FEDERAL COURT OF AUSTRALIA

THE BELL GROUP LTD v WESTPAC BANKING CORPORATION

[2000] FCA 439

WAG 3067 of 1995

SUMMARY

Introduction

In accordance with the practice of the Federal Court in certain cases of public interest, I have prepared a brief summary to accompany the reasons for judgment that are being delivered today in relation to six motions in this matter. But the only authoritative pronouncement of my reasons is that contained in the full reasons for judgment. This summary is necessarily incomplete.

Summary of Judgment

The applicants comprise some 29 companies (all in liquidation) in what was formerly known as ‘The Bell Group” and two liquidators who, between them, are individual liquidators of 21 of those companies. The respondents are numerous banks (“the Banks”), many of whom lent money to various companies in the Bell Group over a period stretching back to the early 1980s.

At that time the Banks were prepared to lend money to the Bell Group on the basis of what were called “negative pledge” arrangements. That is, the borrowers agreed not to charge their assets by way of security to any other lenders.

The Bell Group also raised money during that period from other sources, principally in Europe. Those debts were evidenced by the issue of bonds. Between 1985 and 1987 the Bell Group issued bonds to the value of $400 million and £75 million. $150 million of that amount was borrowed from Heytesbury Securities Pty Ltd, a company associated with the late Mr Robert Holmes à Court. Generally speaking, the bonds were either redeemable for cash or could be converted into shares.

The extent to which the rights of the present holders of those bonds were and are subordinated, or shall remain subordinated, to all other creditors of the Bell Group, and in particular the Banks has become a major issue, not only in this case but also in certain proceedings before the Supreme Court of Western Australia.

In 1990 the applicant companies charged all of their assets to the Banks to secure repayment of various loans. Those loans then totalled about $260 million. In the judgment I have described the security documents as “the Securities”. I shall do the same in this summary. When the applicants failed to repay the loans, the respondent Banks exercised their rights under the Securities and realised approximately $300 million upon the sale of the assets which were the subject of such security.

In the principal application in this matter (which has yet to be heard) the applicants seek to set aside the Securities and to obtain orders from the Court that the Banks pay to the liquidators of the applicant companies amounts equal to the total of such realisation, plus interest.

The applicants make their claims on numerous bases. I shall not try to summarise all of them. The main basis is that the applicants claim that some of their former directors and the respondent Banks wrongly caused the Bell Group of companies to execute the Securities in favour of the Banks at a time when the applicant companies were insolvent or nearly insolvent. They also rely upon those provisions of the former Companies Code and the Corporations Law which, by reference to bankruptcy principles, provide for certain transactions to be void against a liquidator.

The applicants instituted these proceedings in this Court in late 1995. It was then commonly thought that this Court had jurisdiction to hear and determine claims of this sort under the Commonwealth and State cross-vestinglegislative scheme.

Numerous procedural steps were taken to prepare the matter for hearing. It was first set down for hearing (for a period of four months) in August 1998. Early that year the Banks made a major set of amendments to their defence and cross-claim. In briefest summary, the key part of those amendments raised the issue of the degree to which moneys raised by the issue of the bonds, which I have described above, and on-lent to other companies in the Bell Group were subordinated to other unsecured creditors of (and within) the Bell Group, including the Banks. As a consequence of those amendments, the applicants sought an adjournment of the hearing. I rejected that application, but postponed the start of the hearing by one month. A Full Court of this Court (on appeal from my decision not to adjourn the hearing date) vacated that hearing date. Later I fixed a new hearing to start in October 1999. However, on 17 June 1999, the High Court of Australia handed down its decision in a case known as Re Wakim. That decision held that a major relevant part of the cross-vesting legislation was constitutionally invalid. The result was that the applicants’ claims, when viewed on their own, did not raise any federal matter within the jurisdiction of this Court.

