive orders to restrain the dealings and to
preserve the property involved: see Corporations Act, ss 459P, 462.
778 Before considering the relationship of an insolvent corporation and its
creditors, it is appropriate to consider first the position of debtor and creditor
under bankruptcy law which historically has informed the operation of
insolvency law in respect of corporations.
779 In bankruptcy law, although the prospect of a bankruptcy petition being
presented within six months of an act of bankruptcy (and commencement of the
bankruptcy being related back to that act of bankruptcy, Bankruptcy Act, s 115)
may be no more than a contingency, the act of bankruptcy itself causes the
debtor to lose absolute title to property and to become subject to obligations in
equity to retain assets for creditors. Importantly in equity no title to property of
the debtor could be acquired in that period by a transferee with notice. That is,
the act of bankruptcy is presumptive of a state of insolvency and a transferee
with notice of the act of bankruptcy acts with notice of the insolvency and with
notice of the inability of the debtor in equity to deal with the assets.
780 Whilst under corporations law there has been no direct equivalent to an act
of bankruptcy, the Corporations Act does apply the concept of relation back to
set a date (which may precede the commencement of a liquidation begun by
court order) from which retrospective periods are fixed to catch certain prior
transactions of an insolvent corporation: see Corporations Act, ss 9, 513A,
513B, 513C, 565, 588E, 588FE, 588FJ, 588Z.
781 The principle applied by equity to a creditors knowledge of an act of
bankruptcy involves notice of probable insolvency of the debtor and that
principle may be applied equally to the conduct of a creditor that takes property
of a corporation with notice of the probable insolvency of the corporation.
782 Two examples of the operation of the equitable doctrine in bankruptcy appear
in the following cases: Ponsford Baker & Co v Union of London and Smiths
Bank Ltd [1906] 2 Ch 444 at 452-453 per Fletcher Moulton LJ and Re Docker
(1938) 10 ABC 198 at 245 per Lukin J.
783 In Ponsford Baker the debtors, stockbrokers, had defaulted on their
obligations on the stock exchange and had committed an act of bankruptcy by
assigning all their assets to the official assignee of the stock exchange for the
benefit of their creditors. The debtors and the official assignee thought it would
be in the interests of the assigned estate to redeem securities previously lodged
with the debtors bank to secure loans made to the debtors by the bank. The
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 143

amount outstanding on the loan account was tendered and the debtors and
assignee called for delivery up of the securities. The bank, having notice of the
act of bankruptcy, refused to accept the tender or to hand over the securities.
The debtors and assignee as joint plaintiffs commenced an action in the
Chancery Division for return of the securities and for damages from the bank
for wrongful detention. The Court of Appeal held (at 457) that a secured
creditor was not entitled to receive payment of a debt from a debtor once it had
notice of an act of bankruptcy, the debtor being incapacitated from tendering the
money.
784 In Radio Corporation Pty Ltd v Bear (1961) 108 CLR 414 at 422 Dixon CJ
stated that the strong terms in which the foregoing doctrine was stated in
Ponsford Baker by Fletcher Moulton LJ (at 452) made the passage worth
repeating, a course that is equally appropriate in these reasons:
Nothing is more firmly established in bankruptcy law than that a man who has
committed an act of bankruptcy is not entitled to deal with his estate. He has no
right to gather it in if it is not already in his hands or to make payments to his
creditors out of that which he has actually at his command. He can give no good
discharge to a debtor who pays him with notice of the act of bankruptcy, because
the debt may by subsequent bankruptcy proceedings be turned into a debt due to
his trustee, and not to himself. This is a principal and fundamental part of our
bankruptcy administration, and yet if the doctrine contended for were established,
the mere issue of a writ would nullify the whole of the precautions taken by the
Legislature in this respect. The debtor having no defence could not prevent
judgment being recovered and execution had, and if such claims could thus be
enforced notice of an act of bankruptcy would be no impediment to a debtor
effectively collecting and getting into his own hands all moneys due to his estate.
We are of opinion, however, that this doctrine is not well founded. For the purpose
of deciding this point it is necessary to examine carefully the exact legal position
of a man who has committed an act of bankruptcy under the statutes at present in
force. Until commission of the act of bankruptcy he was, of course, the beneficial
owner of whatever assets he possessed, but by the act of bankruptcy his title to be
regarded as such beneficial owner is no longer absolute, but is contingent on no
bankruptcy petition being presented within three months of the date of the act of
bankruptcy which leads to a receiving order being made. If such receiving order
be made the whole of the assets vest in his trustee as from the date of the act of
bankruptcy. He is, therefore, in the position that should such a contingency occur
he is from the date of the act of bankruptcy something less than a mere trustee of
his assets for the creditors in his bankruptcy. Until this state of suspense has been
removed either by a receiving order or by lapse of time, he has no right to deal
with those assets that were in his hands, and can give no title in them to any
transferee with notice. Similarly, with regard to the debts and other choses in
action which form part of his estate, he cannot collect them or give a valid
discharge for them, and anyone making a payment to him with notice of the act of
bankruptcy does so at his peril. But these statutory provisions have been enacted
for the benefit only of the creditors of the bankrupt, and not for the benefit of his
debtors.
785 The Court of Appeal noted that in the circumstances discussed in that case the
court had available to it all the powers of a Court of Chancery to fashion
appropriate orders.
786 In Re Docker (at 241-244) Lukin J also recited part of the foregoing passage
in Ponsford Baker and set out as follows extracts from various cases that
provided guidance on assessing the impropriety of the conduct of a creditor
with notice of the insolvency of a debtor (at 241-242, 243-244):
144 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

Clauson J in Re Simms [(1930) 2 Ch 22], in dealing with the question of bona


fides, after reviewing the authorities on the question and whether a transaction
whereby a debtor disposes of practically all his property is a fraudulent act of
bankruptcy, says (at p 34): The result of these authorities appears to me to be that
a transfer by a debtor of substantially the whole of his property, whether by way of
charge or by way of sale, will be an act of bankruptcy, if the necessary
consequence of the transfer will be to defeat or delay his creditors. And later, at
p 35, he says: I am afraid that I failed to appreciate how the company, having
been a party to a transaction which is held to be a fraudulent transfer, with not
only notice but knowledge of all the facts which carry this legal result (the
knowledge of the debtor and his solicitor, who were the only directors, being
necessarily the measure of the companys knowledge) can set up bona fides as a
defence. The suggestion I think was that all the parties honestly thought that this
transfer which the law holds and they must be assumed to have known that the
law would hold to be fraudulent, was the best thing in everyones interests. But
I can rely on the authority of Cotton LJ in Ex parte Chaplin [(1884) 26 Ch D 319)
for the proposition that a fraudulent transaction remains a fraudulent transaction
(at all events if the parties know all the facts which stamp it in law as a fraudulent
transaction) whatever may be the view of the parties that it may be the best thing
for the debtor, or may result in effectually paying the creditors. That authority
alone makes it impossible for me to accede to the argument which would claim
protection for the company in the present case in the footing of bona fides.
In Re Jukes ((1902) 2 KB 58), in dealing with the same subject, Wright J said
(at p 60): I cannot help thinking that if a creditor of a debtor takes the whole, or
substantially the whole, of the property of his debtor in payment of a past debt,
and knowing that there are other creditors, he cannot be said to be acting in good
faith. On the whole, therefore, I hold that the transaction in this case is not
protected by s 49 of the Act (s 49 of the Bankruptcy Act of 1883, replaced by
s 45 of the Act of 1914 our s 96). See also in Re Kerr, a bankrupt ((1927)
NZLR 177), where Skerrett CJ (at p 186) in reference to good faith dealt with
the obligation of inquiry as to other creditors and held that absence of inquiry was
evidence of want of good faith.

[Cave J] in the Divisional Court, in Re Freeman ((1890) 7 Morr 38) said:
When a man is insolvent he has no business to take upon himself to decide
whether his business is or is not to be sold or whether his business is or is not to
be carried on. When he is insolvent he really is carrying on his business at the risk
and expense of his creditors A man, therefore, is not justified in going on, or in
selling, or, in fact, taking any step at a time when he is insolvent without the
concurrence of the creditors who have to bear the burden, if that step turns out to
be a disastrous one.
Buckley LJ in Re A Debtor ((1912) 2 KB 533 at 541), said: I desire to add
that it is a principle of the law of bankruptcy that if a man be insolvent it is
desirable that at the earliest possible moment means shall be available to protect
his assets for the benefit of all his creditors.
In Farmers Mart Ltd v Milne ((1915) AC 106) the House of Lords there dealt
with the stipulation in an agreement which Lord Atkinson described as simply
embodying a device arranged between the pursuers and defender in fraud of the
bankruptcy laws to secure to the pursuers a larger dividend than the other creditors
in that estate were to receive. At p 115, the learned Lord said: My Lords, I
have not the slightest hesitation in holding that such an agreement is a fraud upon
the bankruptcy laws, the great object of which, as distinguished from the Statute
of Elizabeth, is not merely to secure that the assets of a bankrupt shall be
distributed amongst his creditors, but that they shall also be distributed equally.
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 145

Equality is the great object and virtue of the Bankruptcy Acts. It is to defeat that
equality that this agreement was entered into.
787 Lukin J then went on to state (at 244):
It is surely the essence of fair play that creditors knowing of a debtors insolvency
should consult with their fellow creditors before enabling him to carry on.
The evidence, in my opinion, shows that the bank, by deliberate action and with
full knowledge of the debtors insolvency, had the business carried on for the
express purpose of enabling it to collect for its exclusive benefit as much of the
remaining assets of the insolvent debtor, including the debts due to the bankrupt,
as were possible without the slightest regard for, and without any proper inquiries
about or consultation with, other known creditors.
788 Those statements all echoed the analysis Lord Mansfield had provided in
1758 in Worseley v Demattos (at 474) that conduct designed to circumvent
bankrupt law was fraudulent both at law and in equity:
The end proposed by the secret trust was, that in case Slader should become
bankrupt, his whole estate should first be vested in De Mattos, for payment of
what was justly due to him. The preference aimed at was fraudulent and unlawful
Such preference is a fraud upon the whole bankrupt law, and would defeat the
two main objects it has in view; to wit, the management of the bankrupts estate;
and an equal distribution among his creditors.
789 As Bigelow MM, Definition of Circumvention (1889) 5 LQ Rev 140, p 147
stated, the equitable fraud by circumvention consisted of endeavour to alter
rights by wrongfully evading the law in a matter in which the party to be
wronged is not a party. The two circumstances of evasion specified were
evasion of the Statute of Elizabeth and evasion of bankruptcy laws.
790 The fraud dealt with by equity in such cases is not exhausted by the singular
transactions made voidable under insolvency laws. The equitable fraud lies in
the impropriety of conduct contrary to public policy, being conduct using
circumvention of the operation of those laws to effect imposition and deceit on
third parties. His Honour, at [4910], in effect, accepted that conclusion.
791 The principle was expounded by Lord Dunedin in Farmers Mart Ltd v Milne
[1915] AC 106 at 112-113:
[I]t is not only prejudicial to third parties, but it is inconsistent with public law and
arrangements; and it is equally inconsistent with public law and arrangements
whether it contravenes an actual section of the Bankruptcy Act, of which Thomas
v Waddell [(1869) 7 M 558] may be taken as an example, or whether it goes
against those general principles which are just as much applied to private
arrangements in Scotland, such as trust deeds, as they are to the general
arrangements which are prescribed in a sequestration.
792 In equity the same principle should be taken to apply in a corporate
insolvency as in a bankruptcy, namely, that upon the onset of insolvency, the
common interest of creditors in the company means that thereafter the insolvent
company holds its assets on trust for pari passu distribution amongst creditors.
Also in equity, a creditor with notice of the insolvency acting with intent to
defeat the interests of other creditors will get no title in equity to the property of
the insolvent corporation, although possession of the legal title may permit full
title to be conveyed to a bona fide purchaser without notice of the defect in
equity.
793 As Buckley J stated in Re Telescriptor Syndicate Ltd [1903] 2 Ch 174 at 181:
146 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

I may say that it is in my opinion desirable that as far as possible the Court should
not assume a different attitude or act upon a different principle in the winding-up
of a company and in the bankruptcy of an individual.
See also Keay A, The Unity of Insolvency Legislation: Time for a Re-think?
(1999) 7 Insol Law Jnl 4, p 9.
794 Insofar as his Honour considered that an element of common dealing was
necessary for equity to intervene that element was provided by the circumstance
of insolvency once a debtor and a creditor with notice thereof purported to
engage in a dealing. At that point, as noted above, all creditors had a common
interest in the insolvent company and it was not possible, in equity, for a
creditor with notice of the insolvency to ignore those common interests. His
Honour, at [4905] and [8972], recorded partial appreciation of this argument but
appeared to overlook the circumstance of a creditor with notice of the debtors
insolvency purporting to participate in a transaction with the debtor. His
Honour, at [8973], restricted his consideration to the obligations of the debtor,
and thereby misunderstood the pleaded case of the respondents.
795 Accordingly, at [8970], his Honour stated that he failed to see how public
policy could be affected by a transaction that could be described as no more
than a situation where individual debtor and an individual creditor meet
outside a formal administration in relation to pre-existing rights and obligations
and decide to do something about them. If his Honour understood that such a
description could apply to a circumstance where a creditor with notice of
insolvency dealt with an insolvent debtor with a purpose of taking the property
of the debtor and thereby disadvantaging or defeating other creditors then the
understanding involved error.
796 His Honour, at [8973]-[8974], stated that the respondents case in equitable
fraud could be said to be represented by the proposition (although his Honour
acknowledged that it was not so stated in the pleadings) that the [b]anks
deliberately concealed from non-[b]ank creditors the import and effect of what
they were doing in the implementation of the Transactions and the Scheme.
Given his Honours understanding of the respondents pleading as recited
earlier in his reasons it may be taken that his Honour did not consider that the
pleading could be confined to a proposition that would limit and misstate the
scope of the respondents case. His Honour, whilst accepting, at [9033], that
conscious wrongdoing is not an indispensible element of equitable fraud
found, at [9046], that the claim in equity could not succeed in respect of LDTC
as a creditor because it had not been shown that the [b]anks procured or
encouraged the Bell group officers to keep LDTC in the dark. Furthermore,
at [9027], his Honour found that LDTC could not be said to have been imposed
on, or deceived, having regard to the findings his Honour had made. Namely,
that LDTC knew that the on-loans were straightforward subordinated loans;
knew that the Bell group was in financial difficulties; and by
26 January 1990 knew that security had been given and taken, regardless of
whether or not it knew of all the details of the security.
797 Perhaps his Honours finding that LDTC knew that the on-loans were
subordinated went beyond conclusions available on the evidence, which
contained no statement by Duffett (the controlling mind of LDTC) that he knew
the on-loans were subordinated. Duffett went no further than to state that if he
had made assumptions about the loans they would have been made without
knowledge of any of the circumstances relating thereto and that neither he nor
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 147

anyone else had given separate consideration to the status of BGNV on-loans.
The expression straightforward, subordinated loans used by his Honour
in [9027], came from a passage of the transcript of Duffetts evidence recited
at [8894]. The full context of that passage makes it plain that Duffett used those
words in reference to the convertible subordinated bonds issued by TBGL and
BGF (the other bonds for which LDTC was trustee for Bondholders). Duffett
was describing the proceeds obtained by TBGL and BGF from the issue of the
bonds as straightforward subordinated loans. He did not refer to any loans
made by TBGL and BGF from those proceeds or to loans made by BGNV to
TBGL and BGF from the proceeds BGNV obtained from the bonds it issued.
Furthermore (at [9333] and [9338]) in opposition to the foregoing finding, his
Honour accepted the contrary argument put by the Banks in support of their
defence of laches against LDTC. Namely, that the evidence of Duffett that he
believed the on-loans were not subordinated meant that LDTC, since at least
July 1991, had had the means of knowing the elements of the equitable fraud
claim if LDTC intended to plead it.
798 As to the additional findings by his Honour that LDTC knew that the Bell
group was in financial difficulties, or knew that security had been taken by the
Banks, neither circumstance would exclude equitable fraud if the Banks with
notice of insolvency had purported to take security to obtain an advantage over
other creditors.
799 As discussed below, the foregoing findings of fact were irrelevant to the
determination of the pleaded claim of equitable fraud.
800 With regard to whether creditors, other than LDTC, were affected by
imposition or deceit involved in that conduct his Honour found, at [9058], that it
was clear that the banks knew there were likely to be other creditors.
However, at [9062]-[9063], his Honour then found that the claims of equitable
fraud could not extend to those creditors because there was no hint of the
banks wanting to ensure that the Bell group officers kept the other non-bank
creditors in the dark. In addition, his Honour was unable to identify the
offence to public utility that would bring it within the imposition and deceit
doctrine.
801 The claim of fraud as pleaded was based on a right to obtain relief in equity
for reasons of public utility where a debtor and creditor with notice of the
insolvency of the debtor, engaged in a dealing to provide an advantage to that
creditor at the expense of other creditors. The improper means of obtaining that
advantage, thereby providing cause for equity to intervene, consisted of the
attempt by a creditor (with notice of the insolvency) to obtain title or equitable
interests in the assets of the debtor, contrary to the public policy that such assets
be held by the insolvent debtor for equal distribution amongst its creditors,
colloquially expressed by his Honour as an attempt to steal a march on other
creditors. The conduct described as the stealing of a march was the attempt
to overreach the lawful claims of other creditors by purporting to obtain, and to
hold out that they possessed, title and interest in Bell group assets to which the
Banks were not then entitled in equity: see Sheridan, p 204.
802 Whether a creditor so advantaged took steps to have disadvantaged creditors
kept in the dark would not be relevant to establishing that such a dealing
constituted a fraud in equity. His Honour misdirected himself in holding that the
148 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

claim could not succeed in the absence of such a finding. Indeed his Honour,
at [4894], appeared to have accepted that the secrecy of an arrangement was not
an essential ingredient in showing a fraud on creditors.
803 The Banks submitted that the case of the respondents presented on the
cross-appeal differed from the case put at trial. However, his Honours reasons
as adumbrated above set out the nub of the respondents case and confirmed that
the conduct of the Banks, and public utility in providing relief in respect of that
conduct, were issues raised by the respondents pleading to be dealt with by his
Honour.
804 On the hearing of the cross-appeal counsel for the respondents sought to
identify the disadvantage suffered by non-bank creditors as the loss of an
opportunity for those creditors to be engaged in consideration of proposals for
compromise of debts under statutory arrangements and reconstructions of the
insolvent Bell group corporations as a form of external administration. It was
unnecessary for the case pleaded by the respondents to go further than to show
that the conduct of the Banks had been undertaken with notice of insolvency
and had been done to advantage the Banks at the expense of other creditors by
denying those creditors the benefit of any form of external administration in
which the creditors would be dealt with on equal terms with the Banks. As set
out below that case was established at trial.
805 The essential issues arising from the pleaded claim of equitable fraud by
imposition and deceit were whether the Banks had knowledge that the Bell
group was in a state of insolvency and whether that knowledge had been
compounded by the construction by the Banks of a Scheme to effect informal
administration of the affairs of the Bell group under the supervision of the
Banks to have the assets of the Bell group applied to repayment of the claims of
the Banks to the exclusion of other creditors and to avoid the commencement of
any external administration that could imperil the preference the Banks had
obtained. As noted elsewhere in these reasons, at [555]-[556], [945], the
Scheme, which included the BGNV Subordination Deed, also served the further
purpose of avoiding the risk that in a liquidation of TBGL and BGF, BGNV (as
a creditor of TBGL and BGF) could rank pari passu with the Banks in claims
for recovery of moneys lent by BGNV to TBGL and BGF, a risk that his
Honour said, at [9723], frightened the Banks and caused them to seek
execution of the Transactions as soon as possible.
806 As to the first element, his Honour was satisfied that the Banks had
knowledge of the state of insolvency facing the Bell group, namely, that the
principal debtor companies could no longer meet their debts as they fell due.
Therefore, it would follow that there was knowledge that the companies
required some form of external administration. In particular, whilst his Honour
found, at [7100], that Aspinall did not believe in the substance of the
argument that he had made to SCBAL that Bondholders would rank equally
with the Banks in a liquidation, there was no issue that Aspinall believed, and
that the Banks believed, that liquidation in insolvency would follow inevitably
if SCBAL did not withdraw the demands for payment it had served on BGF
and TBGL in respect of moneys advanced by SCBAL to BGF.
807 At [9034] his Honour found that the Banks knew that if demand were made
for payment of any bank facility, liquidation of the Bell group would follow.
Indeed it was the Banks case that, for the Bell group, the choice was either
execution of the Transactions or liquidation.
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 149

808 It should be added that although the notices of demand were described as
withdrawn the outcome of service thereof remained. Namely, that BGF and
TBGL had defaulted in meeting the terms of the notices which on
4 December 1989 terminated the facility for advances to BGF and called for
immediate payment by BGF of the sum of $15.3 million and on
8 December 1989 made demand on TBGL as guarantor of BGF to make
immediate payment of the sum BGF had failed to pay. Those notices were to be
taken as requiring payment of the moneys owing within a reasonable period, a
period that had clearly expired at the time the notices were purportedly
withdrawn, 19 December 1989: see Bunbury Foods Pty Ltd v National Bank of
Australasia Ltd (1984) 153 CLR 491.
809 At [7018], his Honour found that BGF did not meet the demand and, in
terms, made the same finding in respect of the outcome of the demand for
payment served on TBGL on 8 December 1989. In effect the inability of BGF
and TBGL to meet the demands had been admitted in Aspinalls pleas to
SCBAL. It is to be noted that in each case, 7 December 1989 for BGF and
11 December 1989 for TBGL, further notices under s 364 of the Companies
Code were served by SCBAL after the respective defaults to establish a
statutory ground under the Companies Code on which orders for the winding-up
of those companies in insolvency could be made.
810 The purported withdrawal of the notices on 19 December 1989, terminated
the running of the s 364 notices but had no impact on the defaults of BGF or
TBGL that had occurred when those companies failed to meet the demands for
payment served on 4 December and 8 December 1989 respectively. Those
defaults, in turn, continued to have consequences for TBGL, namely, as a
defaulting guarantor of BGNV under the Bond Trust Deeds and the Bonds.
811 As to the second element in the claim of equitable fraud, his Honour had
made all necessary findings in that regard. At [4288], [4308]-[4309],
[4313]-[4314], [4317], [4338]-[4340], [8717] and [8726] his Honour accepted
that the Transactions constituted the Scheme pleaded and, at [9034], that it
included the further purpose of keeping the Bell group companies out of
liquidation, that is to say to forestall the utilisation of the corporations law,
namely, by commencement of an appropriate administration, whether that took
the form of a compromise of debts by arrangement and reconstruction under a
scheme; appointment of an administrator; or appointment of a liquidator.
812 At [9037]-[9038] his Honour provided the following examples of Bank
conduct to illustrate the foundation for his findings as to the Banks purpose in
implementing and protecting the Scheme against an application for winding-up
that would follow non-payment by TBGL of interest due under a Bond Trust
Deed:
I will give two examples of file notes made by bank officers that illustrate this
point. Following the March 1990 Lloyds syndicate banks meeting, Wright (Banco
Esprito) said this:
If the interest payment is not made this could cause events of default across
all loans and put the company into liquidation. We do not want this to occur
before the six months period has finished as the security documentation
may not stand up in a court of law.
It was put bluntly by Davis (HKBA) in his memorandum dated 2 May 1990 in
support of the recommendation that HKBA agree to allow TBGL to use the Bell
Press proceeds for the payment of bondholder interest:
150 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

If BGL went into liquidation now the syndicate banks would expect to rank
pari passu with the unsecured creditors as it is expected that a liquidator
would set aside the present security arrangements as a voidable preference
in a liquidation prior to 2 August 1990.

813 At [9031] his Honour concluded that the claim of equitable fraud based on
imposition and deceit may not fall far short but does not quite get there.
Given the nature and extent of the findings of fact that had been made by his
Honour, the learned trial judge should have found that equitable fraud occurred
when, with notice of the state of insolvency of the Bell group, the Banks
presented the Transactions for execution to obtain title to, or charges over,
assets of the Bell group to gain property to which it was not entitled and thereby
disadvantage all other creditors of the Bell group.
814 The cross-appeals of the respondents on these grounds should be upheld.
With regard to orders by way of relief in respect of the equitable fraud claims,
there can be no cause for equity to decline to make necessary remedial orders
by reason of participation by Bell group companies in the fraudulent purpose
described. Public policy and the interests of affected third parties demand that
appropriate orders be made.

