Client Defendants Maintain Rights to Mortgaged Shares

The court held that client defendants retain their proprietary interests in shares mortgaged to a lender under a facility agreement, rejecting the lender's arguments that the interests were extinguished or defeated.

224 FLR 125 Reported Decision : 73 NSWLR 404 253 ALR 482 69 ACSR 385

New South Wales Supreme Court

CITATION : [COMPANY] v [[[NAME]]] [2009] NSWSC 7

HEARING DATE(S) : 11/11/08, 12/11/08. 13/11/08

JUDGMENT DATE : 3 February 2009

JURISDICTION : Equity Division Corporations List

JUDGMENT OF : Barrett J

DECISION : Short minutes to be brought in.

CATCHWORDS : AGENCY - appointment of [[NAME]] by deed - scope of [[NAME]]'s authority - need for authority to execute deed to be created by deed - DEEDS - what amounts to a deed - purported deed between named company and each person "identified from time to time in the Annexure to this Deed" - where no "annexure" physically attached to deed - whether unattached electronic record may be "the Annexure to this Deed" - DEEDS - form and execution - need for signing, sealing and delivery - statutory deeming of sealing where there is signing and attestation - need for delivery contemporaneously with or after signing and attestation - purported delivery by [[NAME]] ineffective in absence of signing by principal or principal's [[NAME]] - CORPORATIONS - corporate finance - securities lending - elements of "lending" that is "compliant with" s 26BC Income Tax Assessment Act 1936 (Cth) - where subject matter is ASX listed shares held under CHESS system - whether "[[NAME]]" obliged to restore the shares "lent" or to transfer identical shares - whether "[[NAME]]" by lending acquires any interest in shares owned or held by "[[NAME]]" - CONTRACTS - construction and interpretation - effect of provisions allowing [[NAME]] to dispose of mortgaged property - MORTGAGES - equity of redemption - rule against clogging - whether rule against fetter upon equity of redemption is an absolute rule or applicable only in cases of unconscionability - held unconscionability is a necessary element - whether unconscionability shown in the circumstances of this case

Corporations Act 2001 (Cth), Part 5.3A, s 1013D LEGISLATION CITED : Income Tax Assessment Act 1936 (Cth), s 26BC Powers of [[NAME]] Act 2003, s 43

CATEGORY : Principal judgment

Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199 Australian Competition and Consumer Commission v [COMPANY] (No 2) [2000] FCA 2; (2000) 96 FCR 491 Baker v Biddle [1923] HCA 26; (1923) 33 CLR 188 Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group Ltd [2008] FCA 594; (2008) 66 ACSR 116 Berkeley v Hardy (1826) 5 B & C 355; 108 ER 132 Bevham Investments Pty Ltd v Belgot Pty Ltd [1982] HCA 45; (1982) 149 CLR 494 Cackett v Keswick [1902] 2 Ch 456 Chapman Bros v Verco Bros Ltd [1933] HCA 23; (1933) 49 CLR 306 Charmelyn Enterprises Pty Ltd v Klonis (1981) 2 BPR 9,527 Citicorp Investment Bank (Singapore) Ltd v Wee Ah Kee [1997] 2 SLR 759 Comptroller-General of Customs v Woodlands Enterprises Pty Ltd [1996] 1 QdR 589 Duncuft v Albrecht (1841) 12 Sim 189; 59 ER 1104 Epic Feast Pty Ltd v Mawson KLM Holdings Pty Ltd (1998) 71 SASR 161 Fairclough v Swan Brewery Co Ltd [1912] AC 565 Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 G and C Kreglinger v New Patagonia Meat and Cold Storage Company Ltd [1914] AC 25 Ganga Dhar v Shankar Lal (1958) 45 AIR 770 Jennings v Ward (1705) 2 Vern 520; 23 ER 935 Jones v Morgan [2001] EWCA Civ 995 Lionsgate Australia Pty Ltd v Macquarie Private Portfolio Management Ltd [2007] NSWSC 371; (2007) 62 ACSR 522 Louth v Diprose [1992] HCA 61; (1992) 175 CLR 621 Marshall v Allsop [1946] ALR 378 ([ID]) CASES CITED : Mushinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 MYT Engineering Pty Ltd v Mulcon Pty Ltd [1999] HCA 24; (1999) 195 CLR 636 Pomal Kanji Govindji v Vrajlal Karsandas Purohit (1989) 76 AIR 436 Powell v London & Provincial Bank [1893] 2 Ch 555 R v [[NAME]] of Longnor (1833) 4 B & Ad 647; 110 ER 599 Re [COMPANY] (1994) 35 NSWLR 96 [[NAME]]; Fielding v Seymour [1913] 1 Ch 475 [COMPANY] (unreported, TASSC, 15 May 1991 [ID]) Samuel v Jarrah Timber and Wood Paving Corporation Ltd [1904] AC 323 Shrivdev Singh v Sucha Singh (2000) AIR (1st Supp) 1935 Southwell v Roberts [1940] HCA 23; (1940) 63 CLR 581 Steiglitz v Egginton (1815) Holt 141; 171 ER 193 Stern v McArthur [1988] HCA 51; (1988) 165 CLR 489 Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 Toohey v Gunther [1928] HCA 19; (1928) 41 CLR 181 Toomes v Conset (1745) 3 Atk 261; 26 ER 952 Vernon v Bethell (1762) 2 [[NAME]] 110; 28 ER 838 Viro v The Queen [1978] HCA 9; (1978) 141 CLR 88 Warnborough Ltd v Garmite Ltd [2003] EWCA Civ 1544 Westfield Holdings Ltd v Australian Capital Television Pty Ltd (1992) 32 NSWLR 194 [[NAME]] v [COMPANY] (No 5) [2003] NSWSC 61; (2003) 11 BPR 21,081 Wily v Endeavour Healthcare Services Pty Ltd (2003) NSWCA 321; (2003) 12 BPR 22,447 Xenos v Wickham (1867) LR 2 HL 296

[[NAME]], "Clogs on the Equity of Redemption: 'This Vestigial Rule'" (2004) 78 ALJ 366 [[NAME]], "The Modern Rule Against Clogs on the Equity of Redemption" (1997) 5 APLJ 21 TEXTS CITED : [[NAME]], "Giving Content to General Concepts" (2005) 29 MULR 218 [[NAME]] and [[NAME]], "The Law of Real Property Mortgages", [COMPANY], 2007 [[NAME]] and [[NAME]], "Clogging the Equity of Redemption: An Outmoded Concept?" (2002) 2(1) QUTLJJ 35

[COMPANY], [[NAME]] and [[NAME]] - Plaintiffs [[NAME]] - First Defendant [COMPANY] Defendant PARTIES : [COMPANY] Defendant [COMPANY] Defendant [COMPANY] - [[NAME]] Defendant [[NAME]] - [[NAME]] Defendant [[NAME]] & [[NAME]] (as trustees of the [[NAME]] A [[NAME]] Superannuation Fund) - Seventh Defendant

FILE NUMBER(S) : SC 2661/08

[[NAME]] SC/[[NAME]]/[[NAME]] - Plaintiffs COUNSEL : [redacted] [[NAME]] SC/[[NAME]] - Third and Fourth [[NAME]] [[NAME]] SC/[[NAME]] - [[NAME]] to Seventh [[NAME]]

[[NAME]] - Plaintiffs SOLICITORS : [redacted] [[NAME]] - Third and Fourth [[NAME]] [COMPANY] - [[NAME]] to Seventh [[NAME]]

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

BARRETT J

TUESDAY 3 FEBRUARY 2009

2661/08 [COMPANY] (IN LIQ) & [NAME] v [[NAME]] & [NAME]

JUDGMENT Background 1 This case concerns rights to certain shares that became the subject of transactions to which [COMPANY] ("[[NAME]]") and its associated company [COMPANY] ("[[NAME]]") were parties. 2 [[NAME]] and [[NAME]] are now subject to creditors voluntary winding up as a sequel to administration under Part 5.3A of the Corporations Act 2001 (Cth). Administrators were appointed on 10 April 2008. 3 [[NAME]] carried on a margin lending business. It lent money to its clients upon the security of shares traded on the stock market of Australian Securities Exchange ("ASX"). The funds [[NAME]] needed in order to be able to make loans were borrowed by it. It borrowed initially from [[NAME]] Equities (Australia) Ltd ("[NAME]") and, at a later stage, from [[NAME]] ("[NAME]") and [[NAME]] (Australia) Ltd ("[[NAME]]"). The shares taken as security by [[NAME]] from its own borrowers were used in connection with [[NAME]]'s borrowings from the [[NAME]]. 4 These proceedings relate to parcels of ASX listed shares owned separately by the third defendant, the fourth defendant, the [[NAME]] defendant, [[NAME]] and the seventh defendant.. It will be convenient to refer to these parties together as the "[[NAME]]". There will be no need to distinguish among them except in one respect: part of the case [[NAME]] seeks to make is not pressed against the seventh defendant ("[[NAME]]"). This is because, as will be seen, the agreement to which the seventh defendant became party differed in some respect from the agreements entered into by the other [[NAME]]. 5 The central question is whether, in the circumstances now existing, the several [[NAME]] just mentioned continue to have proprietary interests in the respective parcels of shares made available by them as security to [[NAME]].

6 It is accepted that the shares initially made available by the [[NAME]] to [[NAME]] as security were afterwards ostensibly subjected to transfer processes ultimately in favour of [[NAME]]. The issue is whether this happened in such a way as to cause the transferee to take title free from the interest of each client defendant as [[NAME]].

7 It is not suggested that the [[NAME]] took as bona fide purchasers without notice so as to be unaffected by such interests as the [[NAME]] may have. Indeed, for the purposes of these proceedings, the [[NAME]] make no claim to the relevant shares. The questions to be decided in relation to the shares are concerned with the rights and interests of the [[NAME]], [[NAME]] and [[NAME]]. The transactions with the [[NAME]] 8 Each client defendant entered into an agreement with [[NAME]] by means of a "facility application", being a form of application contained in a "facility application booklet". The client completed and submitted such an application to [[NAME]]. In contractual terms, the application was an offer by the client. A contract came into existence upon [[NAME]]'s acceptance of that offer. The terms of the contract were those contained in the facility application booklet (including the application form) and the product disclosure statement pursuant to which the application under the facility application booklet was made including, in particular, "terms and conditions" set out in the product disclosure statement (two product disclosure statements are relevant, one dated 28 April 2005 and the other dated 22 June 2006, known as the "2005 [[NAME]] PDS" and the "Super [[NAME]] PDS" respectively). None of these matters is controversial between the parties.

9 All [[NAME]] except [[NAME]] proceeded under the 2005 [[NAME]] PDS. [[NAME]] proceeded under the Super [[NAME]] PDS. It is necessary to refer to aspects of the terms and conditions in the product disclosure statements. I shall do so mainly by reference to the 2005 [[NAME]] PDS on the footing that, except as otherwise stated, the content of the Super [[NAME]] PDS was relevantly the same or, at least, so alike as to make no difference (even though numbering may be different).

