Duus v Dalvella Pty Ltd [2007] FCA 1921

FEDERAL COURT OF AUSTRALIA

PRACTICE AND PROCEDURE – consideration of an application for Further and Better Particulars of a Statement of Claim – consideration of contentions relating to s 121 of the Bankruptcy Act 1966 (Cth)

Bankruptcy Act 1966 (Cth)

Bankruptcy Legislation Amendment Act 1996 (Cth)

Barton v Deputy Federal Commissioner of Taxation (1974) 131 CLR 370

PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515

DM Cannane & Anor v J Cannane Pty Ltd (1998) 192 CLR 557

Ebner v Official Trustee in Bankruptcy (1999) 91 FCR 353

Re Trautwein; Richardson v Trautwein (1994) 14 ABC 61

PT Garuda Indonesia Ltd v Grellman

ROSS ANDREW DUUS AND DAVID JOHN CRANSTOUN v DALVELLA PTY LTD ACN 076 620 409 (IN ITS CAPACITY AS TRUSTEE FOR THE CLIFFSIDE TRUST) AND DONEMATE PTY LTD ACN 076 620 454 (IN ITS CAPACITY AS TRUSTEE FOR THE KINGS BEACH TRUST)

QUD 28 OF 2007

GREENWOOD J

6 DECEMBER 2007

BRISBANE

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QUD 28 OF 2007

BETWEEN:

ROSS ANDREW DUUS

First Applicant

DAVID JOHN CRANSTOUN

Second Applicant

AND:

DALVELLA PTY LTD ACN 076 620 409 (IN ITS CAPACITY AS TRUSTEE FOR THE CLIFFSIDE TRUST)

First Respondent

DONEMATE PTY LTD ACN 076 620 409 (IN ITS CAPACITY AS TRUSTEE FOR THE KINGS BEACH TRUST)

Second Respondent

JUDGE:	GREENWOOD J
DATE OF ORDER:	6 DECEMBER 2007
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

1. The Notice of Motion filed by the applicants on 12 April 2007 is adjourned.

2. The applicants provide further particulars to the respondents of para 23 of the Statement of Claim by providing the respondents with a statement of the amount of the debt claimed by Messrs Jefferson and Stevenson as liquidators of Freedom Homes (Qld) Pty Ltd and the amount claimed by the Building Services Authority by way of proofs of debt in the bankruptcies of Richard Arthur Waters and Margaret May Waters.

3. The applicants provide further particulars to the respondents of para 31 of the Statement of Claim by providing the respondents with a statement of the amount of the debt claimed by Messrs Jefferson and Stevenson as liquidators of Freedom Homes (Qld) Pty Ltd, the amount claimed by the Building Services Authority, the amount claimed by the Deputy Commissioner of Taxation and the amount claimed by the liquidator of Delvine Pty Ltd by way of proofs of debt in the bankruptcies of Richard Arthur Waters and Margaret May Waters.

4. The costs of and incidental to the Notice of Motion are reserved.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QUD 28 OF 2007

BETWEEN:

ROSS ANDREW DUUS

First Applicant

DAVID JOHN CRANSTOUN

Second Applicant

AND:

DALVELLA PTY LTD ACN 076 620 409 (IN ITS CAPACITY AS TRUSTEE FOR THE CLIFFSIDE TRUST

First Respondent

DONEMATE PTY LTD ACN 076 620 454 (IN ITS CAPACITY AS TRUSTEE FOR THE KINGS BEACH TRUST)

Second Respondent

JUDGE:	GREENWOOD J
DATE:	6 DECEMBER 2007
PLACE:	BRISBANE

REASONS FOR JUDGMENT

1 This application concerns a challenge to the adequacy of particulars provided by the applicant trustees of the bankrupt estates of Mr Richard Waters and his wife Mrs Margaret Waters of a number of paragraphs of the Statement of Claim (‘SoC’) but particularly those paragraphs asserting that Mr and Mrs Waters put in place a series of transactions as part of a scheme to dispose of their property in favour of an entity in circumstances where they did so with an intent to defraud their creditors and the entity did not act in good faith.