Defence of laches
815 By notice of contention the Banks submitted that if the respondents claim of
equitable fraud were upheld there should be a finding that by reason of conduct
amounting to laches, relief in equity should be denied to the respondent LDTC
[APPA.000.057, ground 26]. Parenthetically it may be stated that even if that
contention were upheld, it could have no bearing on the ultimate orders if the
claims of equitable fraud made by the remaining respondents succeeded. The
banks contended, first, that the delay by LDTC in commencing an action in
equitable fraud on its own account had been unreasonable and, second, that
LDTC had either acquiesced to the Banks conduct or had caused such
prejudice to the Banks for it to be unjust to allow the grant of the relief sought.
816 His Honour, at [9303]-[9314], reviewed pertinent authorities, and, at
[9328]-[9341], considered relevant evidence and made necessary findings of
fact, which included the following. The liquidators of the Bell companies in
liquidation were appointed in 1991 and 1993. Funding for litigation by the
liquidators was obtained in 1995 and at that point the liquidators were able to
provide instructions for the investigation of, and to obtain advice on, the
Transactions. The activities of the liquidators in progressing the claims were
also regarded as actions taken on behalf of LDTC. Proceedings were
commenced by the liquidators in December 1995 with continuing legal advice
being provided on the claims thereafter as voluminous discovered documents
were examined and assimilated. Not until late in 1998 did the liquidators
receive advice from Senior Counsel that a claim of equitable fraud was
available. A draft of an amendment to the statement of claim to include that
claim was served on the Banks in early December 1998. The application for
leave to amend the statement of claim was not determined until December 2001
when leave was granted in the terms sought by the respondents and leave was
given to LDTC to be joined as a party to the amended claim to prosecute in its
own right a claim of equitable fraud. A significant cause for delay in
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 151

determination of that application appears to have been the time taken to resolve
issues that arose as to the appropriate forum for the matter after the High
Courts decision in Re Wakim.
817 As noted earlier his Honour found, at [9333] and [9338], that at July 1991, by
reason of Duffetts belief that the on-loans were not subordinated, it was
arguable that LDTC possessed the means of acquiring knowledge of the
elements of its equitable fraud case at that date. However, it should be noted
that to exercise the means of acquiring that knowledge there had to be provision
of discovery of, and access to, all relevant documents; the detail thereof to be
absorbed; and legal advice thereon to be provided before presentation of any
claim in equitable fraud could be considered. That meant that it was unlikely
that it could be said that time began to run from July 1991. Furthermore, whilst
conscious wrongdoing was not a requirement for a pleading of equitable fraud,
all parties would have been well aware of rules of court that required a claim of
fraud not to be pleaded unless satisfied that an appropriate foundation of fact
existed (Rules of the Supreme Court 1971 (WA), O 20 r 9(1); see now Federal
Court Rules 2011 (Cth), r 16.42; cf Federal Court Rules 1979 (Cth), r 11.10).
818 The evidence accepted by his Honour was to the effect that considerable
expense in legal fees had been incurred by the liquidators and that the
liquidators and LDTC had given continuous attention to the preparation of the
case up until leave to amend the statement of claim was granted in
December 2001. Although that evidence may have left open a conclusion that
LDTC had provided an explanation for the delay in exercising its rights, his
Honour, at [9341], found the delay to be unreasonable. However, at [9338],
his Honour concluded that the delay was not sufficient to constitute laches. By
that his Honour meant, at [9339]-[9340], that the attention LDTC had given to
participating in the litigation and obtaining advice answered any claim by the
Banks that LDTC had acquiesced in the Banks conduct. Furthermore,
at [9336]-[9337], his Honour found that the Banks had not established prejudice
of the character required to establish a defence of laches, the prejudice relied
upon being described by his Honour, at [9341], as marginal at best. His
Honour held that it would have been unjust to deny relief to LDTC had it
succeeded in its claim. It is to be remembered that the determination of whether
a defence of laches will lie involves the assessment of what is just in all the
circumstances.
819 Whether a defence of laches is tenable against an equitable fraud that
involves a fraud on the public may not be free of doubt. Certainly in earlier
times such a fraud was not considered to be vulnerable to a defence of laches:
see Young PW AO, Croft C QC, Smith M, On Equity (Lawbook Co, 2009),
at [5.100].
820 An early example of equitys strict approach in that regard was demonstrated
in Alden v Gregory (1764) 2 Eden 280 at 285; 28 ER 905 at 907, a case that
involved a substantial element of public utility in the supervision by equity of
fraudulent conduct by the executor of a deceased estate. Beneficiaries resident
in England were defrauded in 1723 by the executor purchasing from the estate
property situated in Jamaica. Proceedings in the United Kingdom against a
Jamaican resident who had purchased the property from the executor with
notice had not progressed, for various reasons, since commencement of that
152 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

proceeding in 1728. At the time the matter came before the Lord Chancellor,
Lord Northington, in 1764, all the original parties were deceased and the parties
to the proceedings were representative successors to those interests.
821 On the issue of delay the Lord Chancellor said as follows (at 907):
The next question is, in effect, whether delay will purge a fraud? Never while I sit
here. Every day arising from it adds to the injustice, and multiplies the oppression.
822 If today application of the principle of laches is discretionary in all cases and
operates to prevent occurrence of an unjust result (see Streeter v Western Areas
Exploration Pty Ltd (No 2) (2011) 278 ALR 291 at [632]-[662] per Murphy JA),
it would be unlikely that equity would consider that the balance of justice fell
the defendants way in respect of an equitable fraud that involved a fraud on the
public unless the plaintiff had committed gross and inexcusable delay and the
defendant had suffered major irremedial prejudice.
823 His Honour based his conclusion on whether the delay was unreasonable and
whether sufficient prejudice had been suffered by the Banks to make it just to
deny any claim to relief.
824 His Honour found that the delay was unreasonable but that the marginal
prejudice suffered by the Banks was insufficient to attract the application of
laches in this case. Importantly his Honour, at [9341], found that had the claim
of LDTC succeeded it would have been unjust to deny relief to LDTC
notwithstanding the unreasonable delay. The elements of prejudice asserted by
the Banks were the prospect of loss of memory by witnesses and destruction of
documents. His Honour was not satisfied that commencement of a claim by
LDTC at an earlier date would have prevented memory fade on any issue
specific to that claim and the documents destroyed had been largely replicated
by documents from other sources.
825 In effect his Honour found, at [9336]-[9340], that the delay by LDTC in
commencing a proceeding occurred because LDTC had been content to proceed
on the coat-tails of other respondents, not because LDTC had no concern for
its own interests or was content to acquiesce in the conduct of the Banks.
826 The banks have not shown that his Honour overlooked or misunderstood
cardinal facts, misunderstood or misapplied the law or had regard to irrelevant
considerations in reaching his findings on this issue.
827 It follows that this ground of the Banks notice of contention must fail.
Claim of BGNV
828 BGNV sought to establish a separate case of equitable fraud by reason of
unconscientious conduct by the Banks in taking advantage of a special
disadvantage that affected BGNV in the execution of the BGNV Subordination
Deed, namely, the failure of its director to perform its directors duties. His
Honour found that case was not made out. BGNV cross-appeals from that
finding [APPB.000.005, grounds 26 and 27].
829 As set out in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR
447 at 474 per Deane J, this ground of the cross-appeal requires there to be an
evident disability in one party sufficient to make the transacting parties
manifestly unequal and, effectively, to put the disabled party under the
dominion or power of the other. In other words, a purported acceptance by the
latter of the assent to the bargain by the disabled party, on its face, would
display unfairness and equitable fraud.
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 153

830 Even if it is accepted that BGNVs director acted improvidently or


unreasonably and failed to perform its directors duties to BGNV, and that the
Banks received advantage from that default in the execution by BGNV of the
BGNV Subordination Deed, those circumstances, without more, would not
show that at all material times it was obvious that BGNV would be unable to
make a worthwhile judgment as to whether execution of the document would be
in its interests. As it happened the judgment made by BGNVs director was not
in BGNVs interests, but that did not flow from a patent inability, of which the
Banks were aware, of BGNV to make a proper judgment in that regard: see
Wilton v Farnworth (1948) 76 CLR 646; Blomley v Ryan (1954) 99 CLR 362;
Bridgewater v Leahy (1998) 194 CLR 457; Australian Competition and
Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51.
831 Although there was evidence that the Banks applied some degree of pressure
to BGNV by instructing solicitors for the Banks to prepare, and present directly
to BGNV, changes to the company constitution of BGNV, purportedly for the
purpose of providing BGNV with capacity to execute the BGNV Subordination
Deed, thereby raising a suggestion that the Banks expected BGNV to execute
the Deed (conduct which drew a rebuke from TBGL), the Banks were informed
in clear terms by TBGL that execution of the BGNV Subordination Deed was a
matter for BGNV to determine for itself. There was no evidence that the Banks
were aware that BGNVs director was incapable of making an appropriate
judgment in that regard.
832 This ground of BGNVs cross-appeal must be dismissed.

Conduct of directors
833 The directors of the Australian companies in the Bell group were Aspinall,
Oates and Mitchell (Australian directors). The director of BGNV at material
times was Equity Trust, of which Ruoff was the sole director. The directors of
the Bell group companies registered in the United Kingdom, BGUK, TBGIL
and Bell International Investments Ltd (BIIL), were Edwards, Birchmore,
Mitchell and Bond for BGUK and TBGIL and Edwards and Whitechurch for
BIIL (at [4452]) (collectively UK directors). His Honour found that save for
Equity Trust the directors, or a majority of them, breached fiduciary duties owed
to the respective companies. Of the foregoing directors only Aspinall, Mitchell
and Whitechurch gave evidence.
Nature of fiduciary duties
834 The pre-eminent fiduciary relationship is that of a trustee and cestui que trust
(or beneficiary). It arises out of, but is separate from, the trust obligations
undertaken by a trustee upon formation of a trust. Upon appointment, all trust
property is vested in the trustee who has trust obligations to preserve the trust
property; duly administer the trust; and advance the interests of the object of the
trust.
835 Other instances of fiduciary relationships include partnership; guardianship;
agent and principal; director and corporation; solicitor and client; employer and
employee and, in some cases, expert advisor and client.
836 There is no standard test to be applied to determine whether parties are within
a fiduciary relationship. The existence and scope of such a relationship, and the
nature of fiduciary obligations arising thereunder, will depend upon all relevant
154 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

facts, including any contractual arrangements the parties may have made: see
Hospital Products Ltd v United States Surgical Corporation (at 69) per
Gibbs CJ, (at 102) per Mason J.
837 In Pilmer v Duke Group Ltd (in liq) (at 196-197), McHugh, Gummow, Hayne
and Callinan JJ in the following passage cited with approval the description of
McLachlin J of the essence of fiduciary duty and fiduciary relationship:
It is important also to recognise the distinct character of the fiduciary obligation,
which sets it apart from contract and tort. In Norberg v Wynrib [[1992] 2 SCR 226
at 272] McLachlin J said:
The foundation and ambit of the fiduciary obligation are conceptually
distinct from the foundation and ambit of contract and tort. Sometimes the
doctrines may overlap in their application, but that does not destroy their
conceptual and functional uniqueness. In negligence and contract the parties
are taken to be independent and equal actors, concerned primarily with their
own self-interest. Consequently, the law seeks a balance between enforcing
obligations by awarding compensation when those obligations are breached,
and preserving optimum freedom for those involved in the relationship in
question. The essence of a fiduciary relationship, by contrast, is that one
party exercises power on behalf of another and pledges himself or herself to
act in the best interests of the other.
838 His Honour, at [4531], accepted that the relationship between director and
company was fiduciary but stated that it did not follow that each and every
duty owed by the director to the company is fiduciary. In particular his Honour
said that a duty owed by a director to a corporation to exercise care and
diligence was a duty in equity but not a fiduciary duty, citing opinion to that
effect expressed in Permanent Building Society v Wheeler (1994) 11 WAR 187
at 238-239 (Wheeler).
839 Whilst it was not part of the respondents case that the directors had breached
a fiduciary duty of care and diligence, it is necessary to examine the nature and
character of such a duty in determining what constitutes the fiduciary duties of a
director and whether the duties said by the respondents to have been breached
by the directors in this case are within that class.
840 As discussed below, there may be cause to question whether the statement
that a breach of a directors duty to exercise care and diligence is not a breach
of fiduciary duty has universal application: see Heydon JD, Are the Duties of
Company Directors to Exercise Care and Skill Fiduciary? in Degeling S and
Edelman J (eds) Equity in Commercial Law (1st ed, Lawbook Co, 2005),
pp 185-237; cf Heath WM, The directors fiduciary duty of care and skill: A
misnomer (2007) 25 C&SLJ 370.
841 If (as it appears at 237-238) the reasoning in Wheeler proceeded on the
assumption that a trustees duty to exercise reasonable care in administering a
trust was not a fiduciary duty and, therefore, the duty of care and diligence
imposed on a director by equity could not be a fiduciary duty, then that
assumption may need to be tested: see Meagher RP, Heydon JD and Leeming
MJ, Meagher, Gummow & Lehanes Equity: Doctrines and Remedies (4th ed,
LexisNexis, 2002), pp 210-218; Ong DKS, Trusts Law in Australia (3rd ed, The
Federation Press, 2003), pp 219-221; Partridge v Equity Trustees Executors and
Agency Co Ltd (1947) 75 CLR 149 at 163-164; Goldfinch A, Trustees Duty to
Exercise Reasonable Care: Fiduciary Duty? (2004) 78 Australian Law Journal
678, p 681.
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 155

842 In earlier times the standard of care and diligence to be met by a trustee in
carrying out the duties of office was regarded as onerous but over the years the
stringency of the standard has been relaxed in equity and by statute: see Fouche
(at 641) per Dixon, McTiernan, Fullagar JJ); Trustees Act 1962 (WA), s 75. The
standard required of a trustee is to take reasonable care, being the care that an
ordinary prudent person of business would apply to his own affairs, keeping in
mind that moral obligations to others have been undertaken: Re Whiteley;
Whiteley v Learoyd (1886) LR 33 Ch D 347 at 355 per Lindley LJ. In respect of
trust investments a higher standard applies, namely, that trust funds not be
applied to an investment attended with any degree of hazard notwithstanding
that it may be an investment within an authorised class of investments: see
Learoyd v Whiteley (1887) LR 12 App Cas 727 at 733 per Lord Watson;
Australian Securities Commission v AS Nominees Ltd (1995) 62 FCR 504 at 516
per Finn J.
843 In respect of a corporate trustee that carries on a business of providing such
services and holds out that it possesses particular skill, expertise and ability to
provide special care as a trustee and solicits appointment to that office, a higher
standard of care may be imposed, to wit, an obligation to apply the level of
skill, expertise and ability represented: see Bartlett v Barclays Bank Trust Co
Ltd (No 2) [1980] Ch 515 at 534; Australian Securities Commission v AS
Nominees (at 518) per Finn J.
844 A failure by a trustee to exercise reasonable care in exercising the powers and
performing the duties of trustee that occasions loss of, or detriment to, trust
property will mean that a breach of trust has been committed by the failure of
the trustee to duly administer the trust: see Maguire v Makaronis (1997) 188
CLR 449 at 473 per Brennan CJ, Gaudron, McHugh, Gummow JJ.
845 But the use of reasonable care in the exercise of powers and performance of
duties of the trust is also an obligation undertaken by the trustee as fiduciary
under the concurrent fiduciary relationship between trustee and beneficiary. In
that fiduciary relationship the fiduciary has pledged to exercise the powers and
perform the duties of the trust in the interests of the beneficiary and to use
reasonable care in doing so. It would seem to be plain that the foregoing
obligation is at the core of the fiduciary relationship, a relationship based
entirely on reliance and trust. There appear to be compelling reasons for treating
as a fiduciary duty the duty of the trustee to use reasonable care: Ong,
pp 219-221.
846 The fiduciary relationship is the means by which access to full and
appropriate relief in equity may be provided where trust property has been put
at risk by imprudent conduct by a trustee/fiduciary in breach of a fiduciary duty
to exercise reasonable care. For example, preventative, remedial or restorative
orders may be moulded to correct the breach and to preserve trust property.
847 Although in the following passage (Hospital Products (at 100)) Mason J dealt
specifically with the use of a declaration of constructive trust as a means of
redressing a breach of fiduciary duty his Honours comments endorsed the
jurisdiction of equity in respect of fiduciary relationships and reaffirmed that it
was inappropriate to artificially constrict the concept of fiduciary relationship if
that would deny equitys ability to do justice in appropriate cases:
The disadvantages of introducing equitable doctrine into the field of commerce,
which may be less formidable than they were, now that the techniques of
commerce are far more sophisticated, must be balanced against the need in
156 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

appropriate cases to do justice by making available relief in specie through the


constructive trust, the fiduciary relationship being a means to that end. If, in order
to make relief in specie available in appropriate cases it is necessary to allow
equitable doctrine to penetrate commercial transactions, then so be it: see, e.g.,
Barclays Bank Ltd v Quistclose Investments Ltd [[1970] AC 567] and Swiss Bank
Corporation v Lloyds Bank Ltd [[1982] AC 584]. A preferable approach to an
artificial narrowing of the fiduciary relationship the gateway to relief in specie
is to define and delimit more precisely the circumstances in which the remedy
by way of constructive trust will be granted.
848 Whilst there are numerous differences between the functions of a trustee and
those of a director (see Re City Equitable Fire Insurance Co [1925] Ch 407
at 426 per Romer J) there is, nevertheless, a degree of equivalence between the
relationship of trustee and beneficiary and that of director and corporation not
found in other fiduciary relationships: Regal (Hastings) Ltd v Gulliver [1967] 2
AC 134 at 147-149 per Lord Russell. In particular each is a status-based
fiduciary relationship out of which a general fiduciary duty in relation to
exercise of powers and performance of duties may be said to arise: see Breen v
Williams (at 112) per Gaudron, McHugh JJ.
849 The directors represent the organic element of an otherwise inanimate entity
and are the controlling mind and will of a corporation. They exercise all powers
of the company other than those reserved to the company in general meeting.
Responsibility for the management of the business of a corporation is imposed
on directors by statute, subject to any qualification provided by the constitution
of the company: see Companies Act 1961 (WA), ss 73 and 56; Companies Code
1981 (WA), ss 6, 66; Corporations Law, s 198A; Corporations Act, s 198A. If
directors devolve management functions to employees of the company, due
oversight of that management remains part of the duties of the directors: see
Australian Securities and Investments Commission v Vines (2005) 65 NSWLR
281 at [90]-[93]; Wheeler (at 224-225, 241); Corporations Act, s 190.
Specifically directors are entrusted by a company to protect and advance the
interests of the corporation and, where the corporation is in a situation of
insolvency, not to have the corporation prejudice the interests of creditors.
850 Although the duty of a director to exercise powers and perform obligations of
office with care and diligence, and the duty of a trustee to administer a trust with
care and diligence, may have had a common root in equity (see Charitable
Corporation v Sutton (1742) 2 Atk 400; 26 ER 642; Swindle v Harrison [1997]
4 All ER 705 at 734), for the reasons set out below the duty of a director in
equity to use reasonable care has developed a less onerous standard than that
applied to a trustee.
851 The complexity of the affairs of a company and the allocation of particular
responsibilities to individual directors require any review of the decision-
making conduct of a director to have regard to those matters and to the position
in the company the director occupies (eg executive or non-executive director;
appointment to a committee of directors). Courts have acknowledged that the
numerous exigencies are required to be taken into account in the conduct of the
business of a corporation by directors supervising the management thereof.
Accordingly, courts have declined to exercise any general supervisory role in
respect of the degree of care and diligence applied by a director to business
management decisions: see Harlowes Nominees Pty Ltd v Woodside (Lakes
Entrance) Oil Co NL (1968) 121 CLR 483 at 493 per Barwick CJ, McTiernan,
Kitto JJ; Dovey v Cory [1901] AC 477 at 488 per Lord MacNaghten. Of course,
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 157

that confinement of jurisdiction did not exclude the jurisdiction of equity to


provide appropriate relief for breach of the duty of care and diligence imposed
by equity. Nor did it derogate from the operation of other duties of the director
under the fiduciary relationship of director and company. For example, not to
act other than in good faith and for a proper purpose; not to act to obtain a
benefit or make a profit from use of the advantage of the office of director or
from the use of information obtained in that office; and not to have any personal
interest in conflict with the duties of office.
852 With regard to the duty imposed on a director (by equity) to exercise care and
diligence in the management of a corporation, the standard of care applied is
reasonable care. That is not all possible care but the care expected of an
ordinary person exercising an ordinary degree of prudence in respect of his own
affairs. Liability of a director for a breach of that duty only arises when the
director commits gross or culpable negligence: see Re City Equitable Fire
Insurance Co (at 427-428) per Romer J; Overend & Gurney Co v Gibb (1872)
LR 5 HL 480 at 487. Put another way, it is conduct by a director that is so
plainly imprudent and unreasonable in the circumstances that it is conduct not
to be expected of any reasonable person exercising an ordinary degree of
prudence in his or her affairs.
853 In Fouche (at 641), the duty in equity of a member of the board of a statutory
corporation vested with control and management of the affairs and property of
the corporation was expressed as a duty to use reasonable care, being the care
an ordinary prudent person of business would take. Breach of that duty was
found in the gross negligence and wholly unreasonable conduct of board
members (at 641).
854 Whilst Fouche involved breach of duties owed to a corporate trustee by
members of the statutory board that constituted the corporate trustee, the
liability of the board members turned on breach of the duties in equity each
owed to the corporation and not upon any argument that the board were de
facto trustees with duties of trustees (at 640). Of course, given that the conduct
of directors may effect a breach of trust by a corporate trustee, the trust duties of
that corporate trustee may give form and direction to the duty of a director in
equity to apply care and diligence to the management of that corporation: see
Australian Securities Commission v AS Nominees (at 517) per Finn J;
Corporations Act, s 197. But that duty of care and diligence of a director of a
corporate trustee is the same duty as that imposed on a director of a non-trustee
corporation: see Jeffree v National Companies and Securities Commission
[1990] WAR 183 at 194 per Brinsden J, at 196 per Pidgeon J.
855 Over time, that duty of a director in equity has been modified by provisions
of corporations legislation.
856 Section 124 of the Companies Act 1961 (WA) imposed statutory duties upon
directors that were said to be in addition to and not in derogation of any
enactment or rule of law relating to the duty of directors of a company. In that
context the words rule of law would have included an obligation in equity.
The duties imposed were:
(a) at all times to act honestly and use reasonable diligence in discharge of
the duties of office;
(b) not to make use of information acquired by virtue of the position to
gain directly or indirectly an improper advantage or cause detriment to
the company.
158 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

857 The section declared a breach of those provisions to be an offence and


imposed a liability on the director to the company for any profit made by the
director or for any damage suffered by the company as a result of the breach
(emphasis added).
858 The section did not refer to a duty to act in good faith for a proper purpose or
to avoid conflict between duty and personal interest.
859 Section 229 of the Companies Code 1981, which replaced the Companies Act
1961, provided some expansion of those provisions, in particular by adding
exercise of powers to discharge of the duties of office, but otherwise was to
similar effect. When the Corporations Law replaced the Companies Act 1961 in
1991, s 232 of the Corporations Law was in similar terms but did not include
provision for imposition on a director of liability to the corporation for any loss
suffered by a company as a result of the breach. Instead, Pt 9.4B of the
Corporations Law empowered ASIC (s 1317EB) to apply for a civil penalty
order for a contravention of s 232 by a director (ss 1317DA, 1317EA). On that
application the court could order the director to pay compensation to the
corporation if the corporation suffered loss or damage as a result of the
contravention (s 1317HA) (emphasis added). Upon amendment of the
Corporations Law on 13 March 2000 by the Corporate Law Economic Reform
Program Act 1999 (Cth) (CLERP Act), a corporation also obtained the right to
apply for a compensation order (s 1317J) for damage suffered by the
corporation if the damage resulted from the contravention (s 1317H)
(emphasis added).
860 It may be thought that the words as a result of or resulted from imported
the test applied in equity for linking a breach of duty in equity to loss or damage
suffered, namely, whether but for the breach no loss or detriment would have
resulted. That involves the use of but for in its widest sense, that is, as an
event in a chain of events. It requires no further inquiry as to the directness or
immediacy of the consequences in relation to the breach or whether the loss was
caused by the breach: see Re Dawson; Union Fidelity Trustee Co Ltd v
Perpetual Trustee Co Ltd [1966] 2 NSWR 211 at 214-216 per Street J; Canson
Enterprises Ltd v Boughton & Co [1991] 3 SCR 534; 85 DLR (4th) 129 at 160
per McLachlin J; Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274
at 286-288 per Fisher, Gummow, Lee JJ; Contra: Adler v Australian Securities
and Investments Commission (2003) 179 FLR 1 at [704]-[711] per Giles JA.
861 It should be noted that for a short period a requirement that the loss or
damage be caused by the contravention was inserted in s 1317HA(1)(b) by
the Managed Investments Act 1998 (Cth) in July 1998 (emphasis added). That
amendment was removed by the CLERP Act in March 2000 and the words
resulted from were inserted in its stead to restore the prior meaning of the
subsection (emphasis added).
862 Part 2D.1 of the Corporations Law, introduced by the CLERP Act, restated
the statutory duties of directors. The provisions were repeated in Pt 2D.1 of the
Corporations Act.
863 The duty of a director to exercise care and diligence was expressed in s 180
of the Corporations Act as follows:
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 159

180 Care and diligence civil obligation only

Care and diligence directors and other officers


(1) A director or other officer of a corporation must exercise their powers and
discharge their duties with the degree of care and diligence that a
reasonable person would exercise if they:
(a) were a director or officer of a corporation in the corporations
circumstances; and
(b) occupied the office held by, and had the same responsibilities
within the corporation as, the director or officer.
Business judgment rule
(2) A director or other officer of a corporation who makes a business judgment
is taken to meet the requirements of subsection (1), and their equivalent
duties at common law and in equity, in respect of the judgment if they:
(a) make the judgment in good faith for a proper purpose; and
(b) do not have a material personal interest in the subject matter of the
judgment; and
(c) inform themselves about the subject matter of the judgment to the
extent they reasonably believe to be appropriate; and
(d) rationally believe that the judgment is in the best interests of the
corporation.
The directors or officers belief that the judgment is in the best interests
of the corporation is a rational one unless the belief is one that no
reasonable person in their position would hold.
(3) In this section:
business judgment means any decision to take or not take action in
respect of a matter relevant to the business operations of the corporation.