10 [[NAME]] is referred to in the terms and conditions as "[[NAME]]". The applicant (who, upon acceptance of an application, became a client) is referred to as "you" and sometimes as "[[NAME]]" (an expression that has an expanded meaning in those cases – not including the present cases – where there is a guarantor). There are provisions to the effect that [[NAME]] will make loans available to the client up to a stated limit and specifying how drawdowns may be obtained. There are provisions about interest, repayment, default by the client and margin calls. These last provisions are generally to the effect that if the outstanding debt comes to exceed a particular proportion of the value of the shares held as security, the client must cause the debt to security ratio to be adjusted by paying off part of the debt, giving further security or selling (or directing [[NAME]] to sell) some of the shares held as security, with the sale proceeds being applied to reduce the debt. 11 Clause 10 of the terms and conditions is headed "Mortgaged Property". Its provisions are of particular relevance to this case. Clause 10.2 says: "From the date of this Agreement, for the purposes of securing repayment of the Facility Amount Outstanding, the [[NAME]], as beneficial owner, agrees to mortgage to the [[NAME]]: (a) all Relevant Loan Security upon it becoming Relevant Loan Security; (b) all New Rights immediately upon the [[NAME]] becoming entitled to them." 12 "Relevant Loan Security" refers to an ASX listed share or other investment acquired by the client with the proceeds of the loan or made available by the client to [[NAME]]. Relevant Loan Securities "mortgaged or charged by the [[NAME]] pursuant to the mortgage" become "Mortgaged Property". In the normal course, "Relevant Loan Securities" and therefore the "Mortgaged Property" consist of shares held under the CHESS system of share trading and registration that applies to ASX listed securities.

13 By clause 11.1, the client agrees that the Relevant Loan Securities "will be held in the [NAME] of [[NAME]] on the terms set out below" ("[[NAME]]" is defined so as to include [[NAME]]). Clause 11.2 provides: "Pursuant to clause 11.1: (a) You agree to transfer the Relevant Loan Securities and New Rights you own to [[NAME]]; (b) If you do not yet own the Relevant Loan Securities or New Rights, you will have [[NAME]] acquire the Relevant Loan Securities or New Rights on your behalf; (c) You accept that [[NAME]] will hold the Relevant Loan Securities and New Rights on your behalf in accordance with the terms of this Agreement; and (d) You must pay [[NAME]] the full amount of the purchase price of any Relevant Loan Securities or New Rights that [[NAME]] acquires on your behalf."

14 Clause 10.4(a) is in these terms: "The [[NAME]] must not, without the [[NAME]]'s express prior consent: (a) sell, part with possession or otherwise deal with any interest in the Mortgaged Property." 15 Under clause 19.1, "… consent in connection with the Agreement must be in writing unless otherwise specified". 16 Clause 10.15 says: "The mortgage in this clause 10: (a) is a continuing security for all of the Facility Amount Outstanding. It continues until it is finally discharged by us. It will not be considered satisfied or discharged by anything which happens in the meantime and which might otherwise affect the mortgage at law or in equity; and (b) is a principal obligation and should not be treated as ancillary or collateral to any other Security Interest nor should it be prejudicially affected by any other Security Interest that the [[NAME]] may hold; and (c) will not apply to the Relevant Loan Securities during any period in which they are lent in accordance with clause 17.2. Instead, the mortgage in respect of the Relevant Loan Securities is released and operates as a fixed and floating charge, over all present and future rights of [[NAME]] under any lending agreement entered into pursuant to clause 17.2. Upon return of the Relevant Loan Securities to the [[NAME]] or [[NAME]], clause 10 will apply." 17 Clause 17.2, referred to in clause 10.15(c), provides: "The [[NAME]] or [[NAME]] is authorised to transfer Relevant Loan Securities held by [[NAME]] to any person under a custodial, financing, lending (on terms compliant with section 26BC of the Income Tax Assessment Act, 1936) or hedging arrangement, without giving you notice or requesting your consent. You are not entitled to the benefit of any commission or benefit that arises from such an arrangement." 18 Clause 17.3 is in these terms: "If the [[NAME]] or [[NAME]] have any right, interest in or entitlement to any Relevant Loan Security or New Right as a result of clauses 17.1 or 17.2 above, the [[NAME]] or [[NAME]]:

(a) holds that right, interest or entitlement and any deposit derived from it on its own behalf, and not for you or on your behalf; (b) can deal with that right, interest or entitlement and any profits derived from it according to the [[NAME]]'s discretion (including without limitation by way of a securities loan); and (c) is under no duty to account to you in relation to that right, interest or entitlement or any deposits derived from it." The parties' contentions 19 [[NAME]] contends that there existed, at all material times, a contract between [[NAME]] and each of the [[NAME]], separate from the facility agreement and associated mortgage between [[NAME]] and the client defendant arising from [[NAME]]'s acceptance of the client's application. That separate contract is described as the "[[NAME]]" ("AMSLA" stands for "Australian Master Securities Lending Agreement" and generally refers to an agreement in standard form: see Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group Ltd [2008] FCA 594; (2008) 66 ACSR 116 at [13]). The [[NAME]] is expressed to be a deed. 20 It is common ground that, pursuant to each client defendant's facility agreement, shares owned by the client defendant were mortgaged to [[NAME]]. [[NAME]] contends, but the [[NAME]] deny, that each client defendant's mortgaged shares were later transferred by the client defendant, by an [[NAME]] (being an officer of [[NAME]]), to [[NAME]] under the [[NAME]]. 21 [[NAME]] further contends that [[NAME]], having acquired the client defendant's shares in this way, then transferred them to [[NAME]] pursuant to yet another agreement, being an agreement dated 8 June 2005 known as the "[[NAME]] AMSLA". 22 [[NAME]] then says that, under an agreement between itself and one or other of the [[NAME]], it transferred the shares so received by it to a [[NAME]] in connection with and in support of [[NAME]]'s borrowings from [[NAME]].

23 The [[NAME]] say that they never became parties to the [[NAME]] AMSLA. [[NAME]]'s response is that, if that is so (which it denies), there was still a valid and effectual transfer by [[NAME]] to a relevant [[NAME]] of the mortgaged shares of each client defendant (except [[NAME]], whose circumstances are accepted as different). The alternative basis on which [[NAME]] Says that there was a valid and effectual transfer is that the transfer was under a lending arrangement in accordance with clause 17.2 of the facility agreement, so that clause 10.15(c) caused the transferred shares to be released from the mortgage. The relevant [[NAME]] do not accept that clauses 17.2 and 10.15(c) were effective to allow [[NAME]] to make the transfers of their mortgaged shares that it purported to make. 24 The arrangements between [[NAME]] and the [[NAME]] were terminated by the [[NAME]] immediately after the commencement of the Part 5.3A administration of [[NAME]] and [[NAME]] on 10 April 2008. The [[NAME]] thereafter sold sufficient shares to extinguish the debt owed by [[NAME]]. Some shares remain in the hands of the [[NAME]]. They do not claim any proprietary or other interest in these shares. The contest, as to ownership, is therefore between [[NAME]] and the [[NAME]]. 25 The [[NAME]] say that they have continued to have a proprietary interest in the shares mortgaged by them to [[NAME]] ever since the mortgage was created and that nothing has happened to deprive them of that interest. Some of them have discharged their indebtedness to [[NAME]] and say that they are therefore entitled to have their shares back, freed from the mortgage. Others still owe money to [[NAME]] and take the attitude that the shares mortgaged by them continue to be the subject of the mortgage to [[NAME]] in such a way that they will be entitled to have them back, freed from the mortgage, when they eventually pay what is owed by them. 26 The position taken by [[NAME]] is that none of the [[NAME]] any longer has a proprietary interest in the mortgaged shares. The contention is, in essence, that each client defendant has, through actions taken, in a direct sense, by [[NAME]] or [[NAME]] or an officer of one of those companies, transferred away the client defendant's interest.

[[NAME]]'s case 27 As I have indicated, [[NAME]]'s case, as it concerns the contest for ownership of shares between a client defendant and [[NAME]], is advanced on alternative bases. Each basis takes as its starting point the undisputed proposition that each client defendant mortgaged shares to [[NAME]] as security for the payment of moneys owing by the client defendant to [[NAME]] in respect of a margin lending facility.

28 The first basis on which [[NAME]] puts its case depends on several propositions:

(a) that each client defendant granted a power of [[NAME]] by executing and delivering to [[NAME]] the facility application (for reasons that will appear presently, this is referred to as the "Section 10 power of [[NAME]]");

(b) that the Section 10 power of [[NAME]] was used to cause each client defendant to become a party to the [[NAME]] so that the [[NAME]] became binding as between the client defendant and [[NAME]];

(c) that ownership of the client defendant's shares comprised in the mortgage to [[NAME]] was transferred to [[NAME]] by the operation, as between the client defendant and [[NAME]], of the [[NAME]] (against a contractual promise of [[NAME]], also sourced in the [[NAME]], to transfer identical shares to the client defendant at a future time); and

(d) that each client defendant now has no more than contractual rights against [[NAME]] sounding in damages and provable in its winding up. 29 The alternative basis on which [[NAME]] puts its case regarding ownership of shares as between itself and the [[NAME]] (with the exception of [[NAME]]) is:

(a) that each client defendant's shares mortgaged to [[NAME]] were, consistently with clause 17.2 of the facility agreement terms and conditions, transferred by [[NAME]] to a [[NAME]];

(b) that, by force of clause 10.15(c), the "mortgage in this clause 10" was made not to "apply to" the transferred shares; and

(c) that the client defendant therefore no longer has any proprietary interest in the shares.

30 The alternative case is not put against [[NAME]] because the Super [[NAME]] PDS contained no provision equivalent to clause 10.15(c).

The security arrangement 31 The facility agreement contains, in clause 10.2, an agreement to give a mortgage of shares which, as I have said, will in normal circumstances be held and traded under the CHESS system. Furthermore, the agreement provides for the shares to be registered in the [NAME] of [[NAME]] so that they are isolated under the control of [[NAME]] as [[NAME]].

32 There is thus created an equitable mortgage of shares. While under the CHESS system, shares are fungible in a way to which it will be necessary to refer in more detail presently, the system works on the basis that a particular [[NAME]] is recognised as occupying an ownership position to a given extent in securities of the particular description. The [[NAME]]'s ownership of shares is, in effect, the right that the owner has under the CHESS system to enjoy the rights attaching to shares representing the given proportion of the entire share capital and, ultimately, to make a transfer that causes the owner to cease to be recognised as occupying the ownership position.

33 The fact that the shares are fungible and that the owner cannot point to specific shares identified by number or otherwise as comprised in the owner's holding does not mean that the equitable mortgage does not attach to shares represented by the defined ownership position. The matter must be approached on the footing that [[NAME]] held an equitable mortgage of shares created by each client defendant and that the shares the subject of the equitable mortgage were those of which [[NAME]] was recognised as [[NAME]] by virtue of documents executed by the client defendant.

34 The clear intention manifested by the terms and conditions is that mortgaged shares would, from the outset, be held in the [NAME] of [[NAME]], but for the benefit of the [[NAME]] (subject, of course, to the mortgage to [[NAME]]) and with dividends, voting rights and other ongoing incidents of ownership being assured to the [[NAME]]. It was made clear by clause 11.2(c) that [[NAME]] would hold mortgaged shares on behalf of the client, but "in accordance with this Agreement". It follows that shares actually registered in the [NAME] of [[NAME]] must be taken to have been beneficially owned by the [[NAME]], subject to the security interest of [[NAME]] as [[NAME]] and subject also to the ability of [[NAME]] as [[NAME]] to deal with the shares in ways validly and effectually provided for by the facility agreement.