2 In order to deal with the contended inadequacy of the particulars, it is necessary to set out the material facts (and pleaded particulars) said to properly frame the claims for relief and adequately put the respondents on notice of the case they must answer and, in consequence, the issues in relation to which the respondents must give discovery once pleadings have closed.

3 The pleaded case is this:

4 On 10 August 1999, Richard Waters and Margaret Waters (which I will describe collectively as Waters unless otherwise indicated) appointed Mr Bevan Schafferius controlling trustee of their property under s 188 of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”). On 9 September 1999 the creditors of Waters rejected a proposed composition. On 22 September 1999 the estate of Richard Waters was sequestrated (with the appointment of the first applicant as trustee of the estate) consequent upon a Bankruptcy Notice issued to Mr Waters on 4 March 1999 by the Official Receiver and the presentation of a Creditors Petition against him by the liquidator of Delvine Pty Ltd (“Delvine”) on 20 April 1999. On 28 September 1999 the Insolvency Trustee Service of Australia (“ITSA”) accepted a Debtors Petition filed by Mrs Waters and appointed the second applicant as trustee of her estate.

5 On 23 November 1984, Mr and Mrs Waters had become registered proprietors as joint tenants of a property at 46 Victoria Terrace, Caloundra, in Queensland.

6 In December 1996, a number of events and transactions occurred.

7 On 2 December 1996, Dalvella Pty Ltd (“Dalvella”) was incorporated as was Donemate Pty Ltd (“Donemate”). The directors from 2 December 1996 of each company were John Alexander Guest and Brian James Osborne. On 2 December 1996, the Cliffside Trust was established with Dalvella as trustee and Mr and Mrs Waters as Principals. On the same date, the Kings Beach Trust was established with Donemate as the trustee and Mr and Mrs Waters as Principals of the trust. On 9 December 1996, by deed, Mr and Mrs Waters retired as Principals of each trust, and appointed their children, Jane Waters, Louise Waters, and Adrian Waters, as the “New Principals”. (paras 8 to 16 of the SoC).

8 Between 3 December 1996 and 24 December 1996, Mr and Mrs Waters entered into ten transactions with Dalvella in its capacity as trustee of the Cliffside Trust (called, in the pleading, “the 1996 transactions”) implemented by effecting transfers between the account of Mr and Mrs Waters at the Caloundra branch of the National Australia Bank (“NAB”) and Dalvella’s account at the same branch of the NAB. Those ten transactions had one of two characteristics. Some were loans by Dalvella to Mr and Mrs Waters. The others were gifts of money to Dalvella by Mr and Mrs Waters. In the result, Dalvella made unsecured loans in the aggregate of $2,199,960.00 to Mr and Mrs Waters; and Mr and Mrs Waters gave a gift of $2,200,000.00 to Dalvella, the final gift of $230,000 taking place on Christmas Eve. By the end of those transactions on 24 December 1996, Dalvella had money receipts of $2,200,000.00 and a debt due to it (payable according to its terms) from Mr and Mrs Waters of $2,199,960.00.

9 The dates and amounts of the transfers were these:

Date Transaction Amount

3/12/96 Loan Dalvella to Waters $229,960.00

4/12/96 Loan Dalvella to Waters $170,000.00

4/12/06 Gift Waters to Dalvella $170,000.00

5/12/96 Loan Dalvella to Waters $900,000.00

5/12/96 Gift Waters to Dalvella $900,000.00

6/12/96 Loan Dalvella to Waters $500,000.00

6/12/96 Gift Waters to Dalvella $500,000.00

9/12/96 Loan Dalvella to Waters $400,000.00

9/12/96 Gift Waters to Dalvella $400,000.00

24/12/06 Gift Waters to Dalvella $230,000.00

10 By para 22 of the SoC, the applicants plead that the 1996 transactions were:

22.1 Part of a scheme orchestrated by Mr and Mrs Waters with the intent to defraud their creditors; and

22.2 A disposition of Mr and Mrs Waters’ property for no consideration in favour of an entity which did not act in good faith.