864 It is to be noted that in respect of a business judgment made in reliance


upon a report by a committee of directors, s 189 of the Corporations Act
provides that until the contrary is proved it is reasonable for a director to rely on
information or advice prepared by a committee of directors on which that
director did not serve, However, that proviso was subject to the reliance being
made in good faith and after making independent assessment of the information
or advice having regard to the directors knowledge of the corporation and to
the complexity of the structure and operations of the corporation.
865 The importance of the exercise of the required standard of care and diligence
in the discharge of duties by a director holding a position on a committee of
directors such as finance, audit or remuneration and the prospect of a
company suffering substantial detriment as a result of a director breaching that
duty would be apparent: see Australian Securities and Investments Commission
v Vines (2006) 58 ACSR 298 at [119], [143], [163], [222] per Austin J.
866 Whatever the standard of care may be for the statutory duty imposed by
s 180(1), the duty is subject to the business judgment rule. Section 180(2)
provides that that duty, and equivalent duties at common law or in equity, are to
be taken to be met if all requirements of the business judgment rule are
satisfied. Accordingly, the equivalent obligation in equity to exercise powers
and carry out duties with care and diligence in respect of decisions relevant to
business operations of a corporation has been modified by the business
judgment rule set out in s 180(2).
867 It may be noted that s 1317G(1)(b)(ii) of the Corporations Act provided that
160 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

a court may order that a director who has contravened s 180(1) pay a penalty of
up to $200,000 if the contravention materially prejudiced the corporations
ability to pay its creditors.
868 Section 185 of the Corporations Act confirms that relief for conduct to which
s 180(1) may apply can also be sought in civil proceedings for a breach of duty,
for example, a claim in equity for compensation for breach of an equitable duty.
The extent of the penalty that may be imposed for a serious contravention of
s 180(1) of the Corporations Act suggests an assumption by the legislature that
an equivalent breach by a director of a duty in equity to exercise powers and
discharge duties with care and diligence, would bring access to relief in a
proceeding in equity able to provide appropriate redress for the prejudice
inflicted by the breach, ie equitable compensation as for a breach of fiduciary
duty.
869 Application of the business judgment rule to the equivalent duty in
equity to act with care and diligence has the effect of restating that duty in
respect of any decision relevant to the business operations of a corporation, as
follows: to act in good faith for a proper purpose; to act free of conflict with any
personal interest; to act only after obtaining information about matters relevant
to that decision to the extent that a reasonable person would believe necessary;
and, to act with a belief that the proposed decision is in the best interests of the
corporation, not being a belief that no reasonable person would hold if in the
directors position. These requirements are cumulative and not independent
alternatives.
870 The failure of a director to meet either of the first two elements of the rule
would raise contentions in equity of a breach of fiduciary duty and entitlement
to appropriate relief. Breach of either of the latter two elements would be likely
to involve the degree of unreasonable conduct or gross negligence that would
bring a claim of breach of the duty in equity to exercise care and diligence, and
for appropriate relief in equity to redress loss or detriment occasioned by that
conduct: see Fouche (at 641).
871 The question whether the intervention of equity in a fiduciary relationship is
justified is determined by examination of the nature of the fiduciary
relationship; the conduct of the fiduciary; and the consequences of that conduct:
see Re Coomber [1911] 1 Ch 723 at 728-729 per Fletcher-Moulton LJ; Warman
International Ltd v Dwyer (1995) 182 CLR 544 at 559-560 per Mason CJ,
Brennan, Deane, Dawson and Gaudron JJ.
872 Both the duty of care and diligence imposed by equity and the grant of relief
in equity for a breach of such a duty are separate and distinct from the common
law duty of care and from considerations relevant to relief for a breach of the
latter duty: see Re City Equitable Fire Insurance Co (at 428) per Romer J;
Nocton v Lord Ashburton [1914] AC 932 at 957 per Viscount Haldane LC.
873 If a director owes a duty to a corporation to exercise care and diligence and
causes loss or detriment to the company by reason of substantial dereliction of
that duty, it may be thought there would be good cause for equity to treat that
conduct as analogous to a breach of the fundamental reliance and trust
underlying the fiduciary relationship between director and corporation. The
consequence would be a breach of fiduciary duty for which equity could direct
the fiduciary to make good the loss or detriment.
874 Such unreasonable conduct constituting culpable or gross negligence would
represent a repudiation of the duty of care and diligence pledged by the
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 161

fiduciary director to protect or advance the interests of the corporation. For that
reason, the conduct would offend good conscience and entitle the corporation to
obtain appropriate relief in equity.
875 In Fouche, orders in equity directed the individual board members to provide
equitable compensation to the corporate trustee to the extent necessary to
redress the breach of trust committed by the corporate trustee that resulted in
detriment to trust property. The cause of that breach by the corporate trustee was
the breach of duty owed by the members of the board of the corporate trustee to
carry out their functions of management and the exercise of their powers with
reasonable care.
876 The following passage in the reasons of Dixon, McTiernan and Fullagar JJ
(at 640-641) is instructive:
[W]e can see no escape from the view that the individual members of the board
owed a duty to the corporation which they constituted and whose property and
affairs they controlled and managed. Nor can we doubt that this duty is
enforceable in equity. The board being plaintiff, and the duty being owed to the
board, the case is not like Wilson v Lord Bury [(1880) 5 QBD 518]. On the other
hand it finds a very close analogy in Joint Stock Discount Co v Brown [(1869) LR
8 Eq 381]. The learned Chief Justice seems to have thought that, if the members
of the board owed any duty to anybody, it could only be enforced by action for
damages presumably at common law and he said that the pleadings
contained no claim for damages, and that no damage had been proved. But,
whatever the position might be at law, the plaintiff board is seeking an equitable
remedy, and, the administration of a trust fund being involved, it is clear that there
is ample jurisdiction in equity to give appropriate relief if a breach of duty is
proved.
With regard to the nature of the duty, we are of opinion that it does not differ
materially from the duty which rests on trustees in relation to investments. The
duty is not so onerous as it once was. In modern times it is regarded as defined by
Speight v Gaunt [(1883) 9 App Cas 1] and in Re Whiteley; Whiteley v Learoyd
[(1886) 33 Ch D 347; 12 App Cas 727]. It is a duty of reasonable care the care
which an ordinary prudent man of business would take. In Charitable Corporation
v Sutton (1742) 2 Atk 400 (26 ER 642) a bill was filed for relief against
individuals in respect of alleged breaches of trust by an incorporated trustee.
Lord Hardwicke throughout treats the individual defendants as in effect occupying
the position of trustees, and he says: If upon inquiry before the Master, there
should appear to be a supine negligence in all of them I will never determine
that they are not all guilty (1742) 2 Atk, at p 406 (26 ER, at p 645). It would be
strange if the position were otherwise.
One cannot help feeling a degree of sympathy for the members of the board
other than Rule firstly because they had no qualifications for the task of
investing trust funds, and secondly because, in consequence, they relied very
largely on Rules judgment. But the standard to be applied is the standard of the
reasonably prudent man of business, and it is nothing to the point that they were
not men of business at all. Having regard to all the facts and circumstances set out
in an earlier part of this judgment, we can see no escape from the view that all
four defendants were guilty of gross negligence in assenting to the investment
which is attacked, and that all are liable to make good any loss resulting
therefrom.
It was argued that the ex-members of the board, or at least Messrs Biggins,
Wadley and White, ought to be relieved from liability under s 50 of the Trustee
Act. This is not, in our opinion, a case for the application of that section at all. It
may be assumed that all acted honestly, but it is impossible to say that they acted
162 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

reasonably. Judged by the only possible standard, it is difficult to imagine anything


more unreasonable than their conduct.

877 Of course, as stated earlier, it was a significant fact in Fouche that the
corporation had been formed to administer a trust fund. However, a non-trustee
corporation would place the same degree of dependence and reliance upon its
directors to fulfil their pledge to exercise powers and perform duties to advance
the interests of the corporation. It would also follow that the same duty of care
and diligence in equity that applied to the board of the corporation in Fouche
would apply to directors of all other corporations making apt the similar
treatment in equity of such a breach of the duty of care and diligence by a
director.
878 The principles of equity applied in Fouche found an echo in the remarks of
the High Court in Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212
CLR 484.
879 In Youyang Pty Ltd (at 500-501) Gleeson CJ, McHugh, Kirby and Hayne JJ,
reiterated the thrust of the remarks of Brennan CJ, Gaudron, McHugh and
Gummow JJ in Maguire v Makaronis (at 473-474), and counselled caution in
respect of cases that asserted that equitable compensation recoverable for breach
of a duty in equity to apply care and diligence was equivalent to damages
awarded for breach of a common law duty of care and which advocated that
common law rules of causation, remoteness of damage and measure of damages
should be applied to the assessment of equitable compensation. Implied in the
call for caution was disapproval of the statement in those cases of the
proposition that the failure of a trustee to exercise the necessary degree of care
and diligence in duties owed to a trust estate should not be treated as a breach of
fiduciary duty for the purpose of assessment of appropriate relief.
880 Their Honours took the opportunity to cite with approval once again an
exposition by McLachlin J on the nature and importance of a fiduciary
relationship. Although in Youyang their Honours were dealing with the
consequences of a breach of trust they noted the common standing of breach of
fiduciary duty and breach of trust vis--vis equitable compensation in contrast
with compensation in tort and contract (at [39]-[40]):
[T]here must be a real question whether the unique foundation and goals of equity,
which has the institution of the trust at its heart, warrant any assimilation even in
this limited way with the measure of compensatory damages in tort and contract.
It may be thought strange to decide that the precept that trustees are to be kept by
courts of equity up to their duty has an application limited to the observance by
trustees of some only of their duties to beneficiaries in dealing with trust funds.
The point appears from the statement by McLachlin J in Canson Enterprises
Ltd v Boughton & Co [[1991] 3 SCR 534 at 543]:
The basis of the fiduciary obligation and the rationale for equitable
compensation are distinct from the tort of negligence and contract. In
negligence and contract the parties are taken to be independent and equal
actors, concerned primarily with their own self-interest. Consequently the
law seeks a balance between enforcing obligations by awarding
compensation and preserving optimum freedom for those involved in the
relationship in question, communal or otherwise. The essence of a fiduciary
relationship, by contrast, is that one party pledges itself to act in the best
interest of the other. The fiduciary relationship has trust, not self-interest, at
its core, and when breach occurs, the balance favours the person wronged.
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 163

Whatever the qualification to these principles which might flow in some cases
from acceptance in Australia of the reasoning in Bristol and West Building Society
v Mothew [[1998] Ch 1 at 17] and Bank of New Zealand v New Zealand Guardian
Trust Co Ltd [[1999] 1 NZLR 664 at 681], they applied to the present case with
undiminished cogency.
881 The High Court affirmed that the essence or core of a fiduciary relationship is
the matter of trust. As explained earlier, this can be seen to be of particular
importance in the fiduciary relationship of director and corporation and for the
assessment of whether there has been a breach of fiduciary duty in that
relationship.
882 Between a director and corporation the obligation on the director to exercise
care and diligence is an essential requirement of the relationship given the
extent to which the company depends upon proper exercise, by the director, of
the powers of the company.
883 Entitlement to remedy in equity for breach of a fiduciary duty does not
depend upon showing personal enrichment of the fiduciary, or of another at the
hands of the fiduciary. Such relief extends to conduct of the fiduciary that
causes loss and detriment by reason of the breach of an essential obligation of
the fiduciary relationship. For example, in Bennett v Minister of Community
Welfare (1992) 176 CLR 408 the Director of Community Welfare had been
appointed by the Child Welfare Act 1947 (WA) as guardian charged with the
care, management and control of the person and property of Bennett. Pursuant
to that fiduciary relationship the Director had fiduciary obligations to Bennett.
Bennett suffered injury when officers employed by the Department failed to
provide Bennett with safe equipment in the course of instruction in an
institution to which Bennett had been confined. That breach of a common law
duty of care by the officers was a breach for which the Minister was vicariously
liable. The Director also had a duty of care, whilst Bennett was confined in the
institution controlled by the Director, to facilitate the obtaining of independent
legal advice for Bennett. That duty of care of the Director was independent of
the fiduciary duty of the Director as guardian. The fiduciary duty as guardian
was defined as a positive obligation on the Director to assert the rights of the
ward by obtaining independent legal advice in respect of the injury sustained
(and presumably, if necessary, to give effect to that advice on behalf of the
ward) at 412 per Mason CJ, Deane and Toohey JJ; at 426-427 per McHugh J.
The reasons of McHugh J (at 426-427) accepted that had the breach of fiduciary
duty, as defined, been relied upon by Bennett the breach of that duty would have
provided a right to equitable compensation where issues of causation,
foreseeability and remoteness would have been irrelevant.
884 In other words, where there has been a breach in a fundamental respect of the
pledge by the fiduciary (in a fiduciary relationship) to act in the best interests of
another that occasions loss or detriment, equitable compensation should follow.
Thus, where exercise of care and diligence in management of the affairs of a
corporation has been pledged by a director and relied on by a corporation, it
would be consonant with principle for a breach of that obligation (by
unreasonable conduct by a director that amounts to gross or culpable negligence
and loss or detriment has resulted to a corporation), to be treated as a breach of
a fiduciary duty in that fiduciary relationship.
885 The breach would be a fundamental breach of the trust at the core of the
fiduciary relationship, regarded in equity as unacceptable conduct, enabling
164 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

equity to fashion appropriate orders for relief: see Re Second East Dulwich
745th Starr-Bowkett Building Society (1899) 68 LJ Ch 196 at 199. As Dawson J
stated in Hospital Products (at 142):
There is, however, the notion underlying all the cases of fiduciary obligation that
inherent in the nature of the relationship itself is a position of disadvantage or
vulnerability on the part of one of the parties which causes him to place reliance
upon the other and requires the protection of equity acting upon the conscience of
that other: see Tate v Williamson [(1866) 2 Ch App 55 at 60-61].
886 The fiduciary principle was developed to monitor and redress abuse of a
loyalty reposed in a relationship where one party occupies a position of
influence, ascendancy or power in relation to the other and has undertaken to
use that position for the welfare of the other: see Hospital Products (at 97) per
Mason J; Breen v Williams (at 133-134) per Gummow J. It may be expected that
such abuse is likely to be reflected in acts that provide benefit or advantage to
the fiduciary, or to persons connected with the fiduciary, but intervention by
equity in a fiduciary relationship is not limited to conduct that has obtained or
has sought to obtain improper benefit.
887 For example, in the seminal case of Nocton v Lord Ashburton, involving a
status-based fiduciary relationship of solicitor and client, the breach of fiduciary
duty relied upon for the grant of relief in equity, where the breach occasioned
loss to the client, was the breach of the fiduciary obligation of the solicitor to
provide the client with careful advice that contained a full, and not misleading,
disclosure of the facts known to the solicitor: at 956-958 per Viscount Haldane
LC; at 965 per Lord Dunedin; at 969, 971-972 per Lord Shaw.
888 In Nocton v Lord Ashburton their Lordships sought to identify the
circumstances in which equity would provide a remedy for breach of the duty in
equity to use due care and skill in providing advice to a client in a fiduciary
relationship of solicitor and client. The right to a remedy in equity was
distinguished from the right to a remedy at law for breach of a similar
obligation to exercise due care and skill in contract or tort.
889 It was not in issue that the facts of the case presented a clear example of
negligent performance of a solicitors duty to provide advice to a client with due
care and skill. Indeed Lord Parmoor was satisfied that a claim in negligence for
breach of a duty of care and skill had been pleaded and that similar orders to
those sought in equity were available on that claim (at 976-977 per
Lord Parmoor). Viscount Haldane LC noted that in any event the plaintiff had
made out a claim for compensation for breach of a contract to exercise due care
and skill (at 958 per Viscount Haldane LC).
890 In the courts below the matter had been treated exclusively as an action in
deceit based on an allegation of fraud. The fraud alleged was the provision by
the solicitor of advice in bad faith for the purpose of obtaining a pecuniary
advantage. In the Court of Appeal the Master of the Rolls, in agreement with the
trial judge, stated that it would be wrong to allow a case based solely on
serious charges of fraud to be turned into a comparatively harmless case based
on negligence (at 945 per Viscount Haldane LC).
891 Their Lordships were satisfied, however, that the matter as pleaded contained
a plea of breach of a fiduciary duty of care and skill in equity. Notwithstanding
that the allegations of fraud failed, it was clear that there had been misconduct
as understood in equity in that the solicitor had misrepresented, albeit
innocently, the value of the security held by the client for the advance made to
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 165

the mortgagor and had not disclosed the extent of the solicitors interest in the
mortgagors affairs, although partners of the solicitor had disclosed that fact to
the client. Underlying the reasons of their Lordships was the knowledge that the
solicitor had also breached a fiduciary obligation not to allow his personal
interests to conflict with the interests of the client. It was stated that by reason of
that conflict there was a duty on the solicitor to decline to act and to insist that
another solicitor be retained (at 969 per Lord Shaw). However, breach of a
fiduciary duty to avoid a conflict of interest was not the basis on which the case
was determined and it was not contended that the solicitor had received an
undisclosed profit.
892 Their Lordships treated the solicitors belief that he was properly joining
with [the client] and guiding him in a good speculation (at 945 per Viscount
Haldane LC) as an element of the breach by the solicitor of his fiduciary duty to
apply due care and skill in providing advice to the client. The trial judge had
found that it was probable that the solicitor would have given different advice
had he not been personally interested in the result.
893 The conduct of the solicitor was said to represent more than mere negligence
and that the solicitors fiduciary duty of care and skill had been breached by
conduct that was contrary to the dictates of conscience making it appropriate for
equity to intervene. Accordingly, the client was entitled to relief in equity
regardless of whether the client also had remedies in tort or contract for the
failure to exercise due care and skill (at 952, 956-958 per Viscount Haldane
LC). It was accepted that the relief should redress the consequences of breach of
the fiduciary duty to provide careful advice and should include compensation
for any loss suffered as a result of that conduct.
894 As stated by Lord Dunedin, the purpose of intervention by equity was to
keep persons in a fiduciary capacity up to their duty (at 963 per
Lord Dunedin).
895 Acts of disloyalty that inflict detriment on the other party to the fiduciary
relationship may occur in circumstances where the fiduciary by gross
negligence and unreasonable conduct has failed to duly exercise a fiduciary
power or perform an obligation in the fiduciary relationship: see Fouche
(at 641).
896 Such conduct by the fiduciary is as disloyal to the fiduciary relationship as the
gaining of profit or personal advancement, or failure to disclose conflict with
personal interests and will provide cause for equity to hold the delinquent
fiduciary up to the mark of a fundamental obligation undertaken in the fiduciary
relationship: Maguire v Makaronis (at 474) per Brennan CJ, Gaudron, McHugh,
Gummow JJ.
897 Prescriptive obligations that arise in a fiduciary relationship may have
particular connection with the fiduciary nature of the relationship. For example,
the obligation described in Chan v Zacharia (1984) 154 CLR 178 at 197 per
Deane J, which arose out of the pledge by partners of loyalty to the partnership,
was the requirement that a partner provide active assistance and cooperation in
the winding-up of partnership affairs and distribution of partnership property.
That obligation was accepted to be a fiduciary obligation. In Bennett, the
positive obligation said to have been imposed on the Director was to obtain
legal advice for the ward. That duty reflected the core of that fiduciary
relationship, namely, that the Director, as guardian, loyally protect and serve the
interests of the ward. It was an obligation of such importance to the fiduciary
166 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

relationship that it was proper to regard it as a fiduciary duty: see also Daly v
Sydney Stock Exchange Ltd (1986) 160 CLR 371 at 385 per Brennan J.
898 The disloyalty of a fiduciary manifested by the repudiation of such an
obligation, that results in detriment to the party to whom the obligation is owed,
is as offensive to good conscience and equity as an act by a fiduciary that is in
breach of a proscriptive fiduciary obligation, and entitlement to appropriate
relief in equity should follow.
899 The prime task in a claim in equity for relief for breach of fiduciary duty will
be first, as stated in Hospital Products (at 100, 102) per Mason J, to examine the
matter on its merits to see if the essential elements of a fiduciary relationship are
present. After that examination the nature of the duties that arise out of the core
pledges of loyalty and trust in that relationship, and the extent to which any of
those duties are fiduciary obligations, can be ascertained.
900 Comments made in Breen v Williams on the distinction between prescriptive
and proscriptive duties must be read in the context of the particular facts of that
case which concerned a very limited fiduciary relationship of patient and
specialist medical practitioner. Neither the broad contractual relationship nor the
narrower fiduciary relationship presented any obligation on the practitioner to
provide access to personal records maintained by the practitioner in respect of
the assessment and treatment of the patient. It followed that there was no duty
to grant access to those records, let alone an argument that there was a fiduciary
duty to do so. The foregoing comments in Breen v Williams were directed at
rejecting the suggestion that mere existence of a fiduciary relationship per se
could impose an obligation on a fiduciary to act in all circumstances in the
interests of the other party to the relationship and that failure so to act would
provide a right to relief in equity for breach of a fiduciary duty (at 137-138 per
Gummow J).
901 Rejection of that proposition was a plain statement of the orthodox. The
disapproval expressed by Dawson and Toohey JJ (at 95) in respect of the
tendency in the United States and Canada for fiduciary relationships to be used
for creating new forms of civil wrong was qualified by an express statement
that there had been no occurrence of such a development in Australia. Similarly,
the comment in the reasons of Gaudron and McHugh JJ at 112-113 that
Australian courts only recognise proscriptive fiduciary duties has to be
understood in the context in which it was made. As with the remarks of Dawson
and Toohey JJ, it was directed squarely at what was regarded as an unacceptable
development of law in Canadian jurisprudence. Likewise the comments of
Gummow J at 137-138 were directed at supporting the remarks of Gaudron and
McHugh JJ on what was regarded as an unsatisfactory development of law of
fiduciary obligation in Canada and the United States. Furthermore (at 112) the
comment by Gaudron and McHugh JJ was preceded by an acknowledgment that
as Australian law stood an obligation on a fiduciary to provide information may
arise under a status-based fiduciary relationship where a general fiduciary
duty may arise or under a fiduciary relationship created by special
circumstances that required provision and disclosure of information by the
fiduciary. It must be remembered also, that Toohey and McHugh JJ had already
accepted in Bennett that the positive or prescriptive duty imposed on the
guardian in that case was a fiduciary duty.
902 Breen v Williams confirmed that developments in Canadian law on fiduciary
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 167

obligations would not be adopted in Australia but it did not purport to alter or
restate the existing law in Australia. His Honour, at [4569]-[4581], duly
analysed and properly applied the law in that regard.
903 A claim in equity against a fiduciary for compensation for loss suffered will
depend upon demonstration of criteria which supply an adequate or sufficient
connection between the equitable compensation claimed and the breach of
fiduciary duty: Maguire v Makaronis (at 473) per Brennan CJ, Gaudron,
McHugh, Gummow JJ. As discussed above, the link required by equity involves
no inquiry as to whether the loss was caused by or flowed from the breach
but whether the loss would have happened if there had been no breach: see Re
Dawson (at 215) per Street J. Equity accepts that a sufficient link is established
by the nature of the breach where orders for account, or disgorgement of profits,
or restitution of misapplied property are sought in respect of a breach of
fiduciary duty that is, for example, the breach of a duty to disclose material
facts; to avoid conflict with personal interest; or not to misuse the position of
fiduciary. London Loan & Savings Co v Brickenden [1934] 3 DLR 465 at 469;
Regal (Hastings) Ltd v Gulliver; Warman (at 558); Consul Development Pty Ltd
v DPC Estates Pty Ltd (1975) 132 CLR 373 at 394 per Gibbs J; Green v
Bestobell Industries Pty Ltd [1982] WAR 1 at 5-6 per Burt CJ.
904 In Fouche the breadth of orders available in equity (for a breach of duty by
the members of the board of management that resulted in loss being suffered by
the corporation) was confirmed by the making of all such orders as were
required to redress the incompetent management of the corporation that resulted
in the breach of trust by the corporation as trustee.
905 It was held in Fouche (at 643) that the equitable relief available could include
orders undo[ing] the whole indefensible transaction, and, as incidental thereto,
to make any necessary order for the immediate payment of moneys. Such
orders were additional to orders that the individual board members make good
any loss of trust property that resulted from the breach of trust committed by the
corporate trustee by reason of the breach of the duty owed to the corporation to
exercise reasonable care. The loss of trust property resulting from that breach
was a loss that the corporate trustee was also bound to restore for its breach of
trust.
906 In particular, the recipient (Fouche) of funds, provided by the corporate
trustee in breach of trust, could be directed in equity to repay those moneys
given that Fouche knew that the source of the moneys was a trust fund and
knew all the facts that made the transaction a breach of trust: Fouche
(at 640-641, 642-643).
907 The breach of trust that occurred by reason of the failure of board members to
exercise reasonable care in carrying out their functions, was described as the
investment of funds by the corporation in a project, the inherent nature of which
was so hazardous and speculative that it should not have been made for any
amount large or small: Fouche (at 637). The essential facts relevant to that
conclusion were taken to be obvious to the recipient of the trust funds, Fouche,
the owner of the project. The court stated that the obligation of equity in those
circumstances was to prevent completion of the breach, to redress the position
and to restore the trust fund.
908 Sufficient analogy can be seen between the circumstances in Fouche and the
facts found by his Honour in this case as to the conduct of the directors of the
Bell group companies and the knowledge of the Banks of facts that established
168 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