The power of [[NAME]] created by each client defendant 35 According to the first basis on which [[NAME]] advances its case, a central question is whether each client defendant, by virtue of the acts of an [[NAME]], became bound by the [[NAME]]. It is essential that [[NAME]] prove that each client defendant became so bound. 36 The relevant signing of the [[NAME]] was that of [[NAME]], a director of [[NAME]] and [[NAME]], on or about 8 June 2005. He signed the [[NAME]] purportedly as the [[NAME]] of "each client identified by [COMPANY] from time to time in the Annexure". 37 The authority of [[NAME]] to act as an agent or [[NAME]] of a particular client defendant is said to have come from Section 10 of the application form signed by the client defendant when establishing its relationship with [[NAME]]. An alternative submission based on a supposed power of [[NAME]] created by clause 24 of the facility terms and conditions was not pressed: the [[NAME]] was, as I have said, expressed to be a deed but the clause 24 authority was not itself created by deed, as would have been necessary if it were to be used to commit the principal to a deed: see, for example, [[NAME]] (1815) Holt 141; 171 ER 193, [[NAME]] (1826) 5 B & C 355; 108 ER 132, R v [[NAME]] of Longnor (1833) 4 B & Ad 647; 110 ER 599, Powell v London & Provincial Bank [1893] 2 Ch 555 and, more recently, MYT Engineering Pty Ltd v Mulcon Pty Ltd [1999] HCA 24; (1999) 195 CLR 636 at [9]. 38 Section 10 of the application form was as follows: "This section of the Application Booklet comprises a deed, made by you on the day specified at the end of the Application Booklet. Each person described in the Application Booklet as the [[NAME]] ('you') and/or as the guarantor ('you') for valuable consideration irrevocably appoints [COMPANY] and each of its related bodies corporate (as defined in the Corporations Act) and each of their respective directors, secretaries and officers (attorneys) jointly and each of them severally as its true and lawful attorneys. An [[NAME]] may appoint sub-attorneys. The attorneys may do in your [NAME] everything necessary or expedient to: a) do all such things required to sign and deliver on your behalf all of the documents in respect of the facility, including the mortgage; b) do all such things that are required for the conversion of any of your approved securities to the CHESS system or to [[NAME]]; and c) if you are a company, to complete, sign and date any Australian Securities & Investments Commission form required to register the mortgage contained in the Agreement at the Australian Securities & Investments Commission; and d) date and complete any blanks which may be left in any documents; and e) do anything which you can do or are obliged to do as owner of the mortgaged property (including completing blanks in any of those documents, executing agreements, signing any off market transfer, authorising, instructing or requesting the amendment of your details as necessary, authorising and instructing a person to accept directions in respect of the mortgaged property) or do anything which you can do in respect of the transactions contemplated by those documents; and f) do all things necessary to sign and deliver on your behalf all of the documents needed to enter into a new facility."

39 The provision of the Super [[NAME]] PDS terms and conditions corresponding with the foregoing paragraph (e) uses the words "do anything which you can do or are obliged to do as the beneficial owner of the approved securities". The difference is not, in context, material.

40 [[NAME]] maintains that [[NAME]], a person within the class of persons specified in Section 10, became the [[NAME]] of each client defendant when the client defendant executed and submitted the application form. The [[NAME]] do not seek to say otherwise; nor, apparently do they seek to say that [[NAME]]'s authority as each client defendant's [[NAME]] was not created by deed. What they do say is that [[NAME]]'s authority as [[NAME]] did not extent to his committing the [[NAME]] to the [[NAME]] and that, in any event, the actions he took were not effective to cause them to become parties to and bound by the [[NAME]]. The scope of the [[NAME]]'s authority 41 The argument about the scope of [[NAME]]'s authority under the Section 10 power of [[NAME]] turns upon the proper construction of Section 10. In approaching that matter, it is necessary to refer also to part of Section 9 which contains "declarations" by the client. One of these states that the client understands that "if your application is approved, you have appointed an [[NAME]] (pursuant to the power of [[NAME]]) to sign any document associated with the Facility Agreement on your behalf." 42 The reference in brackets to "the power of [[NAME]]" does not seem to be amplified or explained by Section 9 itself but appears about three centimetres above the heading "Section 10 – Power of [[NAME]]" at the start of Section 10. The ordinary [[NAME]] would, in my view, understand the quoted part of Section 9 to be referring to a power of [[NAME]] in the terms set out in the immediately following Section 10. 43 There is thus within the document itself a recognition that the purpose of the power of [[NAME]] is related to "any document associated with the Facility Agreement". That is reinforced by Section 10 itself which, in its paragraphs (a) to (d), is concerned with completion or effectuation of the "facility" and the "Agreement" – clearly, in my view, the facility applied for by means of the application form in the facility application booklet and the facility agreement resulting from acceptance of the client's application. In paragraph (f) also there is a reference to "the documents needed to enter into a new facility" so that again a purpose connected with the facility sought is evidenced. 44 Paragraph (e), according to its terms, empowers the [[NAME]] to "do anything" that the client "can do … as owner of the mortgaged property" including certain enumerated things. On its face and taken in isolation, that language would empower the [[NAME]] to give away the client's property to a passer-by or to sell it for a purely nominal consideration to a [[NAME]], with the donee or purchaser acquiring title from the client by virtue of the act of the [[NAME]]. An owner of property can, as a matter of power, squander, waste or abandon it. 45 [[NAME]] does not, however, submit that the scope of the authority is as wide as this. It acknowledges that there must be some connection between an act of the [[NAME]] and the transaction contemplated by the facility application booklet. This acknowledgement on the part of [[NAME]] is made clear by its reliance, in this part of the case, on clause 10.4(a) of the terms and conditions in the product disclosure statement. Clause 10.4(a) is set out at paragraph [14] above. [[NAME]] characterises clause 10.4(a) as a provision allowing the client to sell, part with possession of or otherwise deal with an interest in the mortgaged property provided that [[NAME]]'s express consent is obtained. This, it is said, more than amply covers entering into a securities lending agreement such as the [[NAME]]. 46 I do not accept that submission. [[NAME]] accepts, as I think it must, that the scope of the power of [[NAME]] is confined so that the authority can be exercised only in some way that is related to the parties' transaction. But clause 10.4(a), which imposes a contractual restraint upon the client with respect to dealings with the mortgaged property in the absence of [[NAME]]'s express prior consent, does not make it an aspect or incident of the transaction that the client may deal with the property with [[NAME]]'s consent. Much less does it make it an aspect or incident of the transaction that [[NAME]], the [[NAME]] and [[NAME]], may cause to be conveyed away the mortgaged property in which subsists the right of redemption of the client as [[NAME]] and [[NAME]]. Rather, the clause is an acknowledgement that dealings with that property by the client to which [[NAME]] consents are outside and not affected by the transaction. 47 I am not satisfied that the scope of the authority created by the Section 10 power of [[NAME]] was such as to comprehend action by the [[NAME]] to make the relevant client defendant a party to the [[NAME]] and to subject the client defendant's mortgaged property to the [[NAME]]. To do so was not a part of or incidental to the parties' transaction for the proper and more effectual consummation of which the Section 10 power of [[NAME]] was given. Structure of the [[NAME]]

48 If, contrary to the conclusion just expressed, the scope of the authority created by the Section 10 power of [[NAME]] was sufficient to allow [[NAME]] to commit each client defendant to the [[NAME]], there is a question whether the action he in fact took as [[NAME]] was effective to produce that result. There are several aspects to this. First, it is necessary to refer to features of the [[NAME]]. 49 The [[NAME]] is dated 8 June 2005. The parties to it are described as follows: " Between: [COMPANY] of Level 14, 15-[ADDRESS], Sydney (NSW) incorporated in NSW ('[[NAME]]') And Each client identified by the [[NAME]] from time to time in the Annexure to this Deed ('[[NAME]]' or 'Client')" 50 The last page of the document is as follows: "EXECUTION PAGE Signed sealed and delivered by [COMPANY] by a director and secretary/director (Sgd) R [[NAME]] (Sgd) [[NAME]] Signature of secretary /director Signature of director [[NAME]] [[NAME]] [NAME] of secretary /director [NAME] of director (please print) (please print) Signed sealed and delivered for and on behalf of each Client identified by [COMPANY] from time to time in the Annexure by a duly appointed [[NAME]] in the presence of: (Sgd) [[NAME]] Sgd [[NAME]] Signature of witness Signature of [[NAME]] (I have no notice of revocation of the power of [[NAME]] under which I sign this document) [[NAME]] [[NAME]] [NAME] of witness (please print) [NAME] of [[NAME]] (please print)" Is there an annexure? 51 Having regard to the description of the second party and of the capacity in which [[NAME]] signed, one would expect to find some page or part of the document containing the [[NAME]] that is headed "annexure" or purports to be an annexure or attachment. There is no such page or part. Nor is there any page or part of the document as a whole that contains the [NAME] or any other particular of a person (or each of several persons) either at all or so as to suggest that the person (or each person) has been "identified … in" the page or part by [[NAME]]. Within the four corners of the document, therefore, no one is seen to be the party of the second part designated "[[NAME]]" or "Client". 52 It is the contention of [[NAME]], however, that the "annexure" is, in reality, a separately created and separately existing record in electronic form as existing from time to time. That raises the question whether some such separately created and separately existing record is capable of being an "annexure" referred to in a document. 53 The fact that a document said to be an "annexure" is not physically joined as one of the pages of an agreement need not be fatal to the conclusion that it is the agreement's "annexure". [COMPANY] (unreported, TASSC, 15 May 1991 [ID]), Cox J considered a planning ordinance which was expressed to apply to the land in "the plan(s) annexed to this ordinance which show by colours and markings the various uses to which the land in that area may be put". A plan said to be the plan thus referred to was not in fact attached in any way to the ordinance. Cox J held that while the ordinary meaning of "annex" is "to physically bind or join them together with a staple, cord, pin or other device", the word is capable of referring to a document which, although not physically joined to another, can be seen from the content and intent of that other to be incorporated by reference in it. 54 I proceed, therefore, on the basis that absence of any physically joined sheet or sheets containing the content envisaged by the agreement's reference to the "annexure" is not fatal to a conclusion that some such "annexure" exists; and that the "annexure" to the agreement may be some separately existing record that can be seen, upon a reading of its own terms and those of the agreement together, to be what the signatories to the agreement intended to identify when they made reference to the "annexure". 55 Two versions of a paper representation of the separately existing electronic record propounded by [[NAME]] as the "annexure" are in evidence. Each consists largely of material arranged in columns under seven headings. The headings (with numbers added in square brackets to aid later references in these reasons) are: [1] "A/C No" – Clearly enough, "account number".

[2] "[[NAME]]" – Showing the [NAME] of an individual or company.

[3] "ASX Code" – Showing the ASX code for listed shares of a particular description.

[4] "No of Shares" - Recording a particular number or quantity of the designated marketable securities.

[5] "Settlement Date" - Showing a date in each case.

[6] "Confirmed by [[NAME]]" - The entry is, in every case, "RB".