11 The applicants rely upon the following particulars as circumstances or facts from which an inference is to be drawn that the 1996 transactions were part of a scheme put in place by Mr and Mrs Waters with an intent to defraud their creditors and in which Dalvella acted other than in good faith.

Particulars

22.2.1 Mr and Mrs Waters were the directors and sole shareholders of Freedom Homes (Qld) Pty Ltd (Freedom Homes) which was incorporated on 29 May 1992.

22.2.2 Freedom Homes formed part of a group of companies, that included Delvine Pty Ltd (Delvine).

22.2.3 On 29 February 1996, Mr and Mrs Waters appointed Phil Jefferson Jefferson) and Jay Stevenson Stevenson) voluntary administrators of Freedom Homes.

22.2.4 On 14 March 1996, Mr and Mrs Waters appointed David Clout voluntary administrator of Delvine.

22.2.5 On 10 April 1996, David Clout was appointed liquidator of Delvine by resolution of Delvine’s creditors at a second meeting of creditors.

22.2.6 Between 4 and 28 June 1996, a seven day public examination was conducted in the voluntary administration of Freedom Homes and the liquidation of Delvine during which Mr Waters was the primary examinee.

22.2.7 On 3 July 1996, Mr Waters sought and received advice from his then solicitor, Dr Garry Hamilton to the affect that liability under personal guarantees given by Mr and Mrs Waters to the Building Services Authority (BSA) would survive a winding-up of Freedom Homes.

22.2.8 On or about 19 July 1996, Mr and Mrs Waters were provided with a s439A second report to creditors issued by Jefferson and Stevenson in the voluntary administration of Freedom Homes. The report contained the following extracts:

“Counsel has delivered an extensive report resulting from the seven (7) day public examination which advises:-

1. The company was insolvent from the last quarter of 1994;

2. The directors have breached Section 588G, 232(4) and 598 of the Corporations Law;

3. The defences for directors provided by the Corporations Law, in certain circumstances, will not be available by directors in the present case;

4. The QBSA was justified in taking action to remove the builders license of Freedom Homes (Qld) Pty Ltd;

5. There are breaches of other legislation by the company and the directors …

As a result of the public examination and Counsel’s advice, I believe that a claim could be made against the directors for up to $2,647,255 being the balance of unsecured creditors outstanding at February 1996 of $1,531,596 and taxation debts of $1,115,659…

In my opinion, creditors should vote to place the company into liquidation”

22.2.9 On 29 July 1996, at an adjourned meeting of creditors which was attended by Mr and Mrs Waters:

(a) the recovery actions identified in the second report to creditors were ventilated at length; and

(b) Freedom Homes was placed in liquidation and Jefferson and Stevenson were appointed liquidators of Freedom Homes to enable the claims against Mr and Mrs Waters to be pursued.

22.2.10 Between 13 June 1996 and 16 August 1996, Mr and Mrs Waters obtained personal insolvency advice from John Ebbage of BDO Kendalls Chartered Accountants and Philip Pan of Minter Ellison Lawyers in respect of at least:

(a) financial “Problems” identified by Mr Waters including “Defects $400,000”, Delvine $200,000” and “Personal Guarantees $700,000”;

(b) the extent of Mr and Mrs Waters’ personal financial exposure as a result of the failure of Freedom Homes, including in respect of personal guarantees given to the BSA;

(d) Mr and Mrs Waters personal asset and liability position;

(e) ways to place assets beyond the reach of creditors including by the establishment of a discretionary trust and the gifting of assets into the trust;

(f) recommendations that Mr and Mrs Waters negotiate with creditors informally with a view to compromising claims rather than entering into a Part X; and

(g) recommendations that Mr and Mrs Waters concentrate on paying all debts owed to creditors holding personal guarantees from them.

22.2.11 The BSA issued “Letters of Demand” to Mr and Mrs Waters on 17 December 1996 claiming an amount of $4,460.00 noting that further claims of approximately $77,000.44 were being processed and that possible recourse in relation to those claims may be taken in the future.