breaches of the duty owed by the directors to those companies. In particular,


facts relevant to the insolvency of the Bell group companies and to the material
prejudice to creditors effected by the conduct of the directors.
Pleaded fiduciary duties
909 The pleaded breaches of fiduciary duty by directors were contained in
[PLED.008.002.001, para 39A et seq].
910 First, it was pleaded that the directors breached a fiduciary duty to act bona
fide in the best interests of the companies which included an obligation to act in
the interests of creditors, present or future, of an insolvent company. The latter
element may be taken to be a pleading of a duty to act in the interests of an
insolvent company by not causing the company to act to the prejudice of the
interests of its creditors.
911 Second, it was alleged that the directors breached a fiduciary duty to exercise
powers properly. Again that may be taken to be a pleading that powers of the
companies not be exercised for an improper purpose.
912 Third, it was pleaded that the directors of the Australian companies and
Mitchell and Bond as directors of the UK companies breached a fiduciary duty
to avoid conflicts of interest.
913 His Honour, at [733], stated that the Banks had admitted in their pleaded
defence that the duties to act bona fide in the interests of a company and to
exercise powers properly were fiduciary duties. At [4355], however, his Honour
recorded that the case presented by the Banks at trial was that neither duty was
a fiduciary duty. His Honour, at [4528], explained that he accepted that,
notwithstanding the pleaded admission, he had a responsibility to ascertain the
true state of the law.
914 His Honour found those duties to be obligations of a fiduciary nature. After
extensive review of authorities his Honour stated that the fiduciary character of
the duties arose out of what his Honour described as the keystone requirement
of a fiduciary relationship, namely, loyalty.
915 The meaning of loyalty as used by his Honour may be taken to embody the
principles of the fiduciary relationship described by McLachlin J and embraced
by the High Court in Pilmer and Youyang. That is, a relationship that has trust
and not self-interest at its core and is constituted by a pledge by one party to act
in the best interests of the other.
916 In Maguire v Makaronis (at 474), Brennan CJ, Gaudron, McHugh and
Gummow JJ noted that the disloyalty of non-trustee fiduciaries had been subject
to stringent treatment in decided cases and accepted that it was appropriate that
such a strict approach be applied to the delinquency of such fiduciaries.
917 His Honour, at [1949]-[1954] and [4441], found that the Bell group
companies were insolvent as at, and after, 26 January 1990. That finding was
not challenged in the appeal. A material fact in respect of the first of the pleaded
breaches of fiduciary duty, therefore, was established. Importantly his Honour
found that the Banks were aware of facts that demonstrated that execution of the
Transactions and implementation of the Scheme confirmed the insolvency of the
Bell group companies and materially prejudiced the interests of all other
creditors, whoever they may have been.
Duty to act bona fide in the best interests of the company by not causing
company to prejudice interests of creditors
918 As noted earlier, determination of whether there is cause for equity to
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 169

intervene in a fiduciary relationship requires more than the existence of the


relationship: Re Coomber. Equity does not provide access to equitable remedies
in such matters unless the grant of that relief is shown to be justified upon
consideration of all relevant facts. The most pertinent of those will relate to the
nature of the fiduciary relationship (ie the extent of the reliance upon, and trust
reposed in, the fiduciary and the content of fiduciary duties arising thereunder),
and the nature of the conduct of the fiduciary (ie having regard to the content of
the fiduciary duties, was the conduct offensive to good conscience and equity).
919 In respect of the fiduciary relationship between the Bell group companies and
their directors, the reliance upon, and trust placed in, the directors by the
companies for due management of the companies was entire.
920 At the point of insolvency, or the pending manifestation of insolvency, the
duty to act in the best interests of each company was of central importance for
the companies to comply with statutory obligations and the obligation of the
companies to not prejudice the interests of creditors.
921 The degree of reliance of the companies upon the fiduciary relationship with
the directors that the directors would faithfully fulfil the duty to act in the best
interests of the companies, and the consequences for the company if the
directors failed to perform that duty, would cause equity to treat a breach of that
duty by a director as a breach of a fiduciary duty.
922 Indeed, in the circumstances found by his Honour, it would have been a
strange result to have treated the duty to act in the best interests of the
companies as anything other than a fiduciary duty: see Walker v Wimborne
(1976) 137 CLR 1 at 7-8 per Mason J; Sinclair Investments (UK) Ltd v
Versailles Trade Finance Ltd [2011] 3 WLR 1153 at [35]-[36].
923 Usually the bona fide belief of a director that the conduct undertaken is in the
best interests of the company will meet the requirements of the duty: Richard
Brady Franks Ltd v Price (1937) 58 CLR 112. However, that belief will not
prevent a finding of breach of the duty where the conduct is plainly
unreasonable or irrational or fails to have any regard to obligations the company
must meet: Grimaldi v Chameleon Mining NL (No 2) (at [174]) per Finn, Stone,
Perram JJ.
Duty not to exercise powers improperly
924 Identification of a fiduciary duty not to exercise powers improperly is likely
to involve restatement of obligations attached to the exercise of a fiduciary
power: Howard Smith Ltd v Ampol Petroleum Ltd [1974] 1 NSWLR 68 at 77-78
per Lord Wilberforce. Examples of such fiduciary powers would include the
raising of capital by allotment of shares and transactions dealing with the
property of a company.
925 Breach of such a fiduciary duty provides cause for equity to intervene at the
suit of the company and make appropriate orders by way of relief: Hospital
Products (at 100) per Mason J.
926 Such orders may include declarations of invalidity and remedial or restorative
orders directed to third parties with notice of facts that manifest the improper
use of power: Howard Smith v Ampol (at 80).
927 The cause for equity to act in respect of such a breach is not limited by a
requirement for personal profit or advantage obtained by a director or by a
person associated with a director, or for a director to have acted in conflict with
personal interests. Nor is it necessary that the conduct of the director be less
170 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

than honest or that the company suffer any loss by reason of that conduct:
Australian Growth Resources Corporation Pty Ltd v Van Reesema (1988) 13
ACLR 261 at 270 per King CJ.
928 It is apparent that the intervention of equity is attracted by the need for equity
to supervise the due management of a corporation by ensuring that the powers
of the company vested in the director are duly exercised pursuant to the
directors pledge to use the powers for the proper purposes of the company.
That is to say, equity acts as a court of conscience to hold the director up to his
or her pledged duty.
929 Equity takes the view that the scope of relief to be provided by equity should
follow principles similar to those applied to a breach of trust by a failure of the
trustee to duly administer the trust and orders of restoration or rectification are
at the forefront.
930 His Honour, at [4582], found, with respect correctly, that the Transactions
that conveyed interests in the property of the companies of the Bell group
involved exercise of a fiduciary power and, if done for an improper purpose, a
breach of a fiduciary duty.
931 If the power of a director to allot shares of a company is a fiduciary power, as
stated by Mason CJ, Deane and Dawson JJ in Whitehouse v Carlton Hotel Pty
Ltd (1987) 162 CLR 285 at 290, then it must be concluded, as his Honour
found, that the power to dispose of, encumber or charge assets of a company is
of a like nature and a fiduciary power.
932 And it must follow that the duty of a director not to exercise a power of a
company for an improper or impermissible purpose is a fiduciary duty at least
when the power being exercised is a fiduciary power: see Sinclair Investments
(UK) Ltd v Versailles Trade Finance Ltd (at [34]).
933 The question whether a director has exercised a power for an improper
purpose is determined by objective assessment and not by the belief of the
director. Whitehouse v Carlton Hotel Pty Ltd (at 294) per Mason CJ, Deane,
Dawson JJ.
Duty not to have conflict of interest
934 It was not in issue that a breach of this duty would be a breach of a fiduciary
duty.
935 His Honour, at [9745], found that no breach of duty to avoid conflicts of
interest had been established against the directors.
936 The respondents, by notice of contention, asserted that his Honour erred in
failing to find that directors Mitchell, Oates and Bond breached that duty.
937 The first part of the respondents argument in support of that claim was that
Bond, Oates and Mitchell each had a non-pecuniary interest in Bond
Corporation Holdings Ltd (BCHL) that conflicted with the interests of the Bell
group companies of which they were directors. In other words, the nature of
their respective interests in BCHL was such that there was a real and sensible
possibility that the interests of BCHL may be preferred or advanced by reason
of that conflict.
938 In respect of the pleaded breach of duty to avoid a conflict of interest, it
appears from his Honours reasons that with regard to the first aspect of that
breach to which the notice of contention refers, his Honour (at [4520]-[4521])
considered that the pleaded facts relied upon for this element of the claim were
insufficient to establish a conflict of interest of the required character and that
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 171

they did not go beyond material relevant to the pleaded breach of duties not to
act other than in the interests of the companies and not to act for an improper
purpose.
939 The thrust of the respondents submission was that once his Honour had
found that the foregoing directors had acted for an improper purpose by
considering the interests of BCHL over and above the separate interests of the
individual Bell group companies, his Honour was bound to find that each
director had breached a duty to avoid a conflict of interest.
940 That submission, and the appellants ground of appeal that his Honour erred
in finding that the directors acted with an improper purpose, namely, a
Bond-centric purpose, may be dealt with conjunctively.
941 The second element of the respondents argument was that his Honour should
have found that the pecuniary interests of Bond in BCHL conflicted with the
interests of the Bell group companies. It was claimed that Bonds personal
financial interest in Dallhold Investments Pty Ltd (Dallhold) represented a direct
conflict of interest. At all material times Bond controlled Dallhold which held
52.5% of the issued shares of BCHL.
Breaches of fiduciary duties
Duties to act bona fide in the best interests of the company by not causing
company to prejudice interests of creditors and not to exercise powers
improperly
942 In the circumstances of this case the evidence relied upon to support the
pleaded breaches of the separate duties not to act other than in the interests of
the company and not to exercise powers of the company for an improper
purpose, overlapped and led his Honour to deal with the breaches
compendiously. Whilst each duty is distinct and requires consideration of
separate criteria it was not asserted that his Honour erred in so doing.
a) Australian directors

(i) Generally
943 His Honour, at [6084]-[6092], set out his conclusions with regard to the
conduct of Aspinall, Mitchell and Oates as directors of the Australian
companies.
944 The findings of fact relevant to his Honours conclusions were as follows.
945 His Honour, at [721]-[723], [882], [4283]-[4294], [4314]-[4315], found that
the Transactions constituted a Scheme, the principal object of which was to
transfer control of the Bell group assets to the Banks for the conduct of an
informal administration controlled by the Banks, the proceeds of sale of the
assets obtained from that control to be applied to discharge of the liabilities to
the Banks of BGF, BGUK and TBGL. A further object of the Scheme was to
avoid a formal administration of those companies being commenced within the
period prescribed by relevant statutory provisions where that circumstance
could cause the preferences obtained by the Banks over other creditors,
including, indirectly, the bondholders, to be set aside. The purpose of
executing the Transactions had been to deliver to the Banks securities and
preferences in return for the Banks refraining from continuing or commencing
demands on BGF, BGUK or TBGL for repayment of amounts payable to the
Banks (at [8744]-[8747], [8940]).
172 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

946 His Honour, at [1952], [2109], found that BPG, Western Interstate and
Wanstead became insolvent upon entry into, or as a consequence of, the
Transactions and the Scheme. His Honour also found, at [1915]-[1916],
[1949]-[1954], that execution of the Transactions confirmed the insolvency of
all Bell group companies, save for the three exceptions to that group insolvency,
namely, Ambassador, Belcap Enterprises and Maradolf. Whether W&J
Investments (a Subordinated Creditor) was then insolvent was said to be
uncertain.
947 At [901] his Honour identified the outcome of execution of the Transactions
as follows:
By committing the companies to Transactions that, by their terms, took away the
assets the companies would need to meet their obligations, the directors
condemned the companies, if they were not already insolvent, to insolvency. The
Transactions did not restore the solvency of the insolvent companies but rather
condemned them to a position where they were not able to pay their liabilities as
they fell due. And therein lies the detriment.
948 In a situation of insolvency the directors had a duty not to exercise the power
to enter the Transactions in respect of the property of the companies for a
purpose that had the effect of causing the companies to prejudice the interests of
creditors. In Jeffree v NCSC (at 194) Brinsden J (at 196, Pidgeon J agreeing)
accepted that conduct of a director that caused a company to fail to preserve
property for prospective creditors in the face of possible insolvency constituted
a breach of a fiduciary duty to exercise powers for the benefit of the company.
949 As stated by King CJ in Australian Growth Resources v Van Reesema
(at 269):
The appellant company was left without a business or assets and in an
irretrievably insolvent condition. From the point of view of the company it was an
extremely improvident transaction
It is inconceivable, to my mind, that directors with any appreciation of their
fiduciary responsibilities could cause a company to enter into such a transaction. It
could not possibly be regarded as for the benefit of the company. Even if the
members are disregarded, the transaction is wholly inimical to the interests of the
creditors and the growers to whom the company has obligations.
950 Having made findings of practical insolvency and findings as to the purpose
of the Transactions and the nature of the Scheme that the Transactions
constructed, the further findings of improper purpose by the directors in
executing the Transactions (whether considered for each company individually
or as part of the Bell group of companies) became inescapable.
951 His Honour, at [6088]-[6092], included as a ground for his reasons for finding
a breach of those duties by the Australian directors the absence of evidence of
any semblance of a plan by the directors for restructure of the Bell group
companies. That argument was adopted in some degree by the respondents in
response to an argument put by the Banks in support of the ground of appeal
that his Honour erred in finding that the foregoing duties had been breached.
But, at [6089], the reliance placed by his Honour on this so-called omission was
shown to be the lack of weight it revealed in Aspinalls stated beliefs put
forward as the explanation for his actions as director. That is to say the absence
of any evidence of engagement with a proposal for reconstruction assisted his
Honour to conclude that Aspinall had not turned his mind in any meaningful
way to the benefit an individual company in the Bell group could obtain from
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 173

execution of the Transactions (at [6080]). His Honour should not be taken to
have concluded that failure to have a settled plan for restructure of the group
was in itself a breach of the fiduciary duty to act in the best interests of a
company.
952 In the circumstances of this case, where the Bell group was conducted and
operated as a group with interdependent interests the directors were entitled,
provided the interests of the group remained compatible with the interests of an
individual corporation, to also give consideration to the interests of the
companies as a group in determining whether the best interests of an individual
company would be met by a proposed course of action: see NEAT Domestic
Trading Pty Ltd v AWB Ltd (2003) 216 CLR 277 at [47] per McHugh, Hayne
and Callinan JJ. However, the Bell group was facing insolvency. At the time of
execution of the Transactions the only remaining revenue-producing business of
the group was that which made use of the publishing assets. That business did
not supply sufficient revenue to meet the debts of the group as they fell due. In
addition, the realisable worth of assets of the group was insufficient to meet the
liabilities of the group (at [2001]). Therefore the interests of a corporation with
creditors for which no provision had been made, or as a result of the
Transactions could be made, would diverge significantly from the interests of
the group. In such a circumstance of insolvency the directors would fail to
discharge their duty to act in the best interests of that company if they caused
the company to prejudice the interests of its creditors: Walker v Wimborne
(at 6-7) per Mason J.
953 The importance attached by equity to the duty of directors to consider the
interests of creditors in a situation of insolvency has been explained earlier in
these reasons at [767]-[777], [920]-[921].
954 The stringent constraints upon directors now set out in the Corporations Act
to protect the interests of creditors in such circumstances may be taken to have
been grounded upon the provisions of equity that directors not cause a company
to disregard or prejudice the interests of creditors where insolvency is imminent.
955 Whilst those provisions of the Corporations Act were introduced subsequent
to events in this matter, importantly, they prescribe that conduct by a director
that is a breach of either a duty of care and diligence, or a duty to act in good
faith in the best interests of a company and for a proper purpose, being a breach
that materially prejudices a corporations ability to pay its creditors, makes the
director liable to a severe monetary penalty (Corporations Act, s 1317G).
Furthermore, that conduct is a criminal offence if material prejudice to creditors
is effected by a reckless breach of the duty to act in good faith and in the
interests of a corporation, or of the duty to exercise powers for a proper purpose
(Corporations Act, s 184).
956 The interests of creditors that required particular consideration in deciding
whether execution of the Transactions would be in the interests of individual
companies were the significant amounts owing to the Commissioner of Taxation
(the Commissioner) by Bell Bros, Bell Bros Holdings and Maranoa Transport
and to BGNV by TBGL and BGF. TBGL, BGF and Bell Bros participated in the
Transactions, as security providers and Bell Bros Holdings and Maranoa
Transport executed Transactions to subordinate their rights to recover debts due
from other companies in the Bell group to the rights of the Banks to recover
from those companies moneys advanced by the Banks to BGF and BGUK.
957 The material relevant to consideration of the interests of the Commissioner as
174 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

a creditor was as follows. In September 1982 the Commissioner issued


assessments of income tax to Bell Bros for the taxation years 1980 and 1981
and to Bell Bros Holdings for the taxation years 1977, 1979, 1980 and 1981.
Further assessments of income tax payable for subsequent taxation years were
issued to those companies, and to Maranoa Transport, between August 1983 and
May 1987 (at [2020]). As at January 1990 the amounts outstanding under those
assessments, including interest charges for late payment, amounted to
approximately $34 million of which approximately $30 million arose from the
assessments issued to Bell Bros. The transactions relevant to the latter
assessments involved purchase and sale of shares in Elders Ltd; Ansett
Transport Industries Ltd and Boral Ltd (at [2010]).
958 Upon issue of the assessments, the foregoing amounts became debts
recoverable by the Commonwealth (s 208(1) of the ITAA): see Re Mendonca;
Ex parte Federal Commissioner of Taxation (1969) 1 ATR 571 at 573-574.
959 Objections to the assessments were lodged by the taxpayer companies and the
Commissioner was requested to withhold demand for payment of the debts
pending disposal of the objections. The Commissioner agreed to that request.
His Honour, at [2044], opined, correctly, that neither the filing of objections nor
the forbearance of the Commissioner from taking recovery action in respect of
the debts altered the status of the debts owing to the Commonwealth nor the
status of the Commissioner as a creditor of the respective companies.
960 In due course the objections to the assessments were disallowed by the
Commissioner and requests were made by the companies for the decisions of
disallowance to be reviewed.
961 Review proceedings in respect of the decisions by the Commissioner to
disallow the objections by Bell Bros to the 1980, 1981 and 1984 assessments
were commenced in the Federal Court on 26 August 1988 (at [2023]).
962 Coincidentally, formal control of the Bell group passed to BCHL on the same
day, 26 August 1988 (at [123]). Mitchell and Oates had been appointed directors
of TBGL on 2 August 1988 (at [121]). Aspinall was appointed as a director of
TBGL on 13 October 1988 [TBGL.00822.117].
963 RHC resigned as director of TBGL and terminated participation in
management of the Bell group on 24 October 1988.
964 The consolidated accounts of the Bell group set out in the TBGL Annual
Report 30 June 1989 contained a Note to the accounts which stated that in
respect of the foregoing taxation debts the directors were confident that the
objection will be successful [TBGL.00008.002, Note 4(b), p 30]. The accounts
carried an endorsement by Aspinall and Oates, dated 13 November 1989, which
stated that the accounts (which included the foregoing Note) gave a true and fair
view of the affairs of the group as at 30 June 1989 [TBGL.00008.002, p 57]. A
Note to accounts in the same terms had appeared in the consolidated accounts
contained in the 1985, 1986, 1987 and 1988 TBGL Annual Reports. The
representation made by the Australian directors in Note 4(b) of the 1989 TBGL
Annual Report, therefore, repeated a statement made by preceding directors.
The Australian directors, however, did not make inquiry to inform themselves of
any relevant facts in respect of the representation and did not obtain advice from
the solicitors they had instructed to act in the Federal Court proceeding as to the
prospect of success in that proceeding in which the taxation assessments were
being contested by Bell Bros.
965 The facts before his Honour, and his Honours findings, show that there was
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 175

no foundation for the represented belief of the Australian directors and that
provision for the income tax debts should have been included in the 1989
accounts. Indeed it appears that in the course of preparation of a
December 1988 balance sheet internal accountants of the Bell group had
allocated a provision of $30 million to the potential liability arising from the
Bell Bros taxation dispute. Subsequently they had forwarded a memorandum
to the Australian directors explaining why it had been necessary to reverse that
provision and use it to offset the write off of capital tax losses ($30m) instead
(at [5443]-[5445]).
966 The assessments were based on a determination by the Commissioner that the
assessable income of the respective companies included profits made from the
acquisition and sale of property in the form of shares (at [2010]). Objections to
the assessments could not succeed unless the objectors discharged the onus of
proof imposed upon them by s 190 of the ITAA to prove that the assessments
were excessive. In practical terms that required proof that the property had been
acquired as an investment without consideration of resale and that the sale
proceeds were receipts of capital.
967 Neither Aspinall, Mitchell nor Oates had any knowledge of the relevant
transactions or of the substantive disputes arising from the assessments.
Acquisition of the shares had occurred when RHC, and possibly Newman,
were the controlling minds of the relevant companies. No contemporaneous
statements appear to have been provided by those persons in Bell group records.
968 The Bell group records did include, however, a report from C&L to Newman
prepared in November 1982 which provided details of a conference that C&L
had attended with expert taxation counsel, AM Gleeson QC and GD Hill, in
respect of the assessments issued in September 1982 to Bell Bros and Bell Bros
Holdings. The report stated, I think you should be aware that both counsel are
not at all confident that the objections and appeals will succeed and indeed were
both surprised that it had taken the [DCT] so long to issue the assessments
(at [2063]). The assessments under consideration in that advice included two of
the three assessments later the subject of the Bell Bros proceeding in the Federal
Court.
969 After commencement of the proceedings in the Federal Court solicitors were
instructed by BCHL on behalf of the Bell group companies in about
September 1988 [WITP.00001.030 [6]]; at [2048]-[2049], [2052]. The solicitors
retained B Shaw QC as counsel. In early November 1989 the solicitor with the
carriage of the matter prepared for the consideration of RHC a draft affidavit
for use in the Federal Court proceedings. The draft affidavit was prepared
without the benefit of a proof of evidence. It was forwarded to RHC together
with relevant copy documents. In due course the material was returned to the
solicitor unopened and without comment (at [2055]).
970 In December 1989 Shaw QC provided oral advice to the instructing solicitor
that some aspects of the draft affidavit prepared for the consideration of RHC
appeared to be fatal to the taxpayers case (at [2058]).
971 By January 1990 no statements from RHC, or Newman, to establish relevant
corporate intent had been obtained, or were likely to be obtained, in the opinion
of the solicitor (at [2059]).
972 In August 1981, about one year before the relevant assessment was issued by
the Commissioner, RHC had provided evidence to a formal inquiry into the
Elders transactions. The terms of reference of that inquiry, in part, concerned
176 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

propriety of conduct under corporations law of entities engaged in dealings in


shares in Elders Ltd in March 1981. That inquiry, of course, was not concerned
with the likelihood or otherwise of any taxation liability of Bell Bros arising
out of its dealings in Elders Ltd shares.
973 A subsidiary of Bell Bros acquired shares in Elders Ltd on or after
19 March 1981. On 24 March 1981 Bell Bros made an agreement to sell its
shareholding in that subsidiary to a party seeking to obtain, at a stipulated price,
the shares the subsidiary held in Elders Ltd. The agreed purchase price for the
shares in the subsidiary reflected the stipulated price for the Elders Ltd shares
and realised a profit of approximately $16 million on the sum outlaid to acquire
those shares. Inter alia, it was a contention of the Commissioner in the Federal
Court proceeding that part of the consideration received by Bell Bros for the
shares in its subsidiary was assessable income under s 26(a) of the ITAA as
profit arising from the carrying on or carrying out of a profit-making
undertaking or scheme in which TBGL, Bell Bros and the subsidiary were
participants [TBGL.00580.011].
974 The solicitor regarded the information that RHC had provided to the inquiry
as positive provided that the necessary evidence could be obtained
[WITP.00001.030 [30], [39]]. The necessary evidence was evidence from
RHC that addressed all issues raised in the Federal Court proceeding including
the claim of a profit-making scheme. To that point, such evidence had not been
obtained and, as set out above, was thought by the solicitor to be unlikely to be
obtained [WITP.00001.030 [40]].
975 His Honour noted, at [5157], that it was Aspinalls evidence that he had been
informed by an in-house tax accountant and adviser employed by BCHL that
he (the in-house adviser) was confident there would be no liability on the
assessments. However, as his Honour stated, at [2066], neither Aspinall nor the
other directors spoke at any time to the solicitor acting for the Bell group
companies in the matter, nor sought details of the advice provided by expert
counsel instructed by that solicitor. The in-house adviser was not called to
give evidence (at [2017]).
976 The solicitor did give evidence and stated that it was his opinion that unless
evidence of corporate intent could be obtained the proceedings in the Federal
Court would fail and that he had told the in-house adviser this on a number of
occasions (at [2056]). Furthermore, he stated that at the time of publication of
the 1989 TBGL Annual Report in November 1989 no director had sought his
advice as to the strength of the Bell Bros case in the proceeding in the Federal
Court (at [2053]). His Honour found, at [2066], that he could not be satisfied
that the directors made any real enquiries as to the state of the taxation appeals
in the context of the proposal to secure assets in favour of the banks.
977 As a postscript his Honour noted that on 14 February 1990 A Myers QC, the
then-retained counsel, advised the solicitor that the taxpayers did not have a
strong case as matters stood and expressed a view that the share transactions
were probably trading operations [WITP.00001.030 [41]]; at [2060].
978 It does not appear that at any time counsel instructed by solicitors with the
authority of the Australian directors provided advice that it was probable that
the objections would succeed.
979 On the foregoing material, publication of a statement that it was the opinion
of Aspinall, Mitchell and Oates as directors that provision for the debts due to
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 177