[7] "Lodge/Return" - Showing, in each case, "LD" or "RE" (presumably "Lodge" or "Return", whatever each may signify)." 56 At the start of the record, above the column headings, the following is printed: "This is a confirmation under the Master Securities Lending Agreement between [COMPANY] ('LCPN') and each client identified by 'LCPN' from time to time as dated 7th June 2005 (the 'Agreement'). Capitalised terms in this confirmation are defined in the Agreement." 57 According to its description of itself, therefore, the record that [[NAME]] puts forward as the "annexure" referred to in the [[NAME]] is really "a confirmation under" the [[NAME]] (no point is taken about the discrepancy in dates: although the [[NAME]] is dated 8 June 2005 and the heading set out above refers to an agreement dated 7 June 2005 agreement, the parties apparently accept that the heading refers to the [[NAME]]). 58 Given that the record in question professes to be a "confirmation under" the [[NAME]], it is relevant to note the following definition of "Confirmation" in clause 26 of the [[NAME]]: "'Confirmation' means the Borrowing Request, as it may be amended pursuant to clause 2.2, or other confirming evidence exchanged between the Parties confirming the terms of a transaction." 59 The definition of "Borrowing Request" is: "'Borrowing Request' means a request which may be oral or in writing in such form as is agreed between the Parties (a written example of which comprises Schedule 2 to this Agreement) by the [[NAME]] to the [[NAME]] pursuant to clause 2.1 specifying, as necessary: (a) the description, title and amount of the Securities required by the [[NAME]]; (b) the description (if other than Australian currency) and amount of any Collateral to be provided; (c) the proposed Settlement Date; (d) the duration of such loan (if other than indefinite); (e) the mode and place of delivery, which shall, where relevant, include the bank, agent, clearing or settlement system and account to which delivery of the Securities and any Collateral is to be made; (f) the Margin in respect of the transaction (if different from that stated in Schedule 1 or Schedule 3, as appropriate); and (g) the Fee." 60 Having regard to the definition of "Confirmation" (including, in particular, its cross-reference to "Borrowing Request"), the several aspects of the definition of "Borrowing Request" and the description appearing at the start of the electronic record, it seems to me clear that the record is, as it purports to be, a Confirmation under the [[NAME]] or, perhaps, a record of particulars extracted from several such Confirmations. The material in Columns [3] and [4] of the record is material contemplated by paragraph (a) or paragraph (b) (or both) of the definition of "Borrowing Request". The material in Column [2] is consistent with the aspect of the definition of "Borrowing Request" that contemplates that it will relate to a client. The material in Column [5] is of the kind contemplated by paragraph (c) of the definition. 61 The status of the electronic record as a Confirmation under the [[NAME]] must mean that it is not a record an entry that plays a part in a person's becoming a party to the [[NAME]]. A "Confirmation" is, according to the definition in clause 26, something "exchanged between the Parties confirming the terms of a transaction" (the "Parties" being, according to another clause 26 definition, the "[[NAME]]" and the "[[NAME]]"). There can accordingly be no Confirmation unless and until [[NAME]] as [[NAME]] and [[NAME]] who is already a [[NAME]] have, as existing parties to the [[NAME]], "exchanged" the document that is the Confirmation. That document itself cannot be the means by which a person who is not a [[NAME]] is recognised as or becomes a [[NAME]]. It is, of its nature, something generated after the person has become a [[NAME]]. 62 There is also the point that the record put forward by [[NAME]] as the "annexure" contains a significant quantity of material that is foreign to the purpose to be served by the "annexure". The sole purpose of the "annexure" is to identify each [[NAME]] (". . . identified by the [[NAME]] from time to time in the Annexure to this Deed"). The [[NAME]] is an agreement under which multiple transactions may be entered into in relation to any of the multiple Lenders. The only identification required in respect of a particular [[NAME]], therefore, is the [[NAME]]'s [NAME] and anything else necessary to make it clear who the [[NAME]] is (such as an address). [NAME] and address may therefore be taken to be the envisaged content of the "annexure". The record put forward by [[NAME]] contains names (but not addresses). It also contains much information that goes beyond identification of persons and involves identification of transactions. In addition, the record contains multiple references to each of several persons. One person's [NAME] appears 22 times. This reinforces the conclusion that the purpose of the record is not that of identifying persons as parties to the agreement. 63 My conclusion, based on the documentary evidence, is that the electronic record put forward by [[NAME]] as being the "annexure" referred to in the description of the second party to the [[NAME]] is not the record contemplated or comprehended by the reference to the "annexure" in that description.

64 That conclusion is strengthened and confirmed by the evidence of [[NAME]], an officer of [[NAME]]. [[NAME]] was responsible for the ongoing maintenance of the electronic record that [[NAME]] puts forward as the "annexure". She made it clear in cross-examination that the purpose for which she made entries was to record the transfer of securities between [[NAME]] and [[NAME]]. She also said, referring to clients, that the record "lists their security holdings"; and: "This document is how I maintained the lodgement and return of securities." 65 This, [[NAME]] explained, was her only purpose in creating the record. While [[NAME]] professed an understanding that the record she maintained was the "annexure" referred to in the [[NAME]], her evidence about the purpose for which it was kept and the significance of the entries shows that it was not the means by which the joining or accession of persons as parties to the agreement was either achieved or recorded. 66 Because [[NAME]] has failed to prove the existence and content of the "annexure" referred to in the [[NAME]], it has failed to establish that any client defendant was at any time bound as "[[NAME]]" or "Client" party to the [[NAME]]. The timing problem 67 There is, in any event, another matter fatal to any conclusion that a client defendant became bound as a party to the [[NAME]] by reason of actions of [[NAME]] as the client defendant's [[NAME]]. 68 When, on or about 8 June 2005, [[NAME]] signed the "Execution Page" of the [[NAME]] ostensibly "for and on behalf of each Client identified by [COMPANY] from time to time in the Annexure", he was not the [[NAME]] of any of the [[NAME]] under any Section 10 power of [[NAME]]. Each of the [[NAME]] signed an application forming part of the application booklet (and did so, it seems to be accepted, in such circumstances as to cause the signed application form to be a deed). But none did so until months – if not years - after 8 June 2005. None had had any dealings at all with [[NAME]] as of that date. 69 This, to my mind, makes it impossible to find that [[NAME]]'s signing of the [[NAME]] on or about 8 June 2005 was a signing capable of causing any client defendant to be a party to and bound by the [[NAME]] deed. 70 Under s 38 of the Conveyancing Act 1919, a deed must be "signed as well as sealed" and "attested by at least one witness not being a party to the deed"; and a deed that is so signed and attested is deemed to be sealed. Signing and attestation are thus of themselves sufficient to satisfy the requirements for signing, sealing and attestation. The required signing is, obviously enough, signing by the person who intends to become bound by and party to the deed, although it cannot be doubted that, subject to the rule mentioned at paragraph [37] above (that is, that the authority of an agent to execute a deed must itself derive from a deed), the principle qui facit per alium facit per se applies so that signing may be by an agent invested by the person with the requisite authority (see also s 43 of the Powers of [[NAME]] Act 2003). 71 On 8 June 2005, [[NAME]] held no authority from any of the [[NAME]]. When, on or about that day, he signed the [[NAME]] ostensibly as the [[NAME]] of each of certain unnamed "Clients", he did not, as a factual matter, sign it as the [[NAME]] of any of the [[NAME]]. It is not suggested that [[NAME]] signed the [[NAME]] again at some subsequent time after he had come to possess the authority that arose upon each client defendant's creating a Section 10 power of [[NAME]]. There is therefore no basis for finding that the signing (and, by reason of accompanying attestation, deemed sealing) necessary to cause a client defendant to be a party to the [[NAME]] ever occurred. 72 It was submitted on behalf of [[NAME]] that there was a delivery of the [[NAME]] by (or, at least, on behalf of) each client defendant by means of action taken by an officer of [[NAME]] as the [[NAME]] of each client defendant after the creation of the relevant Section 10 power of [[NAME]] (and, therefore, at a point substantially after the signing of the [[NAME]] on or about 8 June 2005). The relevant action was, it is said, the addition of the client's [NAME] to the "annexure" – something that, on my findings above, has not been established in any event.

73 Reference was made by [[NAME]] to [[NAME]]; Fielding v Seymour [1913] 1 Ch 475. That was a case of what was referred to as "redelivery" of a deed previously made that had miscarried because, although the signatory was an [[NAME]] of the relevant party duly constituted as such by deed, the authority of that [[NAME]] was not sufficiently wide to extend to the transaction purportedly accomplished by the deed. It was held that the principal's own subsequent acknowledgement of the deed was sufficient to make it binding on her. 74 That case cannot assist [[NAME]]. This is because [[NAME]] cannot point to any subsequent act of a client defendant amounting to acknowledgement of the [[NAME]] as a deed binding on the client defendant. Nor, as I see it, can [[NAME]] point to any such act of [[NAME]] (or anyone else) as an [[NAME]] of the client defendant in exercise of authority derived from the Section 10 power of [[NAME]]. Above all, however, to the extent that [[NAME]] contends that conduct of [[NAME]] after creation of the Section 10 power of [[NAME]] entailed the client defendant, as donor of the power, delivering the deed previously signed on or about 8 June 2005, it runs into the insuperable difficulty that delivery of a deed by or on behalf of a person to be bound by it cannot occur until the deed has been signed by that person and attested (so that it is deemed sealed by the person).

75 Unless a deed has been signed and sealed (or deemed sealed), it cannot be delivered; and unless it has been delivered upon or after being signed and sealed (or deemed sealed), it is not binding or operative: see, for example, Xenos v Wickham (1867) LR 2 HL 296 per Blackburn J at 312, per Lord Cranworth at 323. The signing and sealing (or deemed sealing) by a party that precedes the party's delivery may be by an [[NAME]] appointed by deed. In this case, there was never any signing of the [[NAME]] by any client defendant either directly or through [[NAME]] as [[NAME]]. No Section 10 power of [[NAME]] had been given by any client defendant when [[NAME]] signed the [[NAME]]. It follows that any action a [[NAME]] officer took for a client defendant after the subsequent conferral of the authority created by the Section 10 power of [[NAME]] could not possibly have amounted to delivery of the [[NAME]] by that client defendant. Decision on the first part of [[NAME]]'s case 76 [[NAME]] has failed to make good the propositions set out at paragraph [28] above. It has therefore failed to establish that the [[NAME]] became binding on any client defendant and that the [[NAME]] had, as against and in relation to any client defendant, any operation that caused property of the client defendant to pass from the ownership of the client defendant into the ownership of [[NAME]]. 77 It is therefore necessary to address the alternative basis on which [[NAME]] puts its case as set out at paragraph [29] above. Clause 17.2 of the facility agreement 78 In advancing its alternative case (which, as I have said, applies to all [[NAME]] other than [[NAME]]), [[NAME]] relies on that part of clause 17.2 of the terms and conditions in the product disclosure statement that is concerned with "transfer [of] Relevant Loan Securities held by [[NAME]] to any person under a . . . lending (on terms compliant with section 26BC of the Income Tax Assessment Act 1936) . . . arrangement . . ." (see paragraph [17] above).

79 Clause 17.2 is concerned with "relevant Loan Securities held by [[NAME]]". Only securities actually held by [[NAME]] may be dealt with as the clause provides. It must follow that the only transfers with which the clause is concerned are transfers effected by [[NAME]]. And this must be so even though the opening words are "The [[NAME]] [ie, [[NAME]]] or [[NAME]] is authorised to transfer". The fact that the thing authorised to be transferred is "Relevant Loan Securities held by [[NAME]]" means, first, that there can be no transfer unless the securities are "held by" [[NAME]] and, second (and as a consequence), that [[NAME]] must participate in the transfer even if it it is instigated or arranged by [[NAME]].