However, the respondents contended that this Court had what is known as “accrued” jurisdiction. They pointed to the fact that their amended cross-claim was, in part, based upon conduct during the 1980s by the applicants being conduct by which, on the Banks’ case, the applicants contravened s 52 of the Trade Practices Act i.e. that certain of the main companies in the Bell Group had engaged in misleading or deceptive conduct. The respondents argued that the factual basis for that part of their cross-claim had so much in common with the factual basis of the claims raised by the applicants that all of the disputes formed part of the one “matter”.

In the meantime, in October 1996, the Banks had sued the applicants and others in the Supreme Court of Western Australia to prevent the execution of certain supplementary deeds which were intended to vary the terms of some of the convertible bonds. That action is identified as “CIV 2061 of 1996”. An examination of the pleadings in that Supreme Court case and the defence and cross-claim in this case reveals, as I have found in the judgment delivered today, a very substantial degree of common factual allegations on the Banks’ part.

Immediately after the High Court’s decision in Re Wakim, procedural steps were taken in the Federal Court to decide whether this Court had jurisdiction to hear and decide the applicants’ case against the Banks and the Banks’ defence and cross-claim, and, even if this Court did have jurisdiction, whether it should transfer the proceeding to the Supreme Court of Western Australia.

The parties filed six notices of motion with a view to resolving those questions. Four of them were filed on behalf of the applicants and two on behalf of the respondents. Many affidavits were also filed. At various stages it appeared that constitutional questions had arisen. Some six notices to that effect were issued and served on the Attorneys-General for the Commonwealth, the States and the Territories. In the end, only two Attorneys intervened in the proceeding. The Attorney-General for Western Australia intervened to argue for the validity of what is known as the Western Australian “remedial” legislation which has been passed in relevantly identical terms by the various States since Re Wakim. As it turned out, it was not necessary for that issue to be decided. The Attorney-General for the Commonwealth intervened to argue for the constitutional validity of certain provisions of the Commonwealth Cross-Vesting Act, in particular the provisions which enable the transfer of a proceeding from this Court to a Supreme Court and a section which states that there shall be no appeal in relation to such a transfer decision.

The parties filed about 350 pages of written submissions in relation to the various motions. The hearing of the various motions took four days, the last such day being on 10 March 2000.

I will now summarise my conclusions. They are that:

·          the Banks have, by their cross-claim, validly invoked the jurisdiction of this Court;

·          leave was validly granted to the respondents to begin and proceed against the applicant companies by way of the cross-claim;

·          the question whether the relevant part of the Banks’ cross-claim is statute-barred is something which should be decided after a hearing;

·          the applicants’ claims fall within this Court’s accrued jurisdiction, basically because they arise out of what is known as a “substratum of facts” which is common to the substratum from which the Banks’ federal cross-claim arises;

·          the Banks’ cross-claims are not what is termed “colourable” i.e. obviously without substance, seeking only to attract this Court’s jurisdiction;

·          those parts of the Commonwealth Cross-Vesting Act which the Banks challenge as being unconstitutional, are valid;

·          the proceeding in this application arises out of or is related to various proceedings in the Supreme Court of Western Australia, and in particular CIV 2061 of 1996, and

·          one Court only should decide the issues in dispute;

·          it is more appropriate that this proceeding be heard and determined by the Supreme Court of Western Australia. I have published fairly full reasons for that conclusion. They include the following:

(a) the case raises mainly matters of “State” law;

(b) there is a very substantial overlap between the proceeding in this Court and action No CIV 2061 of 1996 in the Supreme Court;

(c) there is the strong possibility of substantial cost savings if this case is heard either at the same time or at about the same time as the Supreme Court proceedings;

(d) there may still be doubts about this Court’s accrued jurisdiction which could be the subject of an appeal by the unsuccessful party at the trial of the matter; and

(e) there are no doubts about the Supreme Court’s jurisdiction to hear all of the matters; the risk of wasting millions of dollars in costs can be avoided.

CARR J

7 APRIL 2000