the Commonwealth for assessed income tax was unnecessary because of the
strength of the objections to those assessments, involved conduct by the
directors that was both imprudent and unreasonable.
980 At [2073] his Honour found, correctly, that the income tax liabilities of the
companies represented the interests of a creditor that the directors of those
companies were obliged to consider and that it was not apparent that the
directors had given any consideration at all to those interests.
981 The second significant creditor was BGNV, and, indirectly, LDTC as trustee
for the bondholders of bonds issued by BGNV.
982 BGNV was a creditor of TBGL and BGF for the sums lent to those
companies from moneys received by BGNV from the issue of bonds.
983 In December 1989, SCBAL served notices of demand and s 364 notices on
BGF and TBGL with the intent that external administration of those companies
be commenced; a receiver [sic] appointed; and, sale of the publishing assets
of the Bell group effected [288.01.0095]. Aspinall, albeit by assertion rather
than cogent argument, warned SCBAL that bondholder interests may rank
equally with the claims of the Banks in the liquidation of those companies.
SCBAL assumed that Aspinalls assertion was based on legal advice and sought
urgent advice itself, as a result of which the s 364 notices were withdrawn. That
caused the Banks collectively to decide that it would be in their interests that
demands for payment of moneys owing to the Banks not be served on TBGL or
BGF and that security be taken over all available assets as soon as possible to
obtain priority for the Banks over whatever interests the bondholders held
(at [9723]).
984 It was clear, of course, that part of the object of the directors in executing the
Transactions was to remove any prospect that the claims of BGNV, as a
creditor, could compete with the claims of the Banks in return for which the
Banks would forbear from making demand for payment of moneys advanced.
985 It should be noted that in respect of the debt owed by TBGL to BGNV, it was
probable that BGNV would not have been able to prove for that debt in the
liquidation of TBGL without bringing into account the whole of BGNVs
potential liability in equity to indemnify TBGL as guarantor of BGNVs
liabilities to bondholders. The effect of the notional account for that sum,
approximately $400 million at 26 January 1990, would be the discharge of the
loan balance owing by TBGL to BGNV, approximately $61 million: see Re
SSSL Realisations [2006] Ch 610 at 621 et seq [79]-[82], [98]-[117].
986 The consequence of the application of such a rule would be that the Banks
would have been able to prove in a TBGL liquidation without competition from
BGNV.
987 In respect of the debt owed by BGF to BGNV, however, no such offset would
have arisen and BGNV could have proved in a liquidation of BGF pari passu
with the Banks in respect of the BGF loan debt of approximately $339 million.
That sum, as noted earlier, exceeded the amount due to the Banks.
988 Whilst noting that Aspinall believed that the group was not insolvent and that
the Transactions may allow him to right the ship it was his Honours
conclusion that such a belief was without rational foundation.
989 His Honour found, at [1949]-[1954], that the Bell group companies were
insolvent both before and after execution of the Transactions. As noted earlier
those findings were not in issue on the appeal. As his Honour put it, at [1949],
the circumstance facing Aspinall at 26 January 1990 was one of
178 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

insurmountable endemic illiquidity. No doubt his Honour had in mind that a


prudent businessman charged with supervision of the affairs of companies in
that position would not have failed to recognise that fact.
990 His Honour commented, in [6086], that Aspinall was well aware that the
publishing assets could not produce sufficient cash to meet bank interest and
was also well aware of the parlous financial circumstances of the group. It
followed, of course, that if the principal source of revenue of the group could
not meet interest payable to the Banks it would be unable to meet the substantial
annual interest payments due to bondholders. By his references to the matters of
which Aspinall was aware his Honour conveyed his conclusion that Aspinall
possessed knowledge of sufficient facts to be aware that causing companies
within the group, the Bell Participants, to dispose of the assets of the group to
the Banks could not be undertaken in that situation of insolvency without
Aspinall considering whether it would prejudice the interests of creditors of
companies of the group. That is to say, to so act without considering the
interests of those creditors would be contrary to the duties imposed on a director
of the debtor companies.
991 As noted earlier, Aspinall saw the disposition of assets to the Banks as a task
to be undertaken as a matter of urgency and the means by which the Banks
could be persuaded to withhold demands for repayment of the moneys advanced
by them to BGF and BGUK, repayment of which had been guaranteed by
TBGL.
992 That was the limit of the benefit to be obtained from the Transactions. There
was no access to further finance to replace the working capital being extracted
from the group to repay the Banks advances. The grant of security to the Banks
over all assets foreclosed any prospect of resolution of the insolvency by a
scheme of arrangement or composition of debts unless the Banks agreed to
release the securities and to participate in such a scheme or composition.
Furthermore, by the Transactions the group passed the proceeds of all asset
sales to the Banks and relinquished access to the only alternative source of
additional funds to meet the debts of the group.
993 The asserted belief of a director that such a course of action met the best
interests of a company could not be accepted as a rational belief when the
company, by reason of the circumstances of imminent insolvency, had to take
account of, and not prejudice, the interests of creditors.
994 The following remarks by Clauson J in Re Simms [1930] 2 Ch 22 stating
principles to be applied in bankruptcy may be taken to reflect principles of equal
relevance to the proper performance of duties and exercise of powers by
directors of insolvent corporations. They also support the conclusion that the
asserted belief of the Australian directors that the disposition of the whole of the
property of the group was in the best interests of each company was neither a
bona fide nor a rational belief (at [34]-[35]):
The result of these authorities appears to me to be that a transfer by a debtor of
substantially the whole of his property, whether by way of charge or by way of
sale, will be an act of bankruptcy, if the necessary consequence of the transfer will
be to defeat or delay his creditors.
The suggestion I think was that all the parties honestly thought that this transfer
which the law holds and they must be assumed to have known that the law
would hold to be fraudulent, was the best thing in everyones interests. But I
can rely on the authority of Cotton LJ in Ex parte Chaplin (26 Ch D 319) for the
proposition that a fraudulent transaction remains a fraudulent transaction (at all
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 179

events if the parties know all the facts which stamp it in law as a fraudulent
transaction) whatever may be the view of the parties that it may be the best thing
for the debtor, or may result in effectually paying the creditors. That authority
alone makes it impossible for me to accede to the argument which would claim
protection for the company in the present case on the footing of bona fides.
995 As his Honour found, Aspinall made no inquiry and sought no advice as to
how the interests of the substantial creditors of Bell Bros, Bell Bros Holdings
and Maranoa Transport were to be addressed by those companies. Furthermore,
Aspinall made no inquiry and sought no advice as to how the interests of
BGNV as a creditor of TBGL and BGF may be affected by the Scheme
implemented by the Transactions. To the contrary, it had been represented to the
Banks by Aspinall that the disposition of assets to the Banks and avoidance of
the liquidations (that would otherwise follow bank demands for repayment of
advances) would eliminate the risk that in such liquidations the Banks may face
competition from claims represented as the amounts due to bondholders by
BGNV. Such conduct was a clear negation of a duty of a director of BGF to
have regard to the interests of BGNV as a creditor.
996 His Honour, at [6049], recognised that such conduct by a director of BGF
visited palpable and unarguable prejudice on BGNV if the loans BGF obtained
from BGNV were not subordinated. For the reasons set out earlier, his Honours
finding that the loans were subordinated involved error and his Honour should
have found to the contrary and should have made the consequential and
inescapable findings that such conduct was a breach of fiduciary duty by the
Australian directors.
997 Cross-examination of Aspinall on the issue of subordination of the on-loans
(ts 31048-31054) is illuminating. Aspinall made it clear that his understanding
of the issue went no further than his belief that the issued bonds were
subordinated as the following extracts describe (ts 31048):
But as to [the on-loans] thats not an area that I have any expertise in. That is why
I would have to go and get advice.
(ts 31049):
You understand, do you not, that the Bell company which borrowed the moneys
raised by BGNV would owe those moneys to BGNV? I understand that, yes.
Yes? Yes.
If that particular Bell company went into liquidation ? The one that
borrowed the money?
Yes, if it went into liquidation an issue would arise as to whether the claim of
BGNV would rank equally with other unsecured creditors. Isnt that correct? I
dont know. I really dont know.
You dont know? I dont know. As I have just said to you, and I repeat again,
this is not an area of expertise that I have. I can make an assumption which would
be dangerous, but I dont know.
If ? I mean, if we had all the documentation of the convertible bonds and
how they work I mean, I just cant answer the question. Im sorry. I dont
understand.
So the question leaves you in a state of uncertain knowledge. Is that your ?
As far as how the subordination fell down through the companies, yes.
I see, and that ? But I say that the bonds were subordinated and always
subordinated at BGNV level. What actually happened to that subordination I dont
know. I dont understand that process.
180 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

Thats the state of comprehension you say you would have had at the time on
26 January? I believe so, yes.
(ts 31051):
I didnt know what happened to the subordination once the moneys were
on-lent.
Now, if Mr Simpson knew or knew what would happen or what the character
was of the transactions after the money was passed on by BGNV, would you have
expected him to discuss it and explain it to you? Yes, but I dont recall him
actually being completely familiar with that. I think we had to go and ask some
questions of others who managed the affairs of the subordinated bonds that were
issued. It was something that we didnt deal with on a day-to-day basis and we
would have had to go and get some advice and thats really all I can say about
that. What his knowledge was, you would have to ask him.
We will? Im sure.
Simpson did not give evidence.
998 It appears that Aspinall neither sought nor obtained any advice on the status
or effect of the BGNV on-loans or upon the obligations of TBGL and BGF to
BGNV as a creditor of those companies.
999 That conduct, of course, was consistent with the implementation of a purpose
of providing security to the Banks to advance the interests of the Banks over
other creditors and to obtain accord from the Banks to withdraw, or withhold,
demands for repayment of the moneys advanced to the group by the Banks and
thereby avoid the winding-up of the group companies. However, given the
existing state of insolvency that conduct was inconsistent with Aspinalls duty
not to act other than in the best interests of the Bell group companies, and not to
act for an improper purpose, where that conduct prejudiced the ability of
companies in the group to meet their obligations to creditors.
1000 There was ample evidence to support his Honours finding, at [6089], that
Aspinall breached those duties by committing the companies to the grant of
securities without identifying the creditors each company in the group might
have and considering what effect the proposed securities might have on the
creditors and shareholders of that company.
1001 At [5066], his Honour had found that Aspinalls evidence that he held a belief
that refinancing was in the best interests of each company in the group was
not credible. Read in conjunction with his Honours subsequent finding
at [6089], his Honours conclusion in [5066] stood as a statement that his
Honour was not satisfied that Aspinall either understood what was required of
him to comply with the foregoing duties or had turned his mind at all to the
obligations of individual companies which, facing enmeshment in a group
insolvency, had to have regard to the interests of their creditors.
1002 With regard to the conduct of Mitchell his Honour, at [6090]-[6091], found
on the evidence before him that the principal concern of Mitchell, as part of the
core group of BCHL directors (Bond, Beckwith, Mitchell and Oates), was to
advance the struggle for survival of the BCHL group. Mitchell had paid little
attention to the affairs of the Bell group companies outside its ability to assist
survival of the BCHL group. This conduct and purpose was described by his
Honour as Bond-centric. His Honour did not accept that Mitchell held any
honest belief about the solvency of the Bell group of companies in the absence
of any evidence that he had made any material inquiries in that regard.
Furthermore, it was clear to his Honour that Mitchell had made no attempt at all
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 181

to identify creditors of companies in the Bell group or to assess the effect on


creditors of granting the proposed securities to the Banks in the circumstances
of the actual impending insolvency that would affect all companies in the group.
1003 With regard to the evidence provided by Mitchell his Honour, at [5374],
[5437], [5440], [5453], [5475], [5597], [5877] and [6091], set out the paucity of
the knowledge displayed in that evidence that Mitchell held of the affairs of the
Bell group and of the nature of his obligations as a director of those companies.
1004 Accordingly, his Honour found that Mitchell had breached the fiduciary
duties his Honour had described. There was more than adequate evidence to
allow his Honour to reach that conclusion.
1005 With regard to Oates, who did not give evidence, his Honour, at [6092],
found that on the available evidence it could be concluded that Oates, whilst
having greater involvement in Bell group affairs than Mitchell (in particular, by
participating in the negotiations with the Banks in 1989 and 1990), still had an
intimate involvement in the affairs of BCHL in his role as part of the central
group of directors of BCHL. It appears that by treating Oates conduct and
purpose as Bond-centric his Honour related the degree of Oates involvement
in BCHL to the failure of Oates to make any inquiries to identify creditors of
the Bell group companies and to consider the effect that the grant of securities
to the Banks would have on creditors given the parlous financial circumstances
of the Bell group made known to Oates in the course of the foregoing
negotiations with the Banks. His Honour therefore found Oates had breached
the aforesaid fiduciary duties. Again there was sufficient evidence to permit his
Honour to make that finding.
1006 In the context in which it was used in his Honours reasons the term
Bond-centric denoted preparedness to prejudice the interests of non-bank
creditors of Bell group companies by the provision of preferences to the Banks
to stave off imminent demands by the Banks for repayment of funds advanced
by them to the Bell group and attempt to avoid the catastrophic impact upon
BCHL that would follow commencement of administration of Bell group
companies.
1007 It is apparent that there was ample evidence on which his Honour could
conclude, as he did, that the directors Aspinall, Mitchell and Oates:
(a) failed in their duty not to act other than in the interests of the
companies by causing various companies to act to prejudice the
interests of creditors other than the Banks;
(b) acted for an improper purpose by charging or delivering to the Banks
interests in assets of the Bell Participants in the circumstance of known
or anticipated insolvency of the Bell group of companies thereby
materially prejudicing the interests of other creditors of those
companies.
1008 But for those breaches by the directors execution of the Transactions and
implementation of the Scheme could not have occurred.
1009 The appellants submitted that, having found that the Australian directors
failed to give any consideration to the separate interests of each company of the
group, his Honour erred in failing to then determine whether an intelligent and
honest person in the position of a director could, in the whole of the
circumstances, have reasonably believed that the Transactions were for the
benefit of each company individually. This was described as the Charterbridge
test: see Charterbridge Corporation Ltd v Lloyds Bank Ltd [1970] Ch 62 at 74.
182 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

1010 It is apparent that in the circumstances of this case, and having regard to the
nature of the findings made by his Honour, there was no requirement for his
Honour to apply the so-called Charterbridge test.
1011 The breach of duty by the Australian directors to act in the best interests of
each company and not to exercise powers of the company for an improper
purpose was effected by the directors executing transactions that caused
companies of the group to materially prejudice the interests of creditors of those
companies. There was no need for his Honour to go further and determine what
an intelligent and honest person would have done in the circumstances.
1012 I agree with the reservation expressed by Clarke and Cripps JJA in Equiticorp
Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 at 146-148.
Breach of a duty not to act other than in the best interests of a company arises if
the failure to consider the separate interests of the company produces a result
that fails to meet the best interests of that company. If such a breach and
consequence is demonstrated the detriment suffered by the company must be
addressed by appropriate remedy. At that point there can be no requirement to
consider what an intelligent and honest person would have done, proof of
breach of fiduciary duty and entitlement to relief having been demonstrated.
1013 The motivation or purpose of the board of directors in resolving that Bell
group companies execute the Transactions did not require infinite analysis of
the fears and desires, proximate and remote, which, in truth, form[ed] the
compound motives usually animating human conduct but the substantial
object the accomplishment of which formed the real ground of the boards
action: see Mills v Mills (1938) 60 CLR 150 at 185-186 per Dixon J.
(ii) BGF
1014 There was a discrete subissue in respect to the affairs of BGF. The banks
submitted that the Australian directors, in considering the best interests of BGF,
were entitled to believe that BGF was indebted to the Lloyds syndicate banks
under the Lloyds syndicate loan facility and, therefore, it could not be said that
they held other than a bona fide belief that it was in the interests of BGF to
provide security to the Lloyds syndicate banks under the Transactions.
1015 The foregoing argument involved construction of the Lloyds syndicate loan
facility documents, in particular, the 1986 Loan Agreement [353.09.0017];
Lloyds Supplemental Agreement No 1 (LSA No 1) [366.02.0001] and the Form
of Restated Lloyds Facility Agreement No 1 (RLFA No 1) [366.02.0001].
1016 Before considering that issue it is to be kept in mind that his Honour had
found, in effect, that the three Australian directors who controlled the Australian
companies, now in a situation of insolvency, had exercised the powers of the
Bell Participants with a joint purpose of staving off demands by the Banks for
repayment of moneys advanced to the Bell group. To effect that purpose it was
necessary for all Bell Participants to execute the Transactions and provide
securities over all group assets to the Banks and thereby establish priority in the
Banks over all other creditors of the group.
1017 In a situation of insolvency exercise of the power to dispose of property of
the Bell Participants with such a purpose constituted abuse of the power where
it caused a company to prejudice the interests of other creditors.
1018 Furthermore, the failure of the Australian directors to consider at all whether
participation in the Transactions was in the best interests of each company
individually, meant that the Australian directors could not be heard to say that
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 183

they had a bona fide belief that they had so acted. Not only did the Australian
directors not consider the interests of other creditors of each company, in fact
they engaged in conduct directed at disadvantaging those creditors. A particular
object of the Transactions was to defeat the interests of BGNV as a creditor of
TBGL and BGF.
1019 The foregoing findings of fact provided the grounds for his Honours
conclusions that the Australian directors breached fiduciary duties owed to the
Australian companies. Those breaches of duty in respect of the affairs of BGF
did not turn on whether the Australian directors caused BGF to grant securities
to the Lloyds syndicate banks when BGF had no debt obligations to those
banks. It follows that if his Honour erred in construing the Lloyds syndicate
loan facility documents, it could not have affected his conclusion that the
Australian directors breached fiduciary duties owed to the Australian
companies.
1020 Therefore, the ground of appeal that his Honour erred by failing to properly
construe the Lloyds syndicate loan facility documents and by failing to find that
pursuant to those documents BGF was a debtor to the Lloyds syndicate banks in
the amount of the loans advanced by the Banks thereunder, raises no issue of
consequence.
1021 Nonetheless, the following short reasons are provided to deal with the issues
raised.
1022 On 19 May 1986 the Lloyds syndicate banks and BGF and BGUK (at that
time known as TVW (UK) Ltd) executed the 1986 Loan Agreement for the
provision of a loan facility of 60 million by the Banks. The agreement
provided that the facility was available for 45 days from the date of execution of
the agreement, the Commitment Period. Moneys drawn down in the
Commitment Period were repayable on 19 May 1991, the Repayment Date.
If less than the sum available was drawn down under the facility within the
Commitment Period, the unused balance was cancelled.
1023 The term Borrower was defined in cl 1.1 as BGF or BGUK and
Borrowers was defined as BGF and BGUK.
1024 Clause 6 stated that the Borrowers were to repay the Loans on the
Repayment Date.
1025 Clause 4 provided that a Loan would be made to a Borrower pursuant to
a request made by the Borrower in the Commitment Period in the form of a
draw down notice exhibited to the agreement. The form as exhibited was drawn
as a notice given by Borrowers jointly.
1026 Clause 10 set out optional interest periods for selection by a Borrower.
1027 Clauses 4 and 10 anticipated that each loan made under the facility would be
made to a Borrower, although loans to Borrowers jointly were not precluded.
1028 Pursuant to cl 7.4 repayments made before the Repayment Date automatically
reduced the amount of the facility. Thereafter, no part of a sum repaid could be
reborrowed by either Borrower.
1029 Clause 8 permitted the Borrowers jointly to give notice to the Lloyds
syndicate banks converting the loan facility to a Revolving Credit Facility in
respect of the amount outstanding at the date of the conversion. Thereafter,
either Borrower could draw down any part of the undrawn balance that became
available upon repayment of, or any part of, a loan.
1030 Clause 14 contained an undertaking by the Borrowers to pay on demand
184 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

compensation to a bank for increased costs incurred by the bank as a participant


in the syndicate by reason of a provision of law or regulation, or of a change
therein.
1031 Under the heading General Undertakings, cl 17 provided that each of the
Borrowers severally undertook so long as any Indebtedness is
outstanding to keep the agent informed of its financial status. Indebtedness
was defined in cl 1.1 as meaning, inter alia, in relation to any person
indebtedness in respect of moneys borrowed or raised by it.
1032 Under cll 21, 22 and 23 the Borrowers undertook to pay fees, expenses and
stamp duty incurred in the preparation and conduct of the facility.
1033 The proper construction of the foregoing provisions was that the Borrowers
incurred a joint and several liability to the Lloyds syndicate banks in respect of
moneys payable under cll 14, 21, 22 and 23. The obligation to provide regular
information under cl 17 was a separate obligation for each Borrower that
depended upon the Indebtedness of the Borrower.
1034 It was not contended that BGFs liability under cll 14, 21, 22 or 23 was
relevant to the question raised on the ground of appeal. Nor was the existence of
a contingent right to draw down funds under a Revolving Credit Facility under
cl 8 relied upon.
1035 Within the Commitment Period BGUK drew down the whole of the sum
available under the facility. Clause 3 stated that the purpose of the facility was
to use the proceeds of the loans for repayment of existing borrowings and
thereafter for general corporate purposes. It may be concluded that it had been
understood at the outset that the facility would be used by BGUK to replace an
existing borrowing.
1036 The requirement in cl 6 that the Borrowers repay the Loans on
19 May 1991 had to be read distributively. First, it was an obligation on a
Borrower to repay a loan to discharge Indebtedness incurred by that
borrowing and, second, it was an obligation upon joint Borrowers to repay a
loan for which joint indebtedness had been incurred.
1037 Clause 6 contained no words imposing a liability of surety, guarantor or
indemnifier upon a Borrower in respect of the Indebtedness of the other
Borrower. Therefore, cl 6 imposed no liability on BGF to repay the moneys
payable by BGUK on the Repayment Date.
1038 But cl 18.3 provided that the Lloyds syndicate banks were to be indemnified
by the Borrowers in respect of loss or expense caused by Events of Default.
The extent of the indemnity provided by cl 18.3 was limited to loss or expenses
sustained or incurred by a bank as a consequence of an Event of Default or the
operation of cl 18.2. It did not impose an obligation on a Borrower as principal
debtor, or otherwise, to indemnify a Lloyds syndicate bank against non-payment
of principal or interest by the other Borrower.
1039 The Events of Default as recited in cl 18.1 related to occurrence of
circumstances that affected a Borrowers capacity to perform its obligations
under the 1986 Loan Agreement. Clause 18.2 permitted the Majority Banks to
accelerate repayment of the Loans by declaring all Loans immediately due and
payable upon the occurrence of an Event of Default. A declaration under cl 18.2
calling up the Loans could also be made if, inter alia, TBGL or an
Indemnifying Subsidiary failed to pay a sum due and payable to the Lloyds
syndicate banks pursuant to cl 17.1 of the Negative Pledge Agreement
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 185