80 As noted at paragraph [12] above, a "Relevant Loan Security" is an ASX listed share or other investment acquired by the client with the proceeds of the loan made under the facility or made available by the client to [[NAME]]. By operation of clause 10.2 (see paragraph [11] above), every such share or other investment becomes subject to the agreement to mortgage expressed in that clause and does so immediately it becomes a "Relevant Loan Security". It follows that, from the point at which a particular share owned by a client becomes a "Relevant Loan Security", it is caught within the clause 10.2 equitable mortgage. And immediately the share comes to be held by [[NAME]] – as in the ordinary course it does at the outset, having regard to clauses 11.1 and 11.2 (see paragraph [13] above) – it is a share to which clause 17.2 applies.

81 Clause 17.2, according to its terms, means that the client by whom particular shares have been mortgaged allows the [[NAME]] and the custodian by which the shares are actually held to transfer the shares to a [[NAME]] (at will and without reference to or consent of the [[NAME]]), provided that the transfer is under a transaction or arrangement of a particular kind. As I have said, [[NAME]] relies on the part of clause 17.2 that refers to "lending (on terms compliant with section 26BC of the Income Tax Assessment Act 1936)". It is necessary to explore that concept.

Section 26BC of the Income Tax Assessment Act 1936 (Cth) 82 Only if a "lending" is on terms "compliant with" s 26BC of the Income Tax Assessment Act 1936 (Cth) is it a "lending" within clause 17.2, so that a transfer "under" the "lending" may be effected with authority of the client defendant derived from that clause. 83 The essence of s 26BC can be seen from s 26BC(3)(a): "This section applies where: (a) under a written agreement of the kind known as a securities lending arrangement, being an agreement that was entered into after 9 May 1990: (i) at a particular time (in this section called the original disposal time ), a [[NAME]] (in this section called the [[NAME]] ) disposed of an eligible security (in this section called the borrowed security ) to another [[NAME]] (in this section called the [[NAME]] ); and (ii) at a later time (in this section called the re-acquisition time ), being less than 12 months after the original disposal time, the [[NAME]]: (A) re-acquired the borrowed security (which re-acquired security is in this section called the replacement security ) from the [[NAME]]; or (B) acquired an identical security (which acquired security is in this section also called the replacement security ) from the [[NAME]];" 84 The concept here is that one person "disposes" of securities to another person and later either "re-acquires" those securities from that other person or "acquires" identical securities from that other person. In either case, there is an initial transfer of ownership by the "[[NAME]]" to the "[[NAME]]" and a subsequent transfer of ownership (of either the same or identical securities) by the "[[NAME]]" to the "[[NAME]]". In the context of the securities market operated by ASX, however, the situation must always be one in which the second stage involves transfer of identical securities rather than the same securities. This is because, under the CHESS system of securities trading and registration, shares are fungible and therefore not capable of being separately identified. With a commodity in bulk, there can be nothing in the nature of a bailment of part of the whole: Chapman Bros v Verco Bros Ltd [1933] HCA 23; (1933) 49 CLR 306 at CLR 316 per Starke J; Comptroller-General of Customs v Woodlands Enterprises Pty Ltd [1996] 1 QdR 589 per [[NAME]]. Likewise, there can be nothing in the nature of a deposit or delivery of ASX listed shares in such a way as to give rise to an expectation that those shares will be returned. 85 In the case of ASX listed shares, therefore, a lending arrangement "compliant with" s 26BC of the Income Tax Assessment Act must always entail, as its "repayment" or "restoration" element, a contractual promise by the "[[NAME]]" to transfer to the "[[NAME]]" securities identical with those initially transferred by the "[[NAME]]" to the "[[NAME]]", as distinct from the very shares initially transferred. As a general principle, equity will not decree specific performance of a promise to transfer shares traded on a freely accessible market. The reason is that given by [[NAME]] in Duncuft v Albrecht (1841) 12 Sim 189 at 199; 59 ER 1104 at 1108: the commodity "is always to be had by any person who chooses to apply for it in the market". Damages are therefore an adequate remedy. It may be different where the shares represent a strategic stake or in some other way have characteristics displacing the availability that the market provides: see, for example, Lionsgate Australia Pty Ltd v Macquarie Private Portfolio Management Ltd [2007] NSWSC 371; (2007) 62 ACSR 522 at [65]. But absent any such special circumstance, the remedy of the [[NAME]] of a breach of the promise to transfer lies in damages only; and the absence of any right to specific performance means that that equity recognises no proprietary right or interest on the part of that [[NAME]]. 86 A "lending . . . arrangement" in respect of ASX listed shares "compliant with" s 26BC of the Income Tax Assessment Act therefore entails the consequences, first, that the "[[NAME]]" ceases to own the shares subjected to the arrangement and, second, that that "[[NAME]]" receives in return a contractual promise of future transfer of identical or equivalent shares to the "[[NAME]]", being a promise breach of which will give rise to a right to recover damages. But that "[[NAME]]" does not acquire, upon the making of the "loan", any proprietary right or interest in any shares owned or held by the "[[NAME]]".

The postulated operation of clause 10.15(c)

87 Clause 10.15(c), read in conjunction with the aspect of clause 17.2 concerned with s 26BC lending arrangements, appears to say that, if the power or authority created by clause 17.2 is exercised so that a client's mortgaged shares (for the time being held by [[NAME]]) are transferred to a third party against that third party's promise to transfer identical shares at a future time, the equitable mortgage created by the facility agreement will thereupon cease to comprise those mortgaged shares. Whereas before the transfer, the shares stand as security for the client's indebtedness to [[NAME]], they will no longer be security for that indebtedness once the transfer to the third party has been made. And, as has been noted already, the transfer will, of necessity, be a transfer by [[NAME]], given that the clause 17.2 authority exists only in relation to shares held by [[NAME]].

88 It follows that, if the client pays off its indebtedness to [[NAME]] in full immediately after such a transfer had been made, there could be no restoration to the client of the mortgaged property upon the making of that payment. [[NAME]]'s response to the client's demand that it restore the mortgaged shares upon full payment by the client will be that it no longer has any interest in or entitlement to the shares and moreover that its ceasing to have them – and its consequent inability to restore them - was sanctioned in advance by the client's acceptance of clauses 10.15(c) and 17.2.

89 [[NAME]] will also refer, however, to another element of clause 10.15(c). The clause says that, if the client's mortgaged shares are transferred away by [[NAME]] by way of loan of the s 26BA kind consistently with clause 17.2, the security given by the client, although no longer applying to those shares, "operates as a fixed and floating charge, over all present and future rights of [[NAME]] under [the relevant] lending agreement entered into pursuant to clause 17.2" (there is here, incidentally, clear recognition that it would have to be [[NAME]] that was party to the lending arrangement and both transferred the mortgaged shares and obtained in return the contractual right to receive a transfer of identical shares in the future). Of course, those "present and future rights" are, of themselves, not property of the [[NAME]]. They are contractual rights that come from the contractual obligation of the third party "[[NAME]]" from [[NAME]] to make a future transfer of identical securities to [[NAME]]. The rights are thus property of [[NAME]].

90 What does clause 10.15(c) mean, therefore, when it says that security given initially by a client to [[NAME]] over property of the client becomes, at a later point, security over property of [[NAME]] instead of the property of the client? At one level, the concept is meaningless: a security given by A over A's property to secure A's indebtedness to B simply cannot ever become a security binding on A in respect of C's property. The security could affect C's property only if C committed it to B, being the person to whom A had given security in the first place.

91 Here, I think, lies the answer. The intended effect of the two clauses, taken together, is that [[NAME]] may (or more precisely, [[NAME]] may cause [[NAME]] to) commit the client's mortgaged shares to a s 26BC "lending" transaction with a third party but, if it that is done, the contractual right that [[NAME]] acquires to receive in due course an equivalent parcel of shares from the third party is to stand as security for the client's indebtedness to [[NAME]] in place of those shares. It must follow that [[NAME]] is to hold the contractual right for the benefit and account of the client – encumbered, however, by the security that the client has given to [[NAME]] – and that, upon payment by the client of its indebtedness in full, [[NAME]] will hold the contractual right for the benefit of and on account of the client absolutely, freed from any security interest on the part of [[NAME]].

92 Another conceptual difficulty applies to the last element of clause 10.15(c), that is, the part that purports to cause the security given by the client to apply again "[u]pon return of the Relevant Loan Securities to the [[NAME]] or [[NAME]]". The assumption in this last part of clause 10.15(c) is that a dealing entered into consistently with clause 17.2 will (or may) be on terms that cause the securities subjected to the dealing to "return". In the case of a s 26BC lending arrangement, that assumption is unsound: the securities "lent" are not "returned". Rather, the other party to the arrangement becomes subject to a contractual obligation to transfer identical securities.

93 In one sense, therefore, the last part of clause 10.15(c) can never apply in the case of a s 26BC lending arrangement. It may well be, however, that the reference to "return of the Relevant Loan Securities" should, in the particular context, be construed as a reference to the transfer of identical securities that puts the "lending" party in the same position as if there had in reality been a "return" of the originally "lent" securities. That construction would promote the commercial purpose the parties are obviously seeking to achieve and should, for that reason, be adopted.

94 When the last part of clause 10.15(c) is approached in this way, it must, in my view, be accepted as operating in generally the same way as the part concerning the contractual right to receive identical securities. It has regard to the situation where shares mortgaged by a client have been transferred pursuant to clause 17.2 under a s 26BC arrangement and that arrangement has run its course and been completed by transfer to [[NAME]] by the third party "[[NAME]]" of shares identical with those transferred in the first place. Immediately after completion, [[NAME]] will hold the parcel of identical shares transferred by the third party "[[NAME]]". Nothing will have happened to give rise to any interest in that parcel of shares on the part of the client. Yet clause 10.15(c) says that, at that point, "clause 10 will apply" – which obviously means that the identical shares will be taken to be comprised in and affected by the clause 10 equitable mortgage given by the client.

95 Again, it seems to me, the parties must be understood to be saying that [[NAME]], having received the identical shares at the conclusion of the loan transaction, will hold them for the client in such a way that the client acquires an interest in them, which interest stands as security for the client's indebtedness; and that, upon discharge of the indebtedness, [[NAME]] will see those identical shares transferred to the client in the same way as the initially mortgaged shares would have been transferred upon payment of the secured moneys.

96 This hypothesised operation of clause 10.15(c) must now be tested against other provisions of the facility agreement.

Possible contrary indications

97 The concluding words of clause 17.2 are: "You are not entitled to the benefit of any commission or benefit that arises from such an arrangement."

98 The effect of denial of entitlement to "the benefit of any . . . benefit that arises from such an arrangement" is obscure. It may mean that the client obtains no rights from or under the arrangement. But the prior reference to any "commission" indicates that the denial of entitlement is confined to rewards generated incidentally by the arrangement, as distinct from aspects of its essential substance. That is the meaning I consider to be applicable.

99 There is then clause 17.3 (see paragraph [18] above). That clause addresses the situation where [[NAME]] or [[NAME]] has a right or entitlement to, or interest in, "Relevant Loan Securities" and that right, entitlement or interest has arisen "as a result of" clause 17.1 or clause 17.2. For present purposes, it is necessary to address only the possibility that a right, entitlement of interest of [[NAME]] or [[NAME]] has arisen "as a result of" a lending arrangement of the s 26BC kind, noting that "Relevant Loan Securities" are, in broad terms, ASX listed shares acquired by the client with the proceeds of the loan made under the facility agreement or made available by the client to [[NAME]].