[367.01.0002]. It was a condition precedent to the advance of any funds under


the 1986 Loan Agreement that the Negative Pledge Agreement be executed and
delivered to the Lloyds syndicate banks (cl 5.1(g)).
1040 The Negative Pledge Agreement was executed concurrently with the 1986
Loan Agreement on 19 May 1986 by the Lloyds syndicate banks, TBGL and 43
subsidiaries of TBGL described as Indemnifying Subsidiaries. BGF and
BGUK executed the Negative Pledge Agreement as Indemnifying Subsidiar-
ies.
1041 Clause 3 of the Bell Negative Pledge Schedule (being the Second Schedule
to the Negative Pledge Agreement) provided that TBGL and each Indemnifying
Subsidiary agreed as principal debtors to indemnify the Lloyds syndicate banks
against failure of any party to make due and punctual payment of any amount
lent by the Lloyds syndicate banks to TBGL or an Indemnifying Subsidiary.
1042 As discussed earlier in these reasons, Indemnifying Subsidiaries were
released from their covenants of indemnity on 30 July 1987 in respect of the
Australian bank facilities.
1043 LSA No 1 was executed on 27 August 1987 to provide for the joinder of
TBGL as guarantor of the Borrowers under the Lloyds syndicate loan facility
and RLFA No 1, also dated 27 August 1987, was Appendix One to LSA No 1.
Pursuant to cl 16 of RLFA No 1, TBGL as primary obligor and not merely a
surety guaranteed the performance of the obligations of the Borrowers. The
Indemnifying Subsidiaries did not execute LSA No 1 and were not parties to
RLFA No 1. RLFA No 1 restated the terms of the Lloyds syndicate loan facility.
One outcome of the restatement was the deletion of the Negative Pledge
Agreement and of the obligations of Indemnifying Subsidiaries thereunder. That
was replaced by the inclusion of TBGL as a party and as guarantor of the
Borrowers. The Indemnifying Subsidiaries, therefore, were released from their
obligations under the 1986 Loan Agreement and Negative Pledge Agreement.
On execution of RLFA No 1 it became plain that TBGL was the only party with
liability as guarantor or indemnifier and that unless and until BGF incurred
Indebtedness as a Borrower, it had no liability to make a repayment under
cl 6 of RLFA No 1.
1044 It follows that, as at 26 January 1990, BGF had no Indebtedness and no
principal liability as debtor to Lloyds syndicate banks under RLFA No 1.
1045 With regard to the obligations of indemnity imposed on Borrowers contained
in cl 18.3 of the 1986 Loan Agreement, this provision was modified and restated
in cl 19.3 of RLFA No 1. It remained an obligation on the Borrowers to
indemnify the Lloyds syndicate banks against loss or expenses sustained or
incurred as a consequence of Events of Default. In respect of BGF it could not
be more than a liability for consequential loss and was not a liability as
indemnifier to pay a principal sum or interest due by the other Borrower.
1046 His Honour, at [2144], concluded, correctly, that BGF had no relevant
liability to the Lloyds syndicate banks immediately before 26 January 1990.
b) UK directors
1047 His Honour, at [5873]-[5876], considered the conduct of Bond as a director
of BGUK and TBGIL. Bond did not give evidence. His Honour concluded that
in the absence of evidence from Bond, he should draw the inference available
from the evidence before him that Bond could not have had reasonable grounds
for the assurance he provided to other directors that the Bell group companies
186 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

were solvent and that TBGL was able to honour the letters of comfort it had
provided at the request of other UK directors in respect to the provision of funds
by TBGL to BGUK and TBGIL required to discharge liabilities of those
companies to creditors.
1048 His Honour was also satisfied that Bonds attention at all relevant times was
directed to his role as principal director of BCHL and to the survival of BCHL
and Dallhold. His Honour was not satisfied that Bond had any understanding of
the affairs of BGUK (and presumably TBGIL) at [5896], [6098], nor any
knowledge or understanding of the details of the Transactions.
1049 Accordingly, his Honour, at [6098], determined that Bond breached his
duties as a UK director and in particular, at [5924]-[6101], that Bond, by
reason of the Bond-centric nature of his conduct, had exercised powers as a
UK director for an improper purpose.
1050 It was open to his Honour to conclude that Bond was not concerned with
determining whether execution of the Transactions by BGUK and TBGL was in
the interests of those companies or whether the interests of creditors of those
companies had been addressed in the manner advised by counsel as the
necessary steps for directors to take. It was also open for his Honour to
conclude that Bonds conduct which included assurances to fellow directors
made without foundation, thereby causing those directors to breach their duties
to BGUK and TBGIL, was done to serve the purpose of attempting to protect
the interests of BCHL and Dallhold (at [5876]) and, therefore, done for an
improper purpose (at [6101]).
1051 At that time BCHL had lost control of BRL; a receiver had been appointed to
Bond Brewing Holdings Ltd (BBHL), and bondholders of bonds issued by
BBHL were calling up the moneys payable on the bonds after BBHL had
defaulted in paying interest due on the bonds (at [5917]).
1052 With regard to Mitchell his Honour found, at [5877], that notwithstanding his
position as a director of TBGL he had not informed himself of the financial
position of the Australian Bell group companies, in particular TBGL, before
executing the Transactions. Therefore, he was not in a position to provide any
assurance to the other UK directors as to the solvency of TBGL or the capacity
for future performance of expressions of comfort provided by TBGL. As with
Bond, the provision by Mitchell of an unfounded assurance to fellow UK
directors caused those directors to breach their duties to BGUK and TBGIL
(at [5877]).
1053 His Honour stated, at [6098], that he was satisfied that Mitchells conduct as
a UK director could not be distinguished from his conduct as a director of the
Australian companies and that he had breached the duty to act in the best
interests of BGUK and TBGIL and the duty not to exercise powers of the
companies for an improper purpose (at [6101]).
1054 Mitchells conduct in the course of the relevant meeting of directors of
BGUK and TBGIL in which he stated he had no knowledge of the creditors of
BGUK and TBGIL and that it was a matter for other directors to satisfy
themselves whether it was appropriate to enter the Transactions was put forward
as an argument for some form of exculpation for Mitchells conduct. It did no
more than confirm Mitchells lack of engagement with important issues and
lack of capacity to ascertain what was in the best interests of the companies.
Coupled with his conduct in purporting to provide assurances to the other
directors as to the ability of TBGL to meet the letters of comfort TBGL had
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 187

provided to BGUK and TBGIL (at [5920]-[5921]) being assurances made


without a foundation of fact and which caused those directors to breach their
duties (at [5877]), there was ample evidence on which his Honour could
conclude that Mitchell had breached the fiduciary duties described by his
Honour (at [5877], [5924], [6098], [6101]).
1055 Of the other UK directors of BGUK and TBGIL, Edwards and Birchmore,
neither director gave evidence.
1056 As his Honour stated, those directors had acted properly in seeking expert
assistance and advice in respect of the performance of their duties to those
companies and had received the clearest legal and accounting advice that
proper and reliable financial statements had to be obtained from TBGL before
the directors could determine whether it was in the best interests of BGUK and
TBGIL to execute the Transactions [KPMGUK.16.0068; TBGL.07003.039]. In
particular they had been instructed not to accept simple assurances about the
financial health of TBGL (at [5919]). The solvency of BGUK relied upon the
capacity of TBGL to retain solvency and provide funds to BGUK to enable it to
meet its liabilities to creditors, a fact made known to the BGUK directors: see
[TBGL.04735.046]. Furthermore, the directors had been advised by counsel that
the subordination of inter-company debts to the interests of the Banks as
required by the Transactions should not be accepted as it would prevent access
to funds by BGUK to enable it to pay its creditors (at [5808])
[TBGL.07000.027].
1057 His Honour found that the directors made their decisions at the relevant
meeting on 24 January 1990 without the material that was required pursuant to
the foregoing advice and purported to rely upon bare assurances as to the
solvency of TBGL given by Bond and Mitchell (at [5920]-[5923]).
1058 Birchmore and Edwards entered the meeting with full understanding that
granting the security sought in the Transactions would prejudice BGUK
creditors unless they were satisfied as to TBGLs ability to fund BGUKs
commitments (at [5857]-[5858], [5866]).
1059 At the time of the meeting Edwards and Birchmore were under pressure from
the Banks and TBGL to execute the Transactions (at [5827], [5870], [5900],
[5904]). Whilst that pressure may have made the exercise of independent
judgment more difficult the duties as directors remained unaltered and the
evidence before his Honour permitted the finding made by his Honour that the
duty to act in the best interests of the respective companies, which required the
company not to act to prejudice the interests of creditors, had been breached.
1060 His Honour found that Edwards and Birchmore had clear advice and,
therefore, were fully aware that causing the companies to execute the
Transactions would involve a breach of their duties to the companies unless
they insisted upon, and were given, reliable financial information, not bare
assurances, as to TBGLs solvency.
1061 With regard to the conduct of Edwards and Whitechurch as directors of BIIL
his Honour, at [5927]-[5951], was satisfied that similar conclusions had to
follow and that each had breached a fiduciary duty to act in the best interests of
BIIL.
1062 Edwards was a director, and Whitechurch the secretary, of both BGUK and
BIIL and they were present at the meetings at which expert advice was provided
to the directors of BGUK (at [5927]).
188 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

1063 They were aware that they had to make diligent inquiries and could not rely
on a simple assertion of solvency to support the letter of comfort provided by
TBGL to assure the directors that BGUK would be able to meet its obligations
to BIIL.
1064 BIIL was a creditor of BGUK in an amount of 237 million. BGUK was a
Security Provider and the Banks required the creditors of BGUK to
subordinate their claims against BGUK to the rights the Banks obtained under
the Transactions and Scheme.
1065 BIIL was indebted to the Swiss subgroup in an amount of 25 million.
Creditors of that subgroup included the Swiss tax authority. It was not
possible for all members of the subgroup to consent to subordination of the
debts owed to them by BIIL. No provision was made under the Transactions
executed by BIIL to meet the liabilities of BIIL to the subgroup (at [5943]).
1066 At [5950] his Honour summarised his conclusion as follows:
The same fundamental deficiency in the manner in which the directors of BGUK
and TBGIL entered into the Transactions infects the decision of the directors of
BIIL. Despite a plethora of clear and cogent advice to the contrary, the directors
proceeded to commit BIIL to the subordination of the debt due to it by BGUK. In
order to discharge their duty to act in the best interests of the company they knew
they had to be satisfied in participating in this multi-million dollar facility that the
parent company could honour its commitment to support BIIL. Without objective
evidence of the ability of TBGL to do so, the directors of BIIL could not be said to
have acted in the best interests of BIIL, its creditors and shareholders. They
received nothing more than mere assurances. In deciding to accept those
assurances, the directors of BIIL, like the directors of BGUK and TBGIL, were in
breach of their duties as directors.
1067 The mere assurances referred to were those provided by Mitchell and Bond
at the meeting held on 24 January 1990.
1068 Ample material was set out in his Honours reasons on which his Honour
could reach the conclusion that the directors acted in breach of their fiduciary
duties. The appeal from those findings must be dismissed.
c) Equity Trust
1069 His Honour, at [5952]-[6030], set out his conclusion on the conduct of Equity
Trust in executing the BGNV Subordination Deed on 31 July 1990. His Honour
found that it had not been proved to his satisfaction that Equity Trust failed to
act bona fide in the best interests of BGNV as a whole in entering into the
[BGNV] Subordination Deed.
1070 The process by which his Honour reached the foregoing conclusion has been
discussed earlier under the section Statutory Claims (at [561]-[582]).
1071 His Honours reasons for determining that Equity Trust had not breached
fiduciary duties owed to BGNV, at [6028], were based on the conclusion his
Honour had reached that the on-loans by BGNV to TBGL and BGF were
subordinated and, therefore, his Honour thought, it was unlikely that Ruoff [the
sole director of Equity Trust] held a state of mind contrary to facts. If, as found
in these reasons, the on-loans were not subordinated, his Honours reasoning in
that regard depended upon a false premise.
1072 In any event, given that, as his Honour accepted, at material times no-one
turned his or her mind to the status of the on-loans and that BGNV possessed no
material that indicated that the loans had been subordinated, the only conclusion
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 189

available to Ruoff in the circumstances was either that the loans were not
subordinated or that the status of the loans in that regard was unknown.
1073 It should have been found by his Honour that Ruoffs conduct involved a
decision to accept that the rights of BGNVs creditors would be prejudiced by
the execution of the BGNV Subordination Deed.
1074 That was not conduct consistent with Equity Trusts (Ruoffs) duty not to
cause BGNV to prejudice the rights of its creditor, LDTC, and his Honour
should have found accordingly.
1075 There was no evidence that Ruoff knew, or had reasonable grounds for
believing, that the on-loans were subordinated. Therefore, Equity Trusts
(Ruoffs) conduct in executing the BGNV Subordination Deed on 31 July 1990
to subordinate BGNVs right to recover the loans it had made to TBGL and
BGF could not be regarded as rational conduct in the face of the duty of Equity
Trust not to have BGNV prejudice interests of creditors of BGNV. By causing
BGNV to subordinate its right to recover the loans Equity Trust (Ruoff) made
BGNV unable to meet its obligations to creditors and patently insolvent. On
24 January 1990 Ruoff had been informed by TBGL that upon execution of the
Transactions TBGL and BGF would not be able to make payments to BGNV of
interest due on the loans. Execution of the BGNV Subordination Deed on
31 July 1990 could only have confirmed for Ruoff the prospect that BGNV was
facing a very serious situation and default in the payment of interest to
Bondholders, as indeed occurred when the next payment of interest fell due in
December 1990.
Duty not to have conflict of interest
1076 The conclusion that his Honour did not err in determining that the Australian
and UK directors breached the foregoing fiduciary duties and that consequential
orders made by his Honour were supported by those findings means that it is
unnecessary to deal with the respondents notice of contention that the orders
ought to be upheld on the ground that Bond, Mitchell and Oates breached a
fiduciary duty not to allow personal interests to conflict with their duties as
directors.
1077 However, the following short answers are provided in respect of those
contentions.
1078 In respect of the alleged non-pecuniary interest held by Bond, Mitchell and
Oates, I agree with his Honour that the facts relied upon for this ground were
unable to define an interest of the directors that was of the required character.
Namely, one that raised a real prospect of the directors advancing the interests
of BCHL at the expense of the interests of the Bell group companies and that
the argument went no further than that supporting the claims of breach of the
duties not to act for an improper purpose and not to fail to act in the best
interests of a company.
1079 Insofar as it was argued that a finding that those duties had been breached
mandated a finding that the directors also breached a duty to avoid a conflict of
interest it does not follow from a finding of breach of either of those duties that
breach of the duty to avoid a conflict of interest would be established.
Additional facts must be demonstrated that show the nature of the
non-pecuniary interest of the fiduciary that raises a clear and real possibility that
the fiduciary may be dissuaded from duly performing a fiduciary duty.
1080 His Honour, at [6127], found expressly that he was not satisfied that there
190 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

was any evidence on which to ground the conclusion pleaded, namely, that
Mitchell or Oates had a motivation to maintain their continuance in office as
directors of, or to protect their indirect financial interests in BCHL. That finding
was not challenged.
1081 This element of the notice of contention therefore must fail.
1082 With regard to Bonds personal financial interest being allowed to conflict
with his obligations as a director, it would have been possible for his Honour to
conclude, irrespective of any conclusion he reached in respect to the breach of
other duties, that Bond failed to prevent that interest conflicting with his duties
as a UK director of BGUK.
1083 Although the nature, if not the detail, of Bonds personal interests may have
been understood by other UK directors of BGUK it is apparent, as noted by his
Honour (at [5905]), that they relied, albeit inappropriately, on Bond to inform
them on matters germane to the decisions directors had to make conformably
with their duties owed to BGUK.
1084 It was open to his Honour to conclude that the assurance of ultimate solvency
of the Bell group that Bond gave to the other UK directors was an unsupported
statement motivated by Bonds desire to protect his personal financial interests
and made without regard to his duty not to cause those directors to have BGUK
enter the Transactions without full knowledge of the financial position of
TBGL.
1085 Given the other findings made by his Honour in relation to Bonds conduct,
his Honour should have found that Bond breached his duty not to allow his
personal financial interests to conflict with his duties as a UK director by
participating in the meeting of directors of BGUK in a manner that caused the
other directors to breach their duties to the company.
Summary
1086 The plain circumstance, as at 26 January 1990, was that the Bell group was
unable to meet debts as they fell due, a circumstance exacerbated by execution
of the Transactions.
1087 Any reasonable and prudent director charged with a duty not to act other than
in the best interests of each company and not to exercise powers improperly
would have appreciated that as at 26 January 1990 the interests of creditors of
the companies in the assets of the group could not be served by execution of the
Transactions. If the interests of those creditors had been duly considered
commencement of an appropriate form of administration was the obvious and
only course to follow.
1088 The sole purpose of the Transactions was to provide the Banks with security
over all assets of an insolvent group under which the Banks could control
realisation of assets and apply proceeds thereof to the discharge of debts due to
the Banks in priority to debts due to all other creditors.
1089 The current state of the law in Australia, whether under the general law or
statute, is taken to confine the duty owed to a security provider by a secured
creditor acting to effect a sale of secured property, to a duty to exercise the
power of sale in good faith. As expressed it is a duty not to sacrifice the interests
of the security provider by acting in a wilful or reckless way in the sale of the
property. It is not a duty to take reasonable precautions to ensure that the
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 191

property is sold at the best possible price nor is it a duty to act so as to advance
the interests of the security provider: see Upton v Tasmanian Perpetual Trustees
Ltd (2007) 158 FCR 118 at [13]-[28] per Kiefel, Besanko JJ.
1090 The absence of a general duty of care upon a secured creditor exercising a
power of sale forestalls any claim that a secured creditor has such a duty of care
to unsecured creditors. At best, only the interests of unsecured creditors of an
insolvent security provider could be said to have equivalence to those of the
security provider sufficient to make the unsecured creditors the object of a like
duty owed to the security provider by the secured creditor, namely, not to
sacrifice the interests of such creditors by wilful or reckless conduct.
1091 The sale of assets by the Banks pursuant to the Transactions would have been
free of any supervening duty to act in the interests of the unsecured creditors
and no duty to account to those creditors arose out of any shortfall in the
amounts received from realised assets against previously anticipated values.
There would have been no obligation on the Banks to inform the creditors of the
manner of sale of assets or to receive any submissions thereon from creditors.
1092 In the circumstance of insolvency of the group it would have been
disingenuous for a director to assert that he believed that the interests of
creditors other than Banks would not be prejudiced by executing the
Transactions and by refraining from commencing formal administration where
those Transactions withdrew the groups ability to pay debts; transferred control
of the assets of the group to the Banks; and immediately reduced the worth of
the debts due to other creditors by denying those creditors access to the assets of
the group and subordinating payment of those debts to the payment in full of the
claims of the Banks.
1093 Dealings by the directors in assets of the companies facing insolvency, which
had the effect of prejudicing the interests of creditors other than the Banks,
could not be justified in equity and would constitute misconduct from which a
finding of breach of a fiduciary duty would follow. A claim of honest belief that
entry into the Transactions was, or could be, in the interests of the corporation
and its creditors would be to no avail in equity.
1094 A director of an insolvent company could not claim an honest belief that it
was permissible to engage in misconduct.
1095 Although directed to personal insolvency the following remarks of Cave J in
Re Freeman; Ex parte Freeman (1890) 7 Morr 38 at 46 may be taken to apply
with equal force to the duties of a director of an insolvent corporation:
With regard to the third allegation of misconduct, I entirely agree with the
suggestion made at the Bar, that that was conduct which is not justifiable. When a
man is insolvent he has no business to take upon himself to decide whether his
business is or is not to be sold, or whether his business is or is not to be carried on.
When he is insolvent he really is carrying on his business at the risk and expense
of his creditors A man, therefore, is not justified in going on or in selling, or, in
fact, taking any step at a time when he is insolvent without the concurrence of the
creditors who have to bear the burden, if that step turns out to be a disastrous one.
In that sense the debtor was guilty of misconduct.

Barnes v Addy
1096 His Honour found that it had been established that the conduct of the Banks
came within the colloquial description, the first limb of Barnes v Addy (1874)
LR 9 Ch App 244, in that the Banks were knowing recipients of the dispositions
of property effected by the Transactions and appropriate relief in equity was
192 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

ordered accordingly, save for the BGNV Subordination Deed the execution of
which, as discussed above (at [1069]-[1075]), his Honour had found, with
respect in error, not to involve a breach of fiduciary duty by Equity Trust as the
director of BGNV. At [8753] his Honour acknowledged, in effect, that had there
been a breach of fiduciary duty by Equity Trust in executing the BGNV
Subordination Deed the orders made based on the claim under the first limb
would have included an order in respect of that Deed.
1097 By a number of grounds of appeal the Banks submitted that his Honour erred
in finding that the Banks were liable under the first limb.
1098 Notices of contention of the respondents claimed that his Honour erred in
failing to apply the orders made by his Honour on the claim under the first
limb to the BGNV Subordination Deed and that the orders ought to have been
made in any event on the claim of the respondents rejected by his Honour that
relied on the second limb of Barnes v Addy, namely, that the Banks
knowingly assisted the directors in dishonest breaches of fiduciary duty.
1099 I have had the benefit of reading the reasons of Drummond AJA on the
various Barnes v Addy issues that arise under the grounds of appeal of the
Banks and notices of contention of the respondents and respectfully adopt his
Honours conclusions and his reasons therefor.
1100 I agree with Drummond AJA for the reasons he provides that knowledge of
the Banks in the claims of knowing receipt and knowing assistance, was
duly established and that the High Court in Krakowski v Eurolynx Properties
Ltd (1995) 183 CLR 563 has defined how aggregation of the knowledge of
disparate personnel is permitted in determining the extent of the knowledge of a
corporation.
1101 I add the following comments.
1102 The respondents contended that, although his Honour had stated correct
principles for determining whether the participation by a party in a transaction
to assist errant fiduciaries had been dishonest, his Honour had erred in holding
that proof of such dishonesty required the conscious wrongdoing of that party
to be established.
1103 At [8600], [8603] and [8604], his Honour the trial judge found as follows:
I believe the hard facts possessed by the banks are sufficient to establish that, as at
26 January 1990, the banks held a strong suspicion that the Bell group companies
were insolvent or nearly so. They knew that the companies were of doubtful
solvency. This level of suspicion and knowledge is contributed to and
compounded by what I consider to have been a reckless failure to make enquiries
which a reasonable and honest banker would have made. The reference of
honest is necessary because of the legal test. It does not indicate a finding of
conscious wrongdoing by any bank officer.

As a general statement, as the refinancing negotiations progressed the banks
seemed to have become less concerned to receive information. It got to the point
where they ceased chasing information that was readily available and which may
have clarified many of the concerns held the banks. In my view, the reason for this
was that the banks had began to realise that the Bell group was in serious financial
trouble and was of doubtful solvency. The banks had resolved to proceed with the
refinancing in any event. They adopted the existing borrowers structure on the
basis that it avoided double jeopardy and would leave them no worse off in the
event that the Transactions, or some of them, were set aside. This is, I think, at the
heart of the matter. The accumulation of detailed financial information became
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 193

less important because it would not have made much difference: the banks had
decided to continue with the refinancing and a critical factor in that decision was
that they would be no worse off.
It can be inferred from the sudden change in behaviour, which I believe has not
been adequately explained, that the bank officers ceased making the enquiries that
one would expect a reasonable person in their position to have made. They did so
because they had resolved to proceed with the Transactions regardless of the exact
financial status of the Bell group companies.
1104 Earlier, at [6733]-[6749], his Honour had found that at some time after
15 December 1989 the Banks had removed a request from the refinancing
terms sheets that the directors provide certificates of solvency in respect of Bell
group companies and in the absence of any satisfactory explanation therefor, his
Honour had concluded that the Banks had done so because of doubts about the
solvency of the companies concerned.
1105 His Honours finding that the Banks held a strong suspicion that the Bell
group companies were insolvent contained an implied dependent finding that
the Banks knew that if their suspicions were correct the proposed grant of
securities to the Banks by the Transactions would prejudice the interests of
other creditors. Therefore, the strong suspicion held by the Banks must have
extended to a suspicion that the execution of the Transactions by the directors
would be a dishonest breach of their fiduciary duties in that it would cause the
companies to prejudice the interests of other creditors.
1106 His Honours reasons, at [5756]-[5761], set out the material that supported
his Honours conclusion that the Banks had clear knowledge of the obligation
of the directors to satisfy themselves that it was in the best interests of each
company to execute the Transactions and that a significant factor in that
assessment had to be consideration of the interests of creditors.
1107 As noted earlier, his Honour found, at [7110], [7112] and [9723], that the
Banks were frightened by Aspinalls claim that the bonds might not be
effectively subordinated. Aspinall made that claim for the purpose of
persuading SCBAL to withdraw the demand for the repayment of its advance,
and to forestall the Banks from making further demands for repayment. That
purpose was fulfilled. Upon the Banks becoming aware that BGNV may
compete pari passu with the Banks in a liquidation of TBGL or BGF and
present claims as a creditor that would exceed substantially the claims of the
Banks, the Banks determined that the Transactions should be executed as soon
as possible, an anticipated consequence of which would be the stultification of
any claim that BGNV may have as a creditor of TBGL or BGF.
1108 Indeed it may be said that the fraudulent purpose of the directors would have
been patent to the Banks. The proposition put to them by Aspinall was, in effect,
that it was in the interests of the Banks to proceed with the Transactions to
obtain the advantage over other creditors that the directors were willing to grant
in a circumstance of insolvency in return for the Banks withdrawing or
withholding further demands for payment.
1109 His Honour found that the Banks held a strong suspicion that the Bell group
was insolvent and committed a reckless failure to make enquiries which a
reasonable and honest banker would have made in the circumstances. Those
findings meant that his Honour was able to conclude that the claim of knowing
receipt under the first limb had been made out. It also followed that, properly
instructed, his Honour should have concluded that the claim of knowing
194 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

assistance under the second limb also was established. That is to say that the
Banks knowingly assisted the directors in a dishonest breach of their fiduciary
duties and the fraudulent disposition of company property, and that the Banks
thereupon became constructive trustees in respect of the dealings with that
property: see Barlow Clowes International Ltd (in liq) v Eurotrust International
Ltd [2006] 1 WLR 1476 at [10], [18] per Lord Hoffmann.
1110 It was submitted by the Banks that a difference in the law on this issue had
arisen between Australian and UK authorities and that his Honour had
determined correctly according to Australian authority that the Banks had not
provided knowing assistance to the directors in their breach of fiduciary duty.
1111 The potential divergence of authority between the two jurisdictions was that
pointed out in Farah Constructions (at [161]-[165]). The High Court noted that,
on one reading of Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, the
Privy Council may have reformulated or enlarged the second limb by
including within it, or in place of it, an independent source of liability of a third
party, namely, the liability of a third party who dishonestly induced or procured
a breach of trust although the trustee had not acted with an improper purpose
and had not been assisted in a dishonest or fraudulent design. The High Court
stated that if that was the intended result of Royal Brunei Airlines it did not
represent the current state of the law in Australia in respect of the second
limb.
1112 That reservation by the High Court has no application to the facts found by
his Honour in this matter on which the respondents contend that dishonest
breach of fiduciary duty was established.
1113 The High Court stated in Farah Constructions (at [178]), that what
constitutes knowledge for the purposes of the second limb of Barnes v Addy
was set out in the conclusions of Consul Development Pty Ltd v DPC Estates
Pty Ltd.
1114 The relevant passages in Consul Development were identified in Farah
Constructions (at [176]) as the reasons of Gibbs J at 398, and Stephen J at 412.
1115 The relevant part of the reasons of Gibbs J at 398, read as follows:
It may be that it is going too far to say that a stranger will be liable if the
circumstances would have put an honest and reasonable man on inquiry, when the
strangers failure to inquire has been innocent and he has not wilfully shut his eyes
to the obvious. On the other hand, it does not seem to me to be necessary to prove
that a stranger who participated in a breach of trust or fiduciary duty with
knowledge of all the circumstances did so actually knowing that what he was
doing was improper. It would not be just that a person who had full knowledge of
all the facts could escape liability because his own moral obtuseness prevented
him from recognizing an impropriety that would have been apparent to an
ordinary man.
1116 Stephen J, at 408, restated the words of Lord Selborne in Barnes v Addy,
namely, that a necessary ingredient of the liability of a stranger as a constructive
trustee under the second limb was fraud and dishonesty constituted by the
knowledge or suspicion on his part of an improper or dishonest design in the
transaction (Barnes v Addy (at 252)) (emphasis added).
1117 At 412, having stated that mere constructive notice by reason of negligent
failure to inquire (save for failing to investigate title in dealings in real estate)
was not sufficient to establish the required knowledge of dishonesty, Stephen J
then said as follows:
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 195

If a defendant knows of facts which themselves would, to a reasonable man, tell of


fraud or breach of trust the case may well be different, as it clearly will be if the
defendant has consciously refrained from enquiry for fear lest he learn of fraud.
1118 That approach was consistent with longstanding authority on knowledge as
understood in equity. As Lord Cranworth LC stated in Owen v Homan (1853) 4
HL Cas 997 at 1034-1035; 10 ER 752 at 767:
[I]t may safely be stated that if the dealings are such as fairly to lead a reasonable
man to believe that fraud must have been used in order to obtain such
concurrence, he is bound to make inquiry, and cannot shelter himself under the
plea that he was not called on to ask, and did not ask, any questions on the subject.
In some cases wilful ignorance is not to be distinguished in its equitable
consequences from knowledge. If a person abstains from inquiry because he sees
that the result of inquiry will probably be to show that a transaction in which he is
engaged is tainted with fraud, his want of knowledge of the fraud will afford no
excuse.
1119 Also consistent with the passages in the reasons of Gibbs J, at 398, and of
Stephen J, at 412, set out above is the following treatment of knowledge for the
purposes of the second limb in several UK authorities that dealt with
circumstances analogous to the facts found by his Honour.
1120 In Barlow Clowes (at [10], [18]) in which the pertinent fact found was that
the party providing assistance to an errant fiduciary held the suspicion that the
money used by the fiduciary had been misappropriated, the Board reaffirmed the
reasons provided by the Privy Council in Royal Brunei Airlines v Tan. Namely,
that the fraud or dishonesty described by Lord Selborne in Barnes v Addy, could
be said to be made out where the suspicion of an improper or dishonest design
in the transaction was combined with a conscious decision not to make
inquiries which might result in knowledge: see Manifest Shipping Co Ltd v
Uni-Polaris Insurance Co Ltd [2003] 1 AC 469. The Privy Council also
reiterated that the standard to determine whether that conduct was dishonest was
objective and was not set by the standards of the party concerned.
1121 That met the background principles for analysis of the second limb set out
by the High Court in Farah Constructions (at [173]):
As a matter of ordinary understanding, and as reflected in the criminal law in
Australia, (Macleod v R (2003) 214 CLR 230 at 242 [36]-[37]) a person may have
acted dishonestly, judged by the standards of ordinary, decent people, without
appreciating that the act in question was dishonest by those standards. Further, as
early as 1801, Sir William Grant MR stigmatised those who shut their eyes
against the receipt of unwelcome information (Hill v Simpson (1801) 7 Ves Jun
153 at 170 [32 ER 63 at 69]. See further May v Chapman and Gurney (1847) 16
M & W 355 at 361 [153 ER 1225 at 1228]; Jones v Gordon (1877) 2 App Cas 616
at 625 628-629 and 635; English and Scottish Mercantile Investment Co v Brunton
[1892] 2 QB 700 at 707-708).
1122 His Honours confinement of knowing assistance to circumstances where
the party actually knew that what was being done was improper did not reflect
the law set out in Farah Constructions. Farah Constructions (at [175]) accepted
that four of five divisions of knowledge suggested in Baden v Socit Gnrale
pour Favouriser le Dveloppement du Commerce et de LIndustrie en France
SA [1993] 1 WLR 509 were of assistance in determining whether requisite
knowledge had been established for the purposes of a Barnes v Addy claim.
However, a prudent reminder was provided by the Full Court of the Federal
196 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

Court in Grimaldi v Chameleon Mining NL (No 2) (at [259]-[260] per Finn,


Stone, Perram JJ) that adherence to rigid or exclusive categories of knowledge
will be inappropriate in determining whether a foundation for liability has been
established under either limb of Barnes v Addy:
Put compendiously liability both for knowing receipt and knowing assistance turns
on what the third party knew, or had reason to know, of the circumstances
constituting the breach of trust (recipient liability) or the dishonest and
fraudulent design (assistance liability). It is here, as justly observed in Jacobs (at
[1335]), that the whole topic has become bedevilled by an obsessive refinement
of distinctions between degrees of knowledge and notice. What the authors have
described as the zenith of complexity was attained by Peter Gibson J in Baden v
Socit Gnrale pour Favouriser le Dveloppment du Commerce et de lIndustrie
en France SA [1993] 1 WLR 509 at [250] where five categories of knowledge and
notice were postulated
The comment that should be made at the outset about this five-fold
classification is that it tends to invite the use of formulae to solve problems.
Unsurprisingly judges have cautioned against treating each category as an
exclusive and rigid one.

1123 It follows from the foregoing principles, and the findings of fact made by his
Honour set out above, that his Honour erred in failing to conclude that the
Banks provided knowing assistance to the directors in their dishonest breach of
fiduciary duty and that the Banks stood as constructive trustees at the outset of
the Transactions.
1124 The statement by the High Court in Zhu v Treasurer (NSW) (2004) 218 CLR
530 at [122] per Gleeson CJ, Gummow, Kirby, Callinan, Heydon JJ that curial
intervention against persons who knowingly assist fiduciaries to breach
their duty is based on the need to deter conduct that directly undermines the
high standard required of fiduciaries, and on the inequitable character of
permitting those persons to retain benefits resulting from their conduct
confirms that it is appropriate for a court to make restorative or compensatory
orders in respect of property of a corporation affected by a breach of fiduciary
duty committed by a director of the corporation.
1125 Furthermore, as Gibbs J explained in Consul Development (at 396-397) (a
statement cited with approval by the High Court in Zhu in a footnote to the
passage set out above), corrective orders against persons who knowingly assist
an errant fiduciary is an extension of the principle that persons who knowingly
receive benefits from such a breach of fiduciary duty must account for that
which is improperly obtained: see Selangor United Rubber Estates Ltd v
Cradock (No 3) [1968] 1 WLR 1555.
1126 Appropriate intervention by a court in such a case is likely to entail orders in
equity that recognise or impose a constructive trust with associated remedial
orders.
1127 The reasons of Drummond AJA helpfully describe the breadth of the concept
of property of a corporation that enables curial orders made against third parties
to fulfil the object of equity that errant fiduciaries be held to their duty.
1128 The Banks grounds of appeal must be dismissed, the respondents notices of
contention upheld and appropriate orders made in respect of the BGNV
Subordination Deed.
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 197

Other grounds of appeal and cross-appeals


Loss of right of rescission by election to affrm
1129 The Banks in their appeal submit that his Honour erred in failing to find that
the respondents affirmed the Transactions and, therefore, did not have a right to
rescind those contractual arrangements. The Banks contention was encapsu-
lated in the submission that significant delay in purporting to exercise a right
to rescind constituted an election to affirm the Transactions.
1130 The ground of appeal only has relevance if the respondents claims that the
Transactions were made void by statute fail. As discussed below in respect of
the grounds of appeal and cross-appeal relating to the orders for relief made by
his Honour, it should be assumed that if the statutory claims had been upheld
his Honour would have made similar consequential and remedial orders as those
made on the equitable claims.
1131 The claims of breach of fiduciary duty and equitable fraud grounded a right to
elect to rescind the Transactions, but the claims based on ss 120 and 121 of the
Bankruptcy Act involved application for declarations that the Transactions were
void under the statute as dispositions of property made with intent to defeat
creditors or as settlements of property made within a defined period of
proximity to an administration in insolvency.
1132 The statutory claims involved the public interest and the performance of
duties by the liquidators as court-appointed officers. The obligation on the
liquidators upon appointment was to ascertain whether there was evidence that
the Transactions infringed the statutory provisions and whether proceedings
seeking declarations that the Transactions were invalid by operation of statute
were appropriate having regard to the cost, the interests of creditors, the public
interest, and the residual interests of the corporators. The liquidators were not
involved in exercising an election to rescind the Transactions and were not
required to commence a proceeding to obtain orders to confirm the effect of a
purported exercise of a right of rescission.
1133 The following comments may be made on the argument of the Banks that in
respect of claims of breach of fiduciary duty and equitable fraud the respondents
affirmed the Transactions and lost the right to rescind.
1134 Whether there has been an election to affirm is a question of fact and whether
equity will accept a purported rescission is a matter of discretion if there are
circumstances that would make rescission unjust or unreasonable in the
circumstances: see Fysh v Page (1956) 96 CLR 233 at 243 per Dixon CJ, Webb,
Kitto JJ.
1135 His Honour, at [9315]-[9316], addressed the relevant evidence and, at [9654],
was satisfied that no bar to relief by orders for rescission had been established
by the appellants.
1136 It was patent that his Honour was satisfied that soon after their appointment
in 1991 and 1993, the respective liquidators directed their efforts to discharge of
their duties by making necessary inquiries and investigations, conducting
examinations to elicit information, obtaining advice, and endeavouring to secure
finance for the conduct of proceedings. Litigation funding was obtained in early
1995 and proceedings were commenced in December 1995. His Honour noted
that $6 million in legal fees had been incurred by July 1996.
1137 There was ample evidence on which his Honour could be satisfied, as he was,
that the liquidators had given appropriate attention to the discharge of their
198 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

duties after appointment and that it had not been shown that the liquidators had
elected to affirm the Transactions and not rescind them pursuant to rights to
rescind obtained by the respondents for breaches of fiduciary duty or equitable
fraud.
1138 This ground of appeal, therefore, is not made out.
Rescission not available because restitutio in integrum not possible
Funds released by banks to bondholders not recoverable
1139 A ground of the appeal by the Banks was that his Honour erred in failing to
find that rescission should not have been ordered because of the inability of the
court to restore the Banks to the position they would have been in if the
Transactions had not been executed.
1140 The argument presented by the Banks in support of the ground was that, at
the request of TBGL, the Banks permitted moneys that the Banks had obtained
under the Transactions and that would otherwise have been applied to reduction
of Bell group indebtedness to the Banks, to be released to TBGL for the
payment of interest by BGF on moneys owed to BGNV and thereafter applied
by BGNV to the payment of interest due to Bondholders. The Banks submitted
that those funds were irrecoverable and, therefore, that the Banks could not be
restored to the position they were in before the Transactions were executed. It
was argued that orders of rescission should have been refused because it was
not possible for the court to do what was practically just between the parties:
see Alati v Kruger (1955) 94 CLR 216 at 223-224 per Dixon CJ, Webb, Kitto,
Taylor JJ.
1141 The Banks contended that the moneys released in May and July 1990 to meet
the interest payments due to Bondholders would otherwise have been available
for distribution to the Banks as creditors in the liquidations of TBGL and BGF
that would have commenced if the Transactions had not been executed.
1142 His Honour appeared to conclude that the foregoing release of funds by the
Banks was a decision that had been made by the Banks after the Banks had
given exclusive regard to their own best interests. Furthermore, his Honour,
at [9422], considered it possible that liquidations would not have been
commenced immediately if the Transactions had not been executed, and,
therefore, that interest payments to Bondholders could still have been made
when they fell due in May and July 1990.
1143 With regard to the latter speculation the state of insolvency of the Bell group
as at January 1990, as found by his Honour, made that possibility unlikely given
that the purpose of the Transactions was to hold off formal administrations in
insolvency.
1144 The funds released by the Banks and the circumstances in which, and purpose
for which, the funds were released did not provide cause for his Honour to
refuse to exercise a discretion to make an order for rescission. Equity recognises
that in many cases precise restitution will be impossible and that a practically
just result will be effected by an order for rescission that is modified by
appropriately moulded orders.
1145 No error has been shown in his Honours reasoning and this ground of appeal
cannot succeed.
Securities released by banks not recoverable
1146 The Banks raised the additional ground of appeal that his Honour erred in
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 199

failing to refuse an order for rescission in respect of Transactions that concerned


the publishing assets. It was contended that the validity of the securities
obtained by the Banks over the publishing assets had not been challenged by the
providers of the securities. Those parties had sold the publishing assets and,
ultimately, the proceeds of sale were applied to reduction of the indebtedness of
BGF to the Banks. The securities held by the Banks had been discharged as part
of the sale of the publishing assets.
1147 Apart from equity not insisting on in specie restitution as a condition of
rescission, the argument supporting this ground of appeal appears to rest on a
false premise. Prior to the execution of the Transactions the Banks had no
security over the publishing assets. They did have a supervisory interest in the
assets to the extent of the pledge in the Negative Pledge Guarantee that the
publishing assets were not to be subject to security without the consent of the
Banks. The loss of that advantage by the Banks had little consequence for the
practical restoration of the status quo.
1148 Return to the status quo upon rescission of the Transactions involved delivery
of the proceeds of sale to the liquidator and exercise of the right of the Banks to
participate as creditors in distributions by the liquidator from funds obtained
from the realisation of assets.
1149 At [9570]-[9573], [9654]-[9660], his Honour set out the pertinent facts and
his conclusion as to why orders for relief could be moulded appropriately to
provide a practically just result between the parties.
1150 His Honour determined that the Banks had not shown cause for his Honour to
refrain from making orders for rescission in respect of the Transactions.
1151 It has not been shown on this ground of appeal that his Honour erred in either
the application of principle or the proper exercise of his discretion by
misunderstanding or failing to consider relevant facts.
1152 The ground of appeal, therefore, fails.
Ratification
1153 As an answer to the respondents case of breach of duty by the directors the
Banks pleaded that the shareholders of each Bell company (other than TBGL)
had consented to the Transactions and thereby ratified any breach of duty by
directors arising out of the execution of the Transactions.
1154 His Honour, at [9386]-[9397], considered that defence and concluded that it
had not been made out.
1155 The Banks by a ground of appeal contend that his Honour erred in that
finding and that the defence should have been upheld.
1156 The Banks accept that the shareholders of TBGL, BGF, Bell Bros and
Maranoa Transport lacked capacity to ratify a breach of duty by the directors of
those companies being companies in insolvency that had external creditors the
interests of which took precedence over the interests of shareholders.
1157 His Honour, at [2095]-[2096], [7232], [SUBP.009.001, para 16], found that
the following companies also had liabilities to external creditors, present and
prospective: Bell Bros Holdings; Albany Broadcasters; Western Interstate;
WAN; Bell Press; Western Mail; Albany Advertiser; WA Broadcasters; South
West Printing and Hocking. In addition, the Annual Accounts for the year
ending 30 June 1989 for Wanstead [TBGL.00209.080] and WAON Investments
Pty Ltd [TBGL.00212.051] also disclosed present and prospective external
creditors.
200 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

1158 All of the foregoing companies were Bell Participants. Bell Bros Holdings,
Albany Broadcasters, WAN, Bell Press, Western Mail, Albany Advertiser, WA
Broadcasters, South West Printing and Hocking were not parties to this
proceeding.
1159 The creditors included trade suppliers, employees and shareholders. The
principal creditor was the Commissioner under tax assessments issued or
pending. As discussed earlier the amount due to the Commissioner on
assessments issued was approximately $34 million. The 1989 Annual Accounts,
issued 13 November 1989, in respect of the foregoing companies contained
provisions for anticipated additional income tax assessments that amounted to
approximately $25.3 million.
1160 His Honour found, at [7232], that from their perusal of those annual accounts
the Banks would have been aware that the foregoing companies had external
creditors.
1161 The issue of ratification of the conduct of the directors cannot arise in respect
of the circumstances of the above companies there being no suggestion that
external creditors consented to the grant of securities: see Kinsela v Russell
Kinsela Pty Ltd (at 730-733) per Street CJ.
1162 With regard to the remainder of the respondent Bell Participants, the Banks
argued that his Honour had erred by applying a group approach to the issue;
by finding that it was necessary for the directors to make a full and frank
disclosure to shareholders of the breach of duty; and by treating the grant of
securities as a misappropriation of property that was incapable of ratification.
1163 The Transactions included execution of formal consents by the shareholder
corporations of each Bell Participant to execution of the Transactions by those
companies.
1164 The directors of the shareholders who executed the consents were the
directors of the Bell Participants who executed the Transactions.
1165 The Banks contended that it followed necessarily that the directors as
directors of the shareholders had full knowledge of the impending breach of
duty as directors of the Bell Participants and, therefore, no argument of absence
of informed consent could arise.
1166 His Honour, at [9395], determined that the actions of the directors as
directors of the shareholders could not have a higher quality than the pending
acts of the directors as directors of the Bell Participants and that the breach of
duty flowed through to a like breach as directors of the shareholders. The Banks
relied upon this reasoning by his Honour for their argument that he had erred in
applying a group approach instead of considering the circumstances of each
shareholder.
1167 It was not submitted that there was evidence of other than a common
circumstance in the relationship between the directors of the shareholders and
the directors of the Bell Participants and the argument fails.
1168 With regard to his Honours reasoning, his Honour stated correctly that it was
a matter of logic. The case put by the Banks was that the directors had an honest
belief that there was no breach of duty involved in their execution of the
Transactions. Therefore, as his Honour put it, no argument could be put that as
directors of the shareholders the directors of the Bell Participants had made full
disclosure of an intended breach of fiduciary duty and had sought absolution in
respect of it: see Bamford v Bamford [1970] Ch 212 at 238 per Harman LJ.
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 201

1169 Indeed the Banks seemed to submit that the directors of the Bell Participants
had not been involved in such an exercise. The argument was put that it was a
condition precedent of the refinancing that the shareholders of the Bell
Participants provide formal consent to execution of the Transactions by each
Bell Participant. That seemed to be a proposition that as directors of the
shareholders the directors executing the documents of consent were only
required to attend to the requirements of the Banks as refinanciers and that, in
practical terms, an obligation of disclosure as directors of the Bell Participants
did not arise.
1170 The argument confirms the conclusion that the execution of the formal
documents of consent did not carry the intent of shareholders to authorise or
ratify breaches of fiduciary duties owed by the directors to the Bell Participants.
1171 If directors propose to act to make dispositions of property of an insolvent
company and cause the company to act contrary to statutory provisions and
thereby commit breaches of fiduciary duties they owe to the company, equity
would require more cogent and compelling circumstances of informed
authorisation before it would consider a claim that significant errant conduct of
a director had been ratified by shareholders of the company.
Limitation
1172 The grounds of appeal by the Banks included a claim that his Honour erred in
failing to uphold that part of the Banks case which asserted that the relevant
new equitable claims were, or should be, barred by application of limitation
periods prescribed in s 47 of the Limitation Act 1935 (WA) (the Limitation Act)
or by application of provisions of limitation governing analogous claims at
common law.
1173 The Limitation Act was repealed by the Limitation Legislation Amendment
and Repeal Act 2005 (WA) (the Repeal Act). The Repeal Act (s 4(2)) stated that,
despite repeal, the Limitation Act continued to apply to causes of action that
accrued before 15 November 2005. That date was the date of commencement of
the Limitation Act 2005 (WA) which introduced general limitation provisions in
respect of equitable actions.
1174 Section 47 of the Limitation Act, in relevant respects, provided as follows:
47(1) In any action or other proceeding against a trustee or any person claiming
through him, or in reference to any trust, except where the claim is
founded upon any fraud or fraudulent breach of trust to which the trustee
was a party or privy, or is to recover trust property or the proceeds thereof
still retained by the trustee or previously received by the trustee and
converted to his own use, the following provisions shall apply:
(a) All rights and privileges conferred by this Act or any statute of
limitations shall be enjoyed in the like manner and to the like
extent as would have been the case if the trustee or person
claiming through him had not been a trustee or person claiming
through him.
(b) If the action or other proceeding is brought to recover money or
other property and is one to which no existing statute of limitations
applies, the trustee or person claiming through him shall be
entitled to the benefit and be at liberty to plead the lapse of time as
a bar to such action or other proceeding in the like manner and to
the like extent as if the claim had been against him (otherwise than
as a trustee or person claiming through a trustee) in an action of
debt for money had and received; but so nevertheless that the
202 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

statute or bar by lapse of time shall not begin to run against any
beneficiary until the interest of such beneficiary is an interest in
possession.

(3) For the purposes of this section the expression trustee includes an
executor or administrator, who for such purposes is included in the term
trustee, and includes a trustee whose trust arises by construction or
implication of law as well as an express trustee, and the provisions of this
section relating to a trustee shall apply as well to several joint trustees as
to a sole trustee.
1175 Section 47, ostensibly, implemented the equivalent provisions first enacted in
s 8 of the Trustee Act 1888 (UK). Those provisions were a statutory incursion
upon the rule in equity that a claim against a trustee was not barred by lapse of
time. But, as noted in Clay v Clay (1999) 20 WAR 427 the terms of s 25(2) of
the Supreme Court Act 1935 (WA), which mirrored the terms of s 25(3) of the
Judicature Act 1873 (UK) and excluded the operation of any statute of
limitations upon a claim by a cestui que trust against a trustee, confined the
scope of operation of s 47 in the introduction of statutory limitation periods on
actions against trustees.
1176 The definition of trustee used in s 47 and in its counterparts in other
jurisdictions led to unforeseen difficulties in construction. The application of
s 47 to a trustee whose trust arises by construction or implication of law
brought forth the problem of the development of a dual meaning of the term
constructive trustee. The primary meaning of constructive trustee is a
person, such as a trustee de son tort, who holds, or deals with, the property of
another in circumstances that attach the good conscience of that person and
which indicate the existence of a relationship of trust and justify the
intervention of equity for breach of duty. Such a circumstance may also arise
out of a breach of a fiduciary duty: Dal Pont GE and Chalmers DRC, Equity
and Trusts in Australia (4th ed, Lawbook Co, 2007), at [38.05]-[38.10]. The
secondary meaning of constructive trustee is a person whom equity has bound
by an order of remedial constructive trust requiring that person account for, or
hold, property as directed by the court, the intervention by equity being
predicated upon conduct by the constructive trustee that equity regards as
fraudulent or contrary to good conscience for which remedy in the nature of a
constructive trust is required: Dal Pont and Chalmers at [38.15]-[38.20]. Both
forms of constructive trust ground further orders in equity and that common
substratum caused the difficulty in construction of the statutory limitations
imposed upon claims in equity against trustees.
1177 Comment by law reform agencies and academics on the statutory provisions
contended that there had been no intention to distinguish between the two forms
of constructive trust. However, judicial construction of the statutory provisions
took a different path.
1178 The construction applied by the courts to s 8 of the Trustee Act, and to
analogues thereof, determined that whilst a constructive trustee under a
remedial constructive trust was included within s 47(3) the provisions of
s 47(1) that denied to a trustee the benefit of time limitation on certain claims
against the trustee did not include a constructive trustee in its secondary
meaning. Therefore, the time limitation on claims in equity against trustees
applied to a constructive trustee under a remedial constructive trust without
any exceptions. The reason for that was said to be the intention of the legislative
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 203

provisions to treat the conduct of such a constructive trustee as equivalent to the


conduct of a tortfeasor and to make equivalent limitation provisions applicable
to claims against such persons where those claims were pursued in equity in a
jurisdiction concurrent with the common law jurisdiction in claims of fraud: see
Soar v Ashwell [1893] 2 QB 390 at 393 per Lord Esher MR; Hovenden v
Lord Annesley [1806] 2 Sch & Lef 607 at 633-634; Taylor v Davies [1920] AC
636; Clarkson v Davies [1923] AC 100; Selangor United Rubber Estates Ltd v
Cradock (No 3) (at 1582) per Ungoed-Thomas J; Paragon Finance plc v DB
Thakerar & Co (a firm) [1999] 1 All ER 400 at 407-413 per Millett LJ; Piwinski
v Corporate Trustees of Diocese of Armidale [1977] 1 NSWLR 266;
Queensland Mines Ltd v Hudson [1976] CLC 40-266.
1179 Given that, as noted below, fraud in equity is not the counterpart of fraud at
common law it may be thought that the imposition of a remedial constructive
trust may not be limited to facts that provide an analogous right of action in
fraud at common law.
1180 The distinction between fraud in equity and fraud at common law was stated
by Viscount Haldane LC in Nocton v Lord Ashburton (at 953-954) as follows:
It must now be taken to be settled that nothing short of proof of a fraudulent
intention in the strict sense will suffice for an action of deceit. This is so whether
a Court of Law or a Court of Equity, in the exercise of concurrent jurisdiction, is
dealing with the claim, and in this strict sense it was quite natural that
Lord Bramwell and Lord Herschell should say that there was no such thing as
legal as distinguished from moral fraud. But when fraud is referred to in the wider
sense in which the books are full of the expression, used in Chancery in describing
cases which were within its exclusive jurisdiction, it is a mistake to suppose that
an actual intention to cheat must always be proved. A man may misconceive the
extent of the obligation which a Court of Equity imposes on him. His fault is that
he has violated, however innocently because of his ignorance, an obligation which
he must be taken by the Court to have known, and his conduct has in that sense
always been called fraudulent, even in such a case as a technical fraud on a power.
It was thus that the expression constructive fraud came into existence. The
trustee who purchases the trust estate, the solicitor who makes a bargain with his
client that cannot stand, have all for several centuries run the risk of the word
fraudulent being applied to them. What it really means in this connection is, not
moral fraud in the ordinary sense, but breach of the sort of obligation which is
enforced by a Court that from the beginning regarded itself as a Court of
conscience.