100 Securities that [[NAME]] received from a [[NAME]] of stock under a s 26BC lending arrangement entered into by [[NAME]] would not be "Relevant Loan Securities", not being ASX listed shares acquired by the client with the proceeds of the loan made available by [[NAME]] or made available by the client to [[NAME]]. Under a s 26BC loan arrangement entered into by [[NAME]], shares received from the "[[NAME]]" upon "repayment" of the "loan" would be acquired by [[NAME]], not the client; and those shares would in no sense be shares made available by the client. 101 Clause 17.3 would therefore not apply in relation to either the contractual right to identical shares arising from a s 26BC arrangement or any identical shares received at the conclusion of the arrangement.

Conclusion on the operation of clause 10.15(c) 102 The postulated operation of clause 10.15(c) discussed at paragraphs [90] to [95] above is, in my opinion, not modified or displaced by any other provision. It follows that clause 10.15(c) must be approached, in the case of a stock lending arrangement of the s 26BC kind, on the footing that [[NAME]], having transferred to the other party to the arrangement the ASX listed shares mortgaged by the client and held by [[NAME]] pursuant to the security arrangement between the client and [[NAME]], holds for the benefit and account of the client (but also subject to the security arrangement) successively the other party's promise to transfer identical ASX listed shares to [[NAME]] and any identical shares in due course so transferred.

103 In the case of a s 26BC lending arrangement, therefore, clause 10.15(c) purports, first, to eliminate the client's right, as [[NAME]], to receive on payment of the secured moneys the ASX listed shares mortgaged at the outset by the client to [[NAME]] and held in the [NAME] of [[NAME]] and, second, to confer on the client a right to receive on payment of the secured moneys the right that [[NAME]] has, as against the other party to the s 26BC arrangement, to receive a transfer of identical ASX listed shares or, if those identical shares have been received by [[NAME]] before payment of the secured moneys, to receive the identical shares themselves.

A clog on the equity of redemption? 104 The literal effect of clause 10.15(c), as it applies in a s 26BC lending context, is that [[NAME]], the [[NAME]] of ASX listed shares from the client, is empowered to transfer that mortgaged property to a third party for its own purposes and thereby to cause the [[NAME]]'s interest in the property to be extinguished. Admittedly that is so in circumstances where rights or other property accruing by reason of the application of the mortgaged property are to be held in the same way as the mortgaged property was held so that, in effect, that those rights or that other property may be redeemed by the [[NAME]] and there is, as it were, a substitution of mortgaged property.

105 But the fact remains that the [[NAME]], having paid off the secured moneys, will not receive back the mortgaged property. Also, the substituted property, at the stage when it consists of a contractual right against the other party to the s 26BC borrowing arrangement, may be much more precarious and less valuable than the originally mortgaged property. As I have said, a contractual promise to transfer ASX listed shares will not in the ordinary course ground a suit for specific performance, with the result that the promise is not the source of any equitable interest in shares. Failure to perform will give rise to a right to damages in a sum equal to that required to buy the shares on the market. That right will have a value commensurate with the financial capacity of the party obliged to pay. The right may be equal in value to the measure of the damages or it may be less – perhaps very much less, or even worthless. And there is nothing in the terms or context to ensure that it will have any value at all.

The rule against clogging the equity of redemption

106 Had this case arisen 250 years ago, it might have been disposed of simply by reference to what was said by Lord Hardwicke LC in Toomes v Conset (1745) 3 Atk 261; 26 ER 952: "This court will not suffer, in a deed of mortgage, any agreement in it to prevail, that the estate become an absolute purchase in the [[NAME]] upon any event whatsoever."

107 Seventeen years later, in Vernon v Bethell (1762) 2 [[NAME]] 110; 28 ER 838, Lord Chancellor Henley (afterwards Lord Northington) made observations to like effect: "This court, as a court of conscience, is very jealous of persons taking securities for a loan, and converting such securities into purchases. And therefore I take it to be an established rule, that a [[NAME]] can never provide at the time of making the loan for any event or condition on which the equity of redemption shall be discharged, and the conveyance absolute." 108 In other words, "once a mortgage, always a mortgage"; and equity will not countenance any stipulation that has the effect of making the [[NAME]] the absolute owner of the mortgaged property or otherwise extinguishing the essential right of the [[NAME]] to redeem that property by paying the secured moneys (in the case of a legal mortgage, that right is really a combination of the legal right to redeem by payment on the due date and the equitable right to redeem by subsequent payment; whereas in the case of an equitable mortgage such as those with which I am here concerned, the right is wholly equitable). The right to redeem, regardless of its precise nature, is conveniently referred to as the equity of redemption.

109 There was debate before me on the question whether this equitable doctrine applies today in an absolute and unconditional way or whether its application is confined to situations where the stipulation in question entails for the [[NAME]] a collateral advantage that is unfair or unconscionable. [[NAME]] contended for the latter proposition, relying on observations of [[NAME]] (expressly identified by his Honour as obiter dicta) in Westfield Holdings Ltd v Australian Capital Television Pty Ltd (1992) 32 NSWLR 194 which have been approved in subsequent decisions at first instance in this court: see Re [COMPANY] (1994) 35 NSWLR 96 ([[NAME]]) and [[NAME]] v [COMPANY] (No 5) [2003] NSWSC 61; (2003) 11 BPR 21,081 ([[NAME]]). The true scope of the rule against clogs on the equity of redemption did not arise for consideration when the last-mentioned case went on appeal (see Wily v Endeavour Healthcare Services Pty Ltd (2003) NSWCA 321; (2003) 12 BPR 22,447) but [[NAME]]'s observations were apparently accepted in obiter dicta of the [ADDRESS] of the Supreme Court of South Australia in Epic Feast Pty Ltd v Mawson KLM Holdings Pty Ltd (1998) 71 SASR 161.

110 [[NAME]] said (at 202-3): "There does not appear to any commercial reason why, in 1992, the court should invalidate any transaction merely because a [[NAME]] obtains a collateral advantage or seeks to purchase a mortgage property. Quite obviously equity must intervene if there is unconscionable conduct. Again equity must intervene in the classic case where it can see that a [[NAME]] is not, truly speaking, a free [[NAME]].

In my view, in 1992, the rule only applies where the [[NAME]] obtains a collateral advantage which in all the circumstances is either unfair or unconscionable. It may be that the court presumes from the mere fact of a collateral advantage that the transaction is unconscionable unless there is evidence to the contrary, but the principle does not extend to invalidate automatically cases in which the [[NAME]] has obtained the right to purchase the whole or part of the mortgaged property in certain circumstances or has obtained a collateral advantage where the circum­ stances show that there has been no unfairness or unconscionable conduct." 111 The [[NAME]] argue that the unconscionability element plays no necessary part in the application of the equitable principle. They say that any such overlay is inconsistent with authority binding on a judge of this court sitting at first instance.

112 [[NAME]] considered that possibility in the [COMPANY] case when he declined to follow the decisions of the House of Lords in Samuel v Jarrah Timber and Wood Paving Corporation Ltd [1904] AC 323 and G and C Kreglinger v New Patagonia Meat and Cold Storage Company Ltd [1914] AC 25. The principle on which those cases proceeded was stated by Lord Parker in Kreglinger in these terms (at 61): "[T]here is now no rule in equity which precludes a [[NAME]], whether the mortgage be made upon the occasion of a loan or otherwise, from stipulating for any collateral advantage, provided such collateral advantage is not either (1) unfair and unconscionable or, (2) in the nature of a penalty clogging the equity of redemption or, (3) inconsistent with or repugnant to the contractual and equitable right to redeem." 113 [[NAME]] held, in effect, that only part (1) of Lord Parker's formulation should be accepted, with parts (2) and (3) not in truth representing independent aspects of the equitable principle. Putting this another way, the fact that the equity of redemption is denied or overborne by contract is, of itself, insufficient to cause equity to grant relief from the operation of that contract. There must also be some relevant unconscionability.

114 [[NAME]] referred to two High Court decisions and a decision of the Court of Appeal and expressed the view that what had been said in them about clogs on the equity of redemption did not bind him to adopt the whole of Lord Parker's formulation. The cases are Baker v Biddle [1923] HCA 26; (1923) 33 CLR 188, Toohey v Gunther [1928] HCA 19; (1928) 41 CLR 181 and Charmelyn Enterprises Pty Ltd v Klonis (1981) 2 BPR 9,527.

115 [[NAME]] v [[NAME]] concerned an option held by a [[NAME]] to purchase the mortgaged property. It was held, however, that the option agreement had ceased to have effect before the purported exercise of the option. The [[NAME]]'s claim to have the purchase contract specifically enforced failed for that reason. All three members of the court held that, if that had not been so, the option would have been void because of repugnancy to the true nature of the mortgage; but, in view of the primary conclusion, that opinion was merely incidental.

116 [[NAME]] v [[NAME]] concerned a collateral contract tying the trade of the mortgaged hotel property to the brewer [[NAME]]. It was held that, as a matter of construction (and having regard to the operation of the Torrens title legislation), the tie lasted only while the mortgage subsisted, so that there was no clog on the equity of redemption. Three of the five judges (Knox CJ, Isaacs J and Higgins J) nevertheless accepted apparently without reservation the equitable principles about clogging the equity of redemption as expounded in England to that point. Again, however, that was not essential to the decision.

117 [COMPANY] v [[NAME]], the Court of Appeal disposed of the clog question by reference to part (1) of Lord Parker's threefold classification in Kreglinger, thus leaving at large the status of the other parts of it. [[NAME]] observed, correctly in my respectful opinion, that the Court of Appeal's decision was confined to the applicability of the unconscionability aspect and did not bind him to accept those other parts.

118 Not mentioned in the [COMPANY] case are three other earlier High Court decisions to which counsel have referred me, namely, Southwell v Roberts [1940] HCA 23; (1940) 63 CLR 581, Marshall v Allsop [1946] ALR 378 ([ID]) and Bevham Investments Pty Ltd v Belgot Pty Ltd [1982] HCA 45; (1982) 149 CLR 494. In each of these, members of the High Court accepted, apparently without qualification or question, aspects of the English jurisprudence on the subject. But they did so, in each case, in a manner not essential to the decision.

119 It was, in my view, correct for [[NAME]] to proceed, in [COMPANY], on the footing that no decision of the High Court or Court of Appeal had directly adopted and applied, as part of its ratio decidendi, the unconditional and unqualified approaches to clogs on the equity of redemption favoured by the House of Lords in the early 20th century, or, more particularly, parts (2) and (3) of Lord Parker's statement in Kreglinger in which unconscionability plays no part. There was no authority binding on his Honour that precluded his adopting an approach that regarded unconscionability as an essential element of the imposition against which equity will relieve. Nor, I think, did such discussion of the matter as there had been in the High Court judgments qualify as "seriously considered dicta of a majority of" the High Court, to adopt the description made relevant by Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at [134].

120 It should also be noted that the Privy Council's acceptance of the unconditional or unqualified rule in Fairclough v Swan Brewery Co Ltd [1912] AC 565, an appeal from the Supreme Court of Western Australia, does not make that approach binding on this court. Although the High Court was, at the time, bound by decisions of the Privy Council, it is no loner so bound. Neither, therefore, is this court. I respectfully adopt, in this connection, the analysis by [[NAME]] in [[NAME]] v [COMPANY] (No 5) (above) at [96], based on Viro v The Queen [1978] HCA 9; (1978) 141 CLR 88.