1181 His Honour, at [9247]-[9266], determined that the reasons of Millett LJ in


Paragon Finance set out the correct construction to be applied to s 47.
Millett LJ, at 412, conceded that, as had been pointed out by commentators, it
was difficult to understand the reasoning that had led the courts to include
constructive trustee in its secondary sense within the definition of trustee for the
purpose of time limitations on claims against such a constructive trustee but had
excluded that trustee from the definition of trustee for the operation of the
exceptions to those benefits. His Lordship, at 413-414, reasoned that there was
no logical basis for distinguishing the limitation period to be applied to actions
at law for damages for fraud and the delivery of a remedy in equity in respect of
a claim in equity based on the same facts where equity intervened to provide a
remedy that was moulded to have a person account as constructive trustee.
Accordingly, the construction applied to the definition of trustee should be
limited to a trustee in respect of whom the jurisdiction exercised by equity was
204 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

exclusive and not merely concurrent with the jurisdiction of courts of common
law. Presumably where equity exercised a concurrent jurisdiction in respect of a
remedial constructive trust it would be expected to apply limitation provisions
applicable to an analogous action at common law.
1182 In accepting the conclusion applied in Paragon Finance his Honour,
correctly, assumed that the decision of the Full Court in Clay v Clay was no
longer binding upon him after the High Court had upheld the appeal against that
judgment: Clay v Clay (2001) 202 CLR 410. The decision of the Full Court in
Clay v Clay had applied the limitation provisions of s 47 to a remedial
constructive trust that was said to arise out of a breach of fiduciary duty. The
High Court held that there had been no breach of fiduciary duty. Furthermore,
at 413, the High Court appeared to accept the correctness of the analysis set out
in Paragon Finance that the definition of trustee in s 47(3) did not extend to
a remedial constructive trustee and that, therefore, s 47 did not apply where
the court imposed a remedial constructive trust.
1183 Acceptance of the construction suggested by Millett LJ in Paragon Finance
should have led his Honour to conclude that for the purposes of s 47 directors
committing a breach of fiduciary duty by the abuse of trust and confidence
reposed in them by a company in respect of the control and management of the
companys property were properly described as constructive trustees within the
primary meaning of the term: Barker v Duke Group Ltd (in liq) (2005) 91
SASR 167 at [75]-[77] per Perry J; Paragon Finance (at 408) per Millett LJ;
Soar v Ashwell (at 398) per Bowen LJ. By reason of the exceptions in s 47(1),
no limitation period under s 47 would have applied to equitys exclusive
jurisdiction in respect of the conduct of those constructive trustees where that
conduct was regarded as fraudulent in equity, a term that included the ignorance
by the constructive trustees of the scope of the fiduciary duty or obligation
owed: see Nocton v Lord Ashburton (at 952-955) per Viscount Haldane LC.
1184 If it were accepted that the Banks provided knowing assistance to the
directors in the fraudulent disposition (as understood in equity) of company
property it would then follow that the same liability in equity without time bar
would apply to the Banks: Soar v Ashwell (at 394-395) per Lord Esher MR,
(at 396) per Bowen LJ, (at 405) per Kay LJ; Barnes v Addy; cf Barker v Duke
Group Ltd (at [78]) per Perry J; Meagher, Gummow & Lehanes Equity:
Doctrines and Remedies (4th ed) [5-285]; Dal Pont and Chalmers at [38.55].
1185 His Honours reasons (at [9264]-[9265]) reached the conclusion that the
Banks were remedial constructive trustees as knowing recipients of
company property and, therefore, no express limitation period applied. That is
to say the character of the status of the Banks was set by the conduct of the
directors from whom the Banks received property of the companies with
knowledge of that breach of fiduciary duty by the directors: Dal Pont and
Chalmers at [38.90]-[38.110].
1186 Whether the Banks were held to be constructive trustees as parties providing
knowing assistance to the directors in a disposition (held to be fraudulent in
equity) of property of the companies or were no more than remedial
constructive trustees as recipients of that property with knowledge that the
disposition had been effected by the directors in a dishonest breach of fiduciary
duty, the consequences, as far as the question of limitation was concerned, were
the same. That is, no statutory period of limitation applied to a claim in equity
against the Banks.
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 205

1187 That would mean that in the exercise of the exclusive jurisdiction of equity in
respect of a breach of fiduciary duty and the remedies sought in respect thereof,
not restricted to proprietary remedies, the doctrine of laches governed the
application of any time bar to the proceeding, perhaps, not to the exclusion of
consideration of the application of a statutory time limit by analogy: Williams v
Minister, Aboriginal Land Rights Act 1983 (1994) 35 NSWLR 497 at 509-510
per Kirby P.
1188 His Honour, at [9267]-[9294], proceeded to consider whether it was
appropriate to apply to the equitable claims a limitation period applicable at
common law to an analogous claim. His Honour determined that insufficient
analogy between the nature of the claims in equity and an action in tort had
been demonstrated. Furthermore, his Honour was satisfied that, in any event, it
would not be just in all the circumstances to apply such a bar to the foregoing
equitable claims.
1189 His Honours careful analysis of principle and his consideration of relevant
facts showed no error in his application of the law nor in the exercise of his
discretion. Therefore, these grounds of appeal must fail.
Election
1190 The grounds of appeal relied on by the Banks included the claim that his
Honour erred in failing to hold that BGF had relied upon and had elected to
affirm the Transactions for their terms and effect thereby disentitling it to any
relief in the proceedings relating to the Transactions.
1191 The relevant facts and the reasons why these grounds of appeal must fail are
set out in the reasons of Carr AJA with which I respectfully agree.
Set-off
1192 The Banks contend that item 4 of the Orders made by his Honour on
30 April 2009 declaring entitlements of the Banks to lodge proofs of debt in the
liquidations of BGF and BGUK, and items 5, 6 and 7 of the Orders directing the
Banks to account for and to pay to BGF and BGUK moneys payable to those
companies as provided in the Orders, should be set aside and replaced by orders
that provide for exercise by the respective banks of rights of set-off against BGF
and BGUK before payment of any moneys to BGF and BGUK and before
lodgment of any proofs of debt in the liquidations of those companies.
1193 His Honour, at [9674]-[9677], considered the submissions made on this
question and found there was an absence of mutuality able to ground such a
set-off. Furthermore, his Honour concluded that such a variation to the Orders
would avoid the requirement of equity that the errant conduct of the Banks in
knowing participation in breaches of fiduciary duty by the directors be
satisfactorily redressed. That is, the effect of such a set-off would be the
restoration of the vice that the orders in equity were designed to counter,
namely, the preferential distribution to the Banks of proceeds from assets of the
liquidated companies to the prejudice of other creditors of equal rank.
1194 The right of a creditor to claim a set-off in the liquidation of a debtor was, in
respect of BGF, a substituted right provided in s 553C of the Corporations
Act (in replacement of the equivalent right previously contained in s 553C of the
Corporations Law and, therefore, a carried over provision: Corporations Act,
ss 1371, 1400).
1195 Section 553C of the Corporations Act reads as follows:
206 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

(1) Subject to subsection (2), where there have been mutual credits, mutual
debts or other mutual dealings between an insolvent company that is being
wound up and a person who wants to have a debt or claim admitted
against the company:
(a) an account is to be taken of what is due from the one party to the
other in respect of those mutual dealings; and
(b) the sum due from the one party is to be set off against any sum due
from the other party; and
(c) only the balance of the account is admissible to proof against the
company, or is payable to the company, as the case may be.
(2) A person is not entitled under this section to claim the benefit of a set-off
if, at the time of giving credit to the company, or at the time of receiving
credit from the company, the person had notice of the fact that the
company was insolvent.
1196 In respect of BGUK, similar provisions were contained in r 4.90 of the
Insolvency Rules 1986 (UK) which applied to the liquidation of BGUK at
relevant times.
1197 It is immediately apparent that, as his Honour found, no mutual credits, debts
or dealings existed between the Banks, BGF and BGUK before the respective
winding-up or liquidation orders were made in respect of those companies.
1198 Prior to such winding-up or liquidation BGF and BGUK had been indebted to
the Banks but there was no mutual debt owed by the Banks to either of those
companies.
1199 The Banks had purported to reduce the indebtedness of BGF and BGUK by
exercising rights as security holders obtained by the Banks from the execution
of the Transactions.
1200 A judgment of the court had established that the Banks had obtained those
securities with knowledge that the directors of Bell group companies had
breached fiduciary duties owed to the companies that provided the securities
and that thereafter the Banks held, as constructive trustees, any proceeds
obtained from enforcement or execution of the securities.
1201 The liability of the Banks as constructive trustees was not a product of mutual
dealings between the Banks and BGF or BGUK at the time of the respective
liquidation or winding-up orders.
1202 The Banks possessed no right as trustees to apply as set-offs against debts
owed to the Banks by BGF and BGUK the sums for which they had to account
as trustees to BGF and BGUK.
1203 As Marks J stated in Lloyds Bank NZA Ltd v National Safety Council of
Australia (Vic) (in liq) [1993] 2 VR 506 at 508, after considering the decisions
of the High Court in Gye v McIntyre (1991) 171 CLR 609; Hiley v Peoples
Prudential Assurance Co Ltd (1938) 60 CLR 468 and Day & Dent
Constructions Pty Ltd v North Australian Properties Pty Ltd (1982) 150
CLR 85:
These cases are not concerned with the characterisation of debts, but they hold,
among other things, that the benefit or burden of credits, claims and dealings
must not only be between the same persons but also be between them in the same
interests. It goes without saying that money in the hands of a trustee in that
capacity is not held in his interest as a party to dealings on his own account (not
as a trustee) with the debtor.
1204 To similar effect were the following remarks of JD Phillips J (at 515):
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 207

Put shortly, the existence of the trust affecting the two surpluses in the banks
hands destroys the mutuality which is a prerequisite of the right to set off arising
under s 86: see, for example, National Westminster Bank Ltd v Halesowen
Presswork & Assemblies Ltd [1972] AC 785, at 821, per Lord Kilbrandon. A
trustee who is holding money for his beneficiary is not entitled to set off against
the beneficiarys claim to have the money transferred to him some other and
separate indebtedness of the beneficiary to the trustee personally. The
cross-claims, if between the same parties, are not between them in the same
interests.

1205 At all times in equity the circumstances of execution of the Transactions


impressed the Banks with the duties of constructive trustees. The instruments of
security provided by the Transactions, or the proceeds obtained from
enforcement or execution thereof, constituted property in the hands or control of
the Banks that was subject to that trust. Where the property was no longer
identifiable by reason of conduct of the trustees, the trustees personal
obligation to account for property that had been in their hands remained an
obligation of the Banks as trustees, not an obligation arising from a dealing by
the Banks with BGF or BGUK.
1206 As stated by Derham R, The Law of Set-Off (3rd ed, Oxford University Press,
2003), at [17.97]:
The application of the principle of taking subject to equities assumes that the
beneficiarys entitlement is to a beneficial interest in a debt which at law is owing
to the trustee. Alternatively, a beneficiary may claim that another has knowingly
received trust moneys in circumstances where the trustee paid the moneys to the
recipient in breach of trust. The beneficiary in that circumstance may assert an
equitable tracing claim to recover the moneys. This gives rise to a proprietary
remedy to recover trust property, and it cannot be the subject of a set-off. But even
if the moneys are no longer traceable so as to preclude a proprietary remedy, and
the beneficiarys claim instead is that the recipient has a personal liability as a
constructive trustee on the basis of knowing receipt of trust property, the recipient
could not assert a set-off in respect of a separate debt owing to him by the trustee.
The principle that a beneficiary takes subject to equities available against the
trustee is based on the notion that there is mutuality at law as between the debt
held on trust and the cross-debt owing by the trustee, and the question is whether
it is unconscionable for the debtor to rely on this defence at law, given the trust.
However, when a recipient of trust money has a personal liability as a constructive
trustee to the beneficiary on the basis of knowing receipt, there is not mutuality
either at law or in equity in relation to that liability and a debt owing by the trustee
to the recipient. This should also be the case when the basis of liability as a
constructive trustee is as an accessory to a breach of trust.

1207 It follows that this ground of appeal must fail.

Remedial trust
1208 The Banks submitted in their appeal that his Honour erred in making orders
based on the concept of a remedial constructive trust. It was asserted by the
Banks, first, that there was no trust property on which such an order could be
based and, second, that such an order may only be made upon a finding made
under the second limb of Barnes v Addy (knowing assistance) and that it was
not available where the conduct established was confined to the first limb
(knowing receipt).
208 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

1209 The second part of the Banks argument falls away given that this Court has
found that his Honour should have held that the requirements of the second
limb had been satisfied.
1210 Consideration of the nature and purpose of the so-called remedial
constructive trust shows that the first ground of the Banks arguments also
cannot be sustained.
1211 Pursuant to the reasons of this Court, the orders that the Transactions be set
aside must remain undisturbed. The orders are consequential orders that follow
a finding that either limb was infringed.
1212 By reason of the breach of the second limb the Banks became institutional
constructive trustees at the outset of the Transactions and subject to the in
personam liabilities attached to that trust, in particular, to pay compensation for
loss arising from the misuse of the property of the corporations or to account for
gains made from the use of it. As parties with knowledge of the breach of
fiduciary duty of the directors involved in the transfer of property of Bell group
companies to the Banks, the Banks obtained no more than a voidable title to
that property, a title subject to the contingency of a future order that the
Transactions be set aside ab initio.
1213 Breach of the first limb provided a discretion in equity for the court to
direct that the Banks account as constructive trustees for receipt of property of a
Bell Participant. That could have resulted in proprietary orders if property
remained extant or in the form of traceable proceeds. Otherwise the Banks were
subject to the same in personam liabilities as applied to constructive trustees for
infringement of the second limb. Similarly, the title to property received with
knowledge of the breach of fiduciary duty of the directors was a voidable title
and subject to an order that the Transactions be set aside ab initio.
1214 In respect of the infringement of either limb, the Banks as constructive
trustees had to account as defaulting fiduciaries would have been obliged to
account. If the property of a corporation had left the hands of the Banks and the
proceeds thereof were no longer defined and traceable, the obligation to account
and to make restitution would be satisfied in equity by appropriate in personam
orders: see Bofinger v Kingsway Group (at [1], [47]-[51], [91], [99]-[100]) per
Gummow, Hayne, Heydon, Kiefel, Bell JJ.
1215 Comprehensive discussion of the principles underlying the grant and form of
relief in equity in respect of Barnes v Addy claims are set out in the reasons of
Finn, Stone and Perram JJ in Grimaldi v Chameleon Mining NL (No 2)
(at [242]-[281], [503]-[512], [553]-[567]).
1216 As his Honour noted, the relevant facts in this case included circumstances
well beyond the point where proprietary relief or tracing orders could be made
and the court was required to fashion appropriate orders to provide for equitable
restoration of funds to the estates of the corporations the subject of breaches of
fiduciary duty, those orders being based upon the application of the in personam
liabilities of the Banks that had attached to their former positions, whether
actual or notional, as constructive trustees.
Denial of right to elect an account of profits
1217 His Honour determined that in the circumstances of this case it was
appropriate to award equitable compensation and to deny the respondents the
right to elect that the Banks provide an account of the profits obtained. His
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 209

Honour ordered that the Banks pay various amounts to certain of the
respondents, those amounts to include a component of compound interest.
1218 The respondents by their cross-appeal contend that his Honour erred in so
exercising his discretion and seek an order restoring their right to elect.
Alternatively the respondents submit that his Honour applied incorrect
principles to the calculation of equitable compensation and seek an order
varying the terms of the order accordingly.
1219 His Honour, at [9707]-[9711], considered that ancillary monetary relief
could be ordered in a way that provided practical justice and that his discretion
should be exercised to deny the respondents a right to elect to obtain an order
for an account of profits.
1220 The reasons provided by his Honour for that conclusion, at [9707]-[9708],
were that the purpose that awards of compensation serve could be fulfilled by
simpler remedies and that there was substantial public interest in not allowing
litigation in this matter to be further prolonged.
1221 Although, as discussed below, his Honour may not have provided the
appropriate ancillary monetary relief to be ordered in this case, the exercise of
his Honours discretion had a proper foundation in his Honours reliance upon
the greater public interest. The case had used more public resources than was
sustainable for such litigation and, as his Honour saw it, the inability of the
parties to confine their arguments and disputations within reasonable bounds
forecast that exorbitant time would be spent on the taking of an account of
profits. This was a case where his Honour could have been satisfied that
equitable compensation would not be so far removed from the outcome of an
account of profits that it was justifiable to limit further delay, expense, and use
of public resources by directing that equitable compensation be the appropriate
remedy.
1222 Subject to correction of a component of his Honours assessment of that
compensation there is no reason to disturb his Honours discretion to substitute
the equitable compensation assessed for the taking of an account.
Amount of equitable compensation
1223 The orders made by his Honour were delivered on 30 April 2009 and further
reasons were provided therefor (the Relief Reasons). Those reasons followed
extensive submissions filed by the parties upon publication of his Honours
reasons for decision on 28 October 2008.
1224 Part of the further submissions included a proposition put by the Banks that
the calculation of equitable compensation had to have regard to a notional
occurrence of liquidations within a reasonable time of 26 January 1990 in lieu
of the performance of the Transactions.
1225 The effect of that submission was a contention that his Honour should have
determined that the Banks would have received distributions in those
liquidations and should only disgorge the amount of notional dividends required
to be distributed to other creditors, not including BGNV.
1226 A finding by this Court that the loans from BGNV to TBGL and BGF were
made on the usual terms for inter-company loans and contained no term that
subordinated the lenders right to recover the loans from the borrower is
destructive of the argument of the Banks that they should not have been ordered
to repay a sum greater than the amount claimed by other creditors of the Bell
group companies, excluding the claims of BGNV.
210 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

1227 Clearly the restitutionary orders made by his Honour (subject to argument as
to error in the manner of calculation of the interest component) should stand.
1228 The Banks were not entitled to receive, or enjoy the benefit of, the moneys
received in consequence of the dispositions of company property effected by the
Transactions.
1229 The funds determined to be appropriate for restoration to the estates of the
liquidated companies must be returned to those estates for due administration by
the liquidators. The fact that the Banks, in due course, will receive an as yet
undetermined distribution from the estates of TBGL, BGF and BGUK is not a
cause for modification of the order that the Banks disgorge the benefits received
from improper receipt of company property.
1230 It is for the liquidators to determine the proper distribution of the property of
the companies once the amounts due to those estates have been received.
1231 Equitable compensation was properly characterised as a return of proceeds
received from the conversion of the property obtained under the Transactions
now set aside together with a component of interest: see Bofinger (at [100]).
The case before his Honour was within the class of cases where calculation of
compound interest was appropriate to approximate the profit made by the Banks
from the use of those proceeds: see Grimaldi (at [547]-[552]).
1232 No argument was put by the Banks that the obligation of the Banks to
account, or to pay equitable compensation, for the benefits obtained from the
use of the property received by the Banks with knowledge of a breach of
fiduciary duty should be reduced to the extent that the resulting sum included
benefits obtained exclusively from the application of skilful management of the
funds by the Banks: see Warman International v Dwyer (at 562) per Mason CJ,
Brennan, Deane, Dawson, Gaudron JJ; Giumelli v Giumelli (1999) 196 CLR
101 at [55] per Gleeson CJ, McHugh, Gummow, Callinan JJ. It follows that if
equitable compensation is found to be the appropriate form of redress return of
the funds received together with compound interest would represent an
appropriate method of assessment of that compensation.
1233 The evidence before his Honour, referred to by his Honour at [9706],
included a calculation of estimated profit that pointed to a conclusion that the
Banks may have received a return from the use of the funds obtained from the
Transactions in an amount that exceeded in a substantial degree the amount of
compound interest obtained from applying the Westpac Business Indicator Rate
on monthly rests [WITP.00001.054, [160]-[171]; WITP.00001.084, [9]].
1234 The respondents asserted, with respect, correctly, that his Honour, in
attempting to meet the aim of providing practical justice, failed to have due
regard to the object of an order for equitable compensation when such an order
is made in lieu of an errant fiduciary, or a third party with notice, providing an
account of profits improperly received from the use of property in respect of
which they are to be taken to have responsibilities as trustees.
1235 His Honour considered the award of equitable compensation to be
compensation to the respondents for being held out of their money (at [9716])
and, therefore, the required calculation represented the best use the
respondents may have made of the money (at [9717]).
1236 If the right to elect an account of profits was to be foreclosed in a case where
it had been found that the Banks received property from which profits were
obtained with knowledge that disposition of that property to the Banks had been
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 211

effected by a breach of fiduciary duty, then the equitable compensation provided


in lieu had to reflect the cardinal principle of equity that there be disgorgement
of profits gained.
1237 That point was made by the Court of Appeal in Wallersteiner v Moir (No 2)
[1975] QB 373, the import of which was that interest calculated to represent
profit earned should be taken to be interest set at 1% per annum above the
official bank rate, or minimum lending rate, in operation from time to time with
yearly rests.
1238 His Honour accepted that compounding of interest with monthly rests was
appropriate but by considering only the best use the respondents could make
of the money, his Honour set the interest rate at 1% per annum below the
Westpac Business Indicator Rate.
1239 Compounding interest on yearly rests may be appropriate for calculating the
profits gained by a fiduciary not engaged in the business of money lending but
for money employed in the money lending businesses of banks his Honours
selection of monthly rests cannot be said to reflect error.
1240 The calculations of indicative profit earned by the Banks were based on the
Westpac Business Indicator Rate, taken to be, it seems, a base earning rate for
the Banks.
1241 Regular publication of the Westpac Business Indicator Rate ceased on
25 January 2008. Publication of the Westpac Reference Lending Rate continued,
which, historically, had been set at a discount of 0.75% to the Westpac Business
Indicator Rate. His Honour accepted that from 25 January 2008 the Westpac
Reference Lending Rate plus 0.75% could be taken to represent a base earning
rate for the Banks.
1242 To reflect an appropriate approximation of profit earned by the Banks in use
of such money the rates should have been set at 1% above the base earning rate.
His Honour erred in setting the rate at 1% below the base earning rate as set
above.
1243 It does not appear to have been contended that use of the relevant Westpac
rate was inappropriate for use as an estimate of profits gained by the Lloyds
Syndicate Banks from the use of the moneys distributed to them by Westpac.
1244 The magnitude of the resulting sum is a consequence of the undue length of
the period in respect of which the calculation must be made a period of
approximately 22 years. Whilst on its face the sum calculated is a vast amount it
results from the passage of the inordinate period of time since the date of the
events in respect of which relief is sought. It was not submitted by the Banks
that any part of that sum could be isolated and attributed to a period of delay
caused by unreasonable conduct of a respondent and, therefore, no cause was
shown to reduce the sum on that account.
1245 The Banks put to his Honour that failure to confine the calculation of
compensation would result in an unjustifiable windfall to the respondents and
others.
1246 His Honour acknowledged that equity was able to limit the sum awarded to
ensure that no benefit accrued to a party that had participated in the breach of
fiduciary duty for which the equitable compensation was provided: see Ninety
Five Pty Ltd (in liq) v Banque Nationale de Paris [1988] WAR 132.
1247 Underlying the submission of the Banks was the contention that the recipients
of the windfall would be the Bondholders in, as his Honour put it (Relief
212 SUPREME COURT OF WESTERN AUSTRALIA [(2012)

Reasons at [52]), a more idiomatic understanding of the word. The argument


put was that pursuant to the hypothetical liquidations the Bondholders could not
have anticipated a return of any part of the debts due to them.
1248 But as his Honour noted (Relief Reasons at [65]) the Bondholders did not
participate in any breach of fiduciary duty and were not disentitled to participate
in any distribution of dividends in the eventual completion of the current
liquidations by distributions to creditors of amounts paid to liquidators as
equitable compensation.
1249 His Honour duty considered the arguments of the Banks and was not
persuaded by them. If his Honour had addressed those submissions whilst aware
that the submissions of the Banks on the subordination issue could not have
been sustained, it would have been even more obvious to his Honour that
speculation on the outcome of a process of hypothetical liquidation was of no
utility and that the only proper course, according to principle, was to proceed
with the calculation of equitable compensation as described.
Liability to taxation
1250 The Banks contend in their appeal that his Honour erred in calculating the
amount of compound interest by failing to make provision for the incidence of
taxation on annual income earned by way of interest to determine the
appropriate amount of principal upon which interest was to be calculated in
successive years.
1251 The corporate rate of income tax at relevant times was 39% between
January 1990 and 30 June 1993 and 30% thereafter.
1252 A difficulty that arises in the consideration of that issue is uncertainty as to
the amount of the taxable income on which the tax would have to be assessed.
1253 His Honour accepted that access to prior taxation year losses may have been
used to offset any liability to income tax on the notional earnings that would
arise by calculating a component of interest as a compensatory sum.
1254 The Banks submit that the repository of the Bell group losses, BGF, would
not have been able to satisfy the continuity of ownership test (ITAA, s 80A) and
referred to Federal Commissioner of Taxation v Linter Textiles Australia Ltd (in
liq) (2005) 220 CLR 592. Further, it was submitted by the Banks that the same
business test could not have been satisfied (ITAA, s 80E). Northern Engineering
Pty Ltd v Federal Commissioner of Taxation (1979) 10 ATR 584 at 585-586 was
cited in support of that proposition.
1255 The respondents countered that the effect of FCT v Linter had been reversed
and the status quo restored by the Tax Laws Amendment (Loss Recoupment
Rules and Other Measures) Act 2005 (Cth).
1256 It is to be noted that the continuity of business test in s 80E of the ITAA was
introduced as a saving measure to apply if the continuity of ownership test of
s 80A was not satisfied. The two tests were not cumulative: see Linter Textiles
Australia Ltd (in liq) v Federal Commissioner of Taxation (2002) 50 ATR 548
at [17]-[31] per Hely J.
1257 In any event these questions are not matters for determination in this
proceeding, the application of such provisions depending upon significant
undetermined issues of fact.
1258 What is required in this proceeding is the assessment of a fair determination
of an amount of equitable compensation in the circumstances. That may require
44 WAR 1] WESTPAC v BELL GROUP (No 3) (Lee AJA) 213

application of an appropriate contingency