121 The unconscionability element was part of the equitable doctrine according to its original formulations. In [[NAME]] v [[NAME]], Lord Hardwicke, having stated the rule in the absolute terms set out at paragraph [106] above, then stated its rationale:

". . . and the reason is, because it puts the [[NAME]] too much in the power of the [[NAME]], who, being distressed at the time, is too inclinable to submit to any terms proposed on the part of the [[NAME]]." 122 The explanation given in [[NAME]] v [[NAME]] (see paragraph [107] above) was essentially the same:

"And there is great reason and justice in this rule, for [[NAME]] men are not, truly speaking, free men, but, to answer a present exigency, will submit to any terms that the crafty may impose on them." 123 These explanations are consistent with the earlier decision of Sir John Trevor MR in Jennings v Ward (1705) 2 Vern 520; 23 ER 935. Redemption was decreed on payment of the secured moneys by the [[NAME]] despite a collateral covenant by the [[NAME]] allowing the [[NAME]] to call for a conveyance of so much of the mortgaged land as was equal in value to the money lent. The brief report says that the covenant was set aside "as unconscionable".

124 The eighteenth century cases exhibit a concern, based on unconscionability, about the power exerted by a [[NAME]] – particularly a "crafty" [[NAME]] - over the "distressed" [[NAME]] who is "[[NAME]]" and not "free"; and about the vulnerability of such a [[NAME]] to submit to any term the [[NAME]] proposes. There are clear overtones of the need to protect the economically weak from the economically powerful, so that, while rules of more general application in due course developed from the early cases, it would be consistent with the originating principles to limit those rules by reference to the motivating considerations. As the Court of Appeal of Singapore said in Citicorp Investment Bank (Singapore) Ltd v Wee Ah Kee [1997] 2 SLR 759: "The doctrine was therefore developed to protect such [[NAME]] borrowers from oppressive agreements." 125 In Kreglinger, Viscount Haldane LC expressed the view (at 43) that judges "should proceed cautiously" and "bear in mind the real reasons which have led Courts of Equity to insist on the free right to redeem and the limits within which the purpose of the rule ought to confine its scope". This followed a discussion of the development of equitable jurisdiction to relieve against forfeiture upon failure in due payment by a [[NAME]], so that the [[NAME]] should not then have both the land and the debt. His Lordship then said (at 36), in a passage reflecting the reasoning in the eighteenth cases I have quoted: "It was, in ordinary cases, only where there was conduct which the Court of Chancery regarded as unconscientious that it interfered with freedom of contract. The lending of money, on mortgage or otherwise, was looked on with suspicion, and the Court was on the alert to discover want of conscience in the terms imposed by lenders."

126 Unconscionability was and remains the fulcrum upon which entitlement to equitable relief turns. In Mushinski v Dodds [1985] HCA 78; (1985) 160 CLR 583, Deane J, with whom Mason J agreed, referred to equitable principle which "operates upon legal entitlement to prevent a person from asserting or exercising a legal right where the particular assertion or exercise of it would constitute unconscionable conduct". In Stern v McArthur [1988] HCA 51; 1988) 165 CLR 489, Deane J and Dawson J observed (at 488) that a court of equity will interfere with contractual rights where circumstances are "such as to make it plain that it is necessary to intervene to avoid injustice or, what is the same thing, to relieve against unconscionable – or, more accurately, unconscientious – conduct". 127 In Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199, Gummow J and Hayne J said (at [98]): "The terms 'unconscientious' and 'unconscionable' are often used interchangeably. The former, as Deane J pointed out in The Commonwealth v Verwayen (1990) 170 CLR 394 at 444, 446, is the better term to indicate the areas in which equity intervenes to vindicate the requirements of good conscience by denying enforcement of or setting aside transactions. A recent example is Bridgewater v Leahy (1998) 194 CLR 457 at 477-479 [72]-[76], of unconscientious behaviour also finds expression in such principles as those respecting estoppel in equity; it is 'the driving force behind equitable estoppel'. (The expression is that of Mason CJ in The Commonwealth v [[NAME]] at 407)."

128 Their Honours then quoted with approval the observation of French J at first instance in Australian Competition and Consumer Commission v [COMPANY] (No 2) [2000] FCA 2; (2000) 96 FCR 491 (at [14]) that "the overriding aim of all equitable principle is the prevention of unconscionable behaviour – a term which can be seen to encompass duress, undue influence and 'unconscionable dealing as such'". 129 The joint judgment of Gleeson CJ, McHugh J, Gummow J, Hayne J and Heydon J in the more recent case of Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 emphasises (at [39] And [58]) that changes in circumstances and supervening events are of themselves insufficient to justify equitable intervention. The real question is whether conduct of the party seeking to rely on legal rights makes the reliance unconscientious. 130 Unconscionability does not roam at large. In his article "Giving Content to General Concepts" (2005) 29 MULR 218, [[NAME]] said: "The notion of unconscionability only comes into play (in equity, at least) by reference to the specific requirements and operative criteria of individual doctrines informed by that notion. Unconscionability, then, has developed 'in its many guises'. The concept, therefore, only comes into play when the operative criteria of the specific doctrine have 'filtered out' most fact situations. In other words, the question of whether [[NAME]]'s conduct is unconscionable is asked only after certain specific requirements have been met." 131 In a case of the present kind, therefore, the first step is to discover whether the particular contract is one attracting the attention of equity at a prima facie level by reference to the established suspicion or sensitivity about fettering a [[NAME]]'s right to redeem. If it is, a further question must be addressed: is it necessary, in order to prevent unconscientious behaviour, to preclude reliance by the [[NAME]] on that contract?

132 Recent comment by academic writers in Australasia favours the adoption of unconscionability as a necessary part of the equitable rule against clogging the equity of redemption. Particular reference may be made to [[NAME]], "The Modern Rule Against Clogs on the Equity of Redemption" (1997) 5 APLJ 21; and [[NAME]] and [[NAME]], "Clogging the Equity of Redemption: An Outmoded Concept?" (2002) 2(1) QUTLJJ 35. [[NAME]] and another co-author, [[NAME]], said of [[NAME]]'s approach in [COMPANY] in their recently published work "The Law of Real Property Mortgages", [COMPANY], 2007, at 105: "It is submitted, further, that [[NAME]]'s remarks ring true in modern Australia where the touchstone for invalidating commercial transactions is substantially whether or not a party has acted unconscionably in respect of another." 133 [[NAME]], commenting on the [ADDRESS] of Appeal's decisions in Jones v Morgan [2001] EWCA Civ 995 and Warnborough Ltd v Garmite Ltd [2003] EWCA Civ 1544 in which there was (as there had to be, even if grudgingly) acceptance of the unqualified approaches taken by the House of Lords in the early 20th century, has expressed the view that, in Australia, "[e]quity's concern to protect the [[NAME]]'s equity of redemption can be met under the general umbrella of 'unconscionability'": [[NAME]], "Clogs on the Equity of Redemption: 'This Vestigial Rule'" (2004) 78 ALJ 366.

134 Unconscionability has been recognised elsewhere in the common law world as the essential basis of equity's willingness to strike down clogs on the equity of redemption. In Ganga Dhar v Shankar Lal (1958) 45 AIR 770 at 774, the Supreme Court of India said, after quoting from the speech of Viscount Haldane LC in Kreglinger: "The reason then justifying the Court's power to relieve a [[NAME]] from the effects of his bargain is its want of conscience. Putting it in more familiar language the Court's jurisdiction to relieve a [[NAME]] from his bargain depends on whether it was obtained by taking advantage of any difficulty or embarrassment that he might have been in when he borrowed the moneys on the mortgage. Was the [[NAME]] oppressed? Was he imposed upon? If he was then he may be entitled to relief." 135 That approach was confirmed by the Supreme Court of India in both Pomal Kanji Govindji v Vrajlal Karsandas Purohit (1989) 76 AIR 436 and Shrivdev Singh v Sucha Singh [2000] AIR (1st Supp) 1935.

136 I accept that questions about fettering the equity of redemption should be approached generally in the manner indicated by [[NAME]] in the [COMPANY] case, approved by other judges of this court at first instance in Re [COMPANY] and [[NAME]] v [COMPANY] (No 5) and noted without adverse comment by the [ADDRESS] of the Supreme Court of South Australia in [COMPANY] v [COMPANY]. It cannot be said today that a contractual provision freely assented to by a [[NAME]] is void or unenforceable just because it allows the [[NAME]] to acquire the mortgaged property or to resist that [[NAME]]'s attempt to redeem. The susceptibility of such a provision to equitable intervention is, however, well established. In a given case, equity will prevent reliance on the provision by the [[NAME]] if that reliance is unconscientious because of some factor associated with the formation of the contract or something distinct from mere changed circumstances or supervening event operative at the time of reliance. 137 In determining whether reliance is unconscientious, regard must be had to the nature of the bargain, the circumstances in which it was made and the circumstances in which the [[NAME]] seeks to assert the [[NAME]]'s promise to defeat the right to redeem.

Applying the rule to this case

138 The starting point must be the reality that the parties' transaction was, in both form and substance, an equitable mortgage carrying with it a right to unencumbered enjoyment of the mortgaged property by the [[NAME]] upon payment of the secured moneys. 139 The effect of clause 10.15(c) of the facility agreement, understood in the way discussed at paragraphs [90] to [95] above in the context of a stock lending transaction complying with s 26BC and authorised by clause 17.2, is that the [[NAME]] is empowered to dispose of the mortgaged shares in which the [[NAME]]'s equity of redemption subsists. Clause 17.2 says expressly, "The [[NAME]] . . . is authorised to transfer Relevant Loan Securities held by [[NAME]]". Likewise, "[[NAME]] is authorised to transfer Relevant Loan Securities held by [[NAME]]". Either of them may do so at will and without notice to the client [[NAME]].

140 The [[NAME]]'s ability to dispose of the shares in which the [[NAME]]'s equity of redemption subsists is, however, qualified: the disposal may occur only if there is received in return from the [[NAME]] a contractual promise to make, in the future, a transfer of identical shares; and, according to the construction of clause 10.15(c) discussed above, [[NAME]] – which, as [[NAME]] of the transferred shares must be the recipient of the [[NAME]]'s contractual promise – holds that promise for the benefit of the [[NAME]] in the same way as the transferred shares were held before the transfer, that is, subject to the security interest in [[NAME]] resulting from the transfer.

141 If, after such a disposal of the mortgaged shares and while the [[NAME]]'s contractual promise was held by [[NAME]], a [[NAME]] paid the secured moneys in full (either upon or after the due date for payment or in exercise of a right to make early payment), that [[NAME]] would not receive back the mortgaged shares. The most it would receive is the benefit of the [[NAME]]'s promise to make to [[NAME]] a future transfer of identical shares encumbered, however, by the security in favour of [[NAME]]. The case is therefore one on which a contractual provision purports to deny the [[NAME]]'s right to redeem.

142 This was not referred to in either of the product disclosure statements on the basis of which persons were invited to enter into margin loan transactions. As was pointed out by [[NAME]] SC on behalf of certain of the [[NAME]], a product disclosure statement is required by s 1013D of the Corporations Act to include such information about the significant risks associated with holding the particular financial product and about significant characteristics or features of the product (or the rights, terms, conditions and obligations attaching to it) "as a person would reasonably require for the purpose of making a decision, as a retail client, whether to acquire the financial product". This statutory language echoes the concept of materiality long recognised in the area of prospectuses and solicitation of investment: see, for example, Cackett v Keswick [1902] 2 Ch 456.

143 The statements in fact made in the 2005 [[NAME]] PDS included the following: "A [[NAME]] facility brings together all the administration, transactional and reporting aspects of your investments and loans under the one facility as your portfolio would be held by [[NAME]] on your behalf. This means you always retain ownership in respect of, and entitlements arising from, the investment including dividends and franking credits"; and "Much like mortgaging property under a property loan, your investment portfolio is held as security for the Share Loan. The amount you are permitted to borrow from time to time is a function of the lending ratio of the individual investments in your portfolio applied to the market value of those investments, subject to your [[NAME]] facility credit limit." 144 Similarly, in the Super [[NAME]] PDS it was said under a heading "Investment Ownership" that "you retain beneficial title in your investments"; also: "As the [[NAME]] of the Beneficial interest in Approved Securities, you receive all the benefits and rights associated with direct ownership of the Approved Securities including entitlement to dividends, franking credits and corporation actions." 145 [[NAME]] made no attempt to explain to potential clients through the product disclosure statements that a client's mortgaged shares might, at the will of [[NAME]] and without notice to the client (either before or after the event), be subjected to a securities lending arrangement so that the client's interest in those shares was taken away. On the contrary, the prospective client was led by the product disclosure statements to the natural and normal expectation that the shares made available as security would be held intact for the duration of the loan and restored to the [[NAME]] when the debt had been paid, with the client's interest as [[NAME]] continuing throughout. There were clear and unambiguous assurances that the client's shares would be held as security and that the client's ownership interest in them would be ongoing.

146 Neither product disclosure statement referred to the risks inherent in securities lending arrangements. Those risks were succinctly summarised by [[NAME]] in [COMPANY] v Australia and [COMPANY] (above) at [8]: "It should come as no surprise to the [[NAME]] to learn that there are risks for those who participate in securities lending. The risks include: liquidity risk (counterparty not settling an obligation on time, often due to the inability to obtain securities for redelivery), market risk (adverse movements in the market price of assets), legal risk (unexpected application of a law or the inability to enforce a contract), operational risk (deficiencies in information systems or internal controls), settlement risk (completion or settlement of transactions failing), credit risk (counterparty not settling an obligation in full, either when due or at any time thereafter, often as a consequence of insolvency), principal risk (the primary form of credit risk that arises where either the securities or collateral are not delivered) and replacement cost risk (the secondary form of credit risk that arises where the non-defaulting party incurs costs in realising the value of assets)."

147 In the particular context, no interest of the [[NAME]] was to be served and no benefit was intended to accrue to the [[NAME]] by reason of a securities lending arrangement entered into under clause 17.2. The effect, from the [[NAME]]'s perspective, would merely be as already noted, that is, to remove the right to have unencumbered title to the mortgaged shares on payment and to see that right replaced by a right in respect of the contractual claim against the other party to the lending arrangement (and perhaps, in due course, identical shares made available by that other party).

148 [[NAME]], by contrast, stood to derive advantage from the use of the shares owned by the [[NAME]] and in which [[NAME]] had a security interest only. There would accrue to it all the commercial benefits of a lending arrangement undertaken by a full owner, except that the [[NAME]] would have an interest in the third party's contractual promise for the delivery of equivalent or identical securities in the future. The [[NAME]] was, in short, put into a position where it could, entirely for its own ends and for its own benefit, turn to account the [[NAME]]'s interest in the mortgaged property and deal with that property as if it were the absolute owner.

149 Several factors combine to compel the conclusion that, in every case, clauses 17.2 and 10.15(c), in their application to a securities lending arrangement of the s 26BC kind, had an operation that entailed unconscionable advantage for [[NAME]] and unconscionable disadvantage for the [[NAME]]. Such an arrangement would entail benefit and advantage to [[NAME]] and entire lack of benefit and advantage (indeed, a real and substantial prospect of detriment and disadvantage) to the [[NAME]], even though the [[NAME]] was the owner of the shares subjected to the arrangement and should have enjoyed all the advantages of ownership, subject only to the limited interest of [[NAME]] as [[NAME]]. Moreover, benefit and advantage would accrue to [[NAME]] and be denied to the [[NAME]] in circumstances where the product disclosure statements did not explain – or even mention – that possibility or alert the prospective client to the several risks involved including, in particular, the possibility that mortgaged property that was expressly represented to continue in the ownership of the client might be transferred away by [[NAME]] and replaced by an unsecured promise of an unknown person of unknown financial substance giving rise merely to a right to sue for damages that might turn out to be worthless. 150 The case is, in summary, one attracting an adaptation of an observation of Mason CJ in Louth v Diprose [1992] HCA 61; (1992) 175 CLR 621 (at 626): "[[[NAME]]'s] conduct was unconscionable in that it was dishonest and was calculated to induce, and in fact induced, [the client defendant] to enter into a transaction which was improvident and conferred a great benefit upon [[[NAME]]]."

151 I am of the opinion that, to the extent that the combined effect of clauses 17.2 and 10.15(c) would otherwise be to allow a client defendant's mortgaged shares to be subjected by [[NAME]] to a securities lending arrangement of the s 26BC type and to pass to the third party "[[NAME]]" free from the [[NAME]]'s interest, equity must regard those clauses as having an unconscionable operation in favour of [[NAME]], procured by unconscionable conduct of [[NAME]], and therefore as imposing an impermissible fetter upon the right of each client defendant to redeem its mortgaged shares. The clauses are therefore and to that extent inoperative and void. The fetter would a fortiori be void if, contrary to the view I have expressed, unconscionability is not an essential element of the basis on which equity strikes down clogs on the equity of redemption.

152 It follows that [[NAME]] cannot rely on the combined operation of clauses 17.2 and 10.15(c) as a basis for contending that it effectually assured mortgaged shares, free of the [[NAME]]'s interest (or, as it were, inclusive of the [[NAME]]'s interest), to a third party "[[NAME]]" under a securities lending arrangement of the s 26BC kind.

Was there in any event a transaction within clause 17.2?

153 Let it be assumed that, contrary to the conclusion just stated, there is no impermissible and therefore invalid fetter upon the [[NAME]]'s right to redeem. It then becomes necessary to refer to two particular aspects of clauses 17.2 and 10.15(c).

154 First, while clause 17.2, according to its terms, purports to authorise a transfer of shares under any one of four kinds of transaction - a "custodian" arrangement, a "financing" arrangement, a "lending (on terms compliant with section 26BC of the Income Tax Assessment Act 1936)" arrangement or a "hedging" arrangement - clause 10.15(c) is concerned with only one of these. Its application is confined to the case where shares are "lent in accordance with clause 17.2"; in other words, where the arrangement in fact undertaken is the particular species of "lending" arrangement to which clause 17.2 refers. The possibility of a transfer free from the equitable interest of the [[NAME]] (assuming clause 10.15(c) to be effective and operative according to its terms) is therefore confined to the case of a "lending" of the s 26BC type made in the manner specified in clause 17.2.

155 While custodian, financing and hedging transactions are also mentioned as possibilities in and apparently countenanced by clause 17.2, the fact that clause 10.15(c) does not extend to these means that they cannot be undertaken in such a way as to defeat the [[NAME]]'s right to redeem (again, I assume that clause 10.15(c) is effective and operative according to its terms). Nor, of course, could the right to redeem be defeated by means of a securities lending arrangement not of the s 26BC description: the authority or exception supposedly created by clause 17.2 is confined to transactions satisfying the s 26BC criteria; and the words "in accordance with clause 17.2" appearing in clause 10.15(c) must be taken to mean what they say.

156 The second point is that, as has already been noted, the authority to transfer purportedly created by clause 17.2 extends only to Relevant Loan Securities "held by [[NAME]]". The authority therefore does not exist in relation to a client's mortgaged shares unless the registered [[NAME]] of the shares is [[NAME]]. Where a lending arrangement of the s 26BC type is undertaken in relation to mortgaged shares "held by [[NAME]]" (so that the transfer in accordance with the arrangement is authorised by clause 17.2), the purported effect of clause 10.15(c) is to cause the subject matter of the security given by the client to [[NAME]] to become "all present and future rights of [[NAME]]" under the lending arrangement. The identification of [[NAME]] as the person to whom rights accrue by virtue of a lending arrangement is consistent with [[NAME]]' being the [[NAME]] of the shares committed to the arrangement: having regard to the s 26BC elements (see paragraph [83] above), it is necessary that the person by whom the transfer by way of "lending" is made at the outset also be the person to whom the transfer of identical shares is made at the conclusion.

157 If, contrary to the conclusion I have expressed with respect to the matter of fettering the right to redeem, clauses 17.2 and 10.15(c) are capable of valid and effectual operation so as to allow transfer to a third party "[[NAME]]" of the full and absolute title to mortgaged shares, the capacity of those clauses to produce that result is accordingly confined to mortgaged shares of which [[NAME]] in the registered [[NAME]] and which are transferred under a lending arrangement of the s 26BC kind to which [[NAME]] becomes party in such a way as to be the recipient of the third party's promise concerning future transfer of identical shares.

158 The agreements under which mortgaged shares are said by [[NAME]] to have passed to [[NAME]] are described as an AMSLA between [[NAME]] and [NAME], Global Master Securities Lending Agreements (or "GMSLAs") between [[NAME]] and each of [NAME] and [[NAME]] and, perhaps, International Prime Broking Agreements ("IPBAs") between [[NAME]] and [NAME] and [[NAME]] (reliance on the IPBAs was not, I think, ultimately pressed – nor could it be, given that they cannot, in my view, be regarded as within the species of clause 17.2 transfer contemplated by clause 10.15(c)).

159 It is significant that [[NAME]] does not maintain that [[NAME]] was a party to any of these arrangements. Indeed, its submissions proceed on the basis that it was [[NAME]] that "lent" securities under them and that it was [[NAME]] that had a contractual right to receive identical securities at a future time.

160 [[NAME]] thus fails to make good what would have been an essential element of the case it might have advanced had it not been found that clauses 17.2 and 10.15(c) operated unconscionably as a fetter on a [[NAME]]'s right to redeem.

Decision on the second part of [[NAME]]'s case

161 For the reasons stated, clauses 17.2 and 10.15(c) are not allowed by equity such operation as it would be necessary for them to have in order to extinguish or defeat a client defendant's interest as [[NAME]] in Relevant Loan Securities mortgaged by the [[NAME]]. Furthermore, the transactions relied upon by [[NAME]] as undertaken pursuant to clause 17.2 were not such as to be authorised by that clause.

162 [[NAME]] has therefore not succeeded in its attempt to advance the alternative case against [[NAME]] other than [[NAME]].

Disposition

163 [[NAME]] has not shown that, on either of the bases postulated by it, the interest of any client defendant as [[NAME]] in shares mortgaged to [[NAME]] under the facility agreement was defeated or eliminated. The interest of each client defendant as [[NAME]] of the shares taken as security by [[NAME]] must therefore be regarded as having survived the purported disposition on which [[NAME]] has sought to rely.

164 Although a number of other matters were dealt with in submissions, my impression is that this statement of conclusion, coupled with the attitude of the [[NAME]] parties recorded at paragraph [7] above (and the undertaking of those parties to abide by such orders as the court may make as between [[NAME]] and the [[NAME]]), is sufficient to dispose of the controversy and should enable the parties to settle appropriate orders. I should indicate, however, that I do see the matter as one in which there should be declaratory relief as between [[NAME]] and the [[NAME]], whether or not the liquidators of [[NAME]] see fit to press their application for directions.

165 I will direct that short minutes be brought in, reserving leave for any party to approach my Associate with a view to re-listing of the matter for mention should any matter of doubt or difficulty be encountered in formulating appropriate orders. **********

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