22.2.12 Between 26 April 1996 and 5 December 1996, Mr and Mrs Waters paid creditors of Freedom Homes which held personal guarantees granted by Mr and Mrs Waters, amounts totalling $701,156.00, as follows:

Date Personal Guarantee Creditor Amount

26/4/96 Plumbing World 4,443

30/10/96 Full Moon 23,000

13/11/96 Boral 1,146

13/11/96 Skyes 16,000

13/11/96 Southport Ceramics 5,000

13/11/96 BBC 10,005

14/11/96 Vintec 16,000

14/11/96 Austral 8,000

15/11/96 Vox 13,750

3/12/96 Southport Ceramics 14,114

3/12/96 BBC 179,116

3/12/96 Southport Timbers 23,320

5/12/96 Full Moon 48,076

5/12/96 Vox 13,776

5/12/96 Austral 11,133

5/12/96 Vintec 46,516

5/12/96 Boral Tiles 176,003

5/12/96 BHP Steel 31,512

5/12/96 Plumbing World 25,837

5/12/96 Skyes 34,409

22.2.13 The Liquidators of Freedom Homes and the BSA have lodged proofs of debt in the bankruptcies of Mr and Mrs Waters.

12 At para 23 of the SoC, the applicants rely upon the particulars of para 22 to support two inferences: first, that the liquidators of Freedom Homes, having foreshadowed in their report of 19 July 1996 in their capacity as administrators of Freedom Homes (prior to their appointment as liquidators on or about 29 July 1996) that a claim of $1,531,596.00 (in respect of unsecured creditors; and $1,115,659.00 in respect of debts due to the Deputy Commissioner of Taxation (“DCT”)) could be made against Mr and Mrs Waters based upon conduct on their part in contravention of identified provisions of the Corporations Law, and the BSA, having made demands by letters, were either “creditors, contingent creditors, or anticipated creditors” for “large sums of money” and secondly, that “inevitably there would come a time when these creditors would press Mr and Mrs Waters for payment of moneys that they would not be able to pay”.

13 The applicants then plead a number of transactions that occurred in February 1997 between Mr and Mrs Waters, Dalvella (in its capacity as trustee of the Cliffside Trust) and Donemate (in its capacity as trustee of the Kings Beach Trust). On 1 February 1997, Mr and Mrs Waters by letter to Donemate requested an interest-free loan for 25 years of $2,199,960.00 from Donemate in order to repay the loan from Dalvella to Mr and Mrs Waters from December 1996 and thus extinguish that debt.

14 On 3 February 1997, Donemate borrowed that sum from Dalvella interest free for 25 years. Dalvella made the loan to Donemate on the security of a third party mortgage by Mr and Mrs Waters over the Caloundra property.

15 On 3 February 1997, Donemate made the 25 year interest-free loan to Waters; Waters repaid their debt to Dalvella; and Waters granted a mortgage to Dalvella over 17 lots of land including the Caloundra property.

16 The transfers on 3 February 1997 are said to have occurred this way: Dalvella made one transfer of $99,960.00 and seven transfers of $300,000.000 to Donemate totalling $2,199,960 in all. Donemate made transfers of the same number and amounts to Waters and they made transfers of the same number and amounts to Dalvella. Accordingly, Dalvella, supported by the third party mortgage given by Waters, had become a secured lender to Donemate; Donemate a lender to Waters; and Waters had discharged the December 1996 debt to Dalvella.

17 The applicants plead another transaction in May 1999 between Dalvella and Waters. On that date, by REIQ contract subject to special Annexure A conditions, Mr and Mrs Waters sold the Caloundra property to Dalvella at “market price” and Dalvella agreed to the release of the third party mortgage given by Waters.

18 By para 29 of the SoC, the applicants plead that but for the 1997 transactions and the 1999 transaction, the estate of each bankrupt would have included a one-half legal and beneficial interest in the Caloundra property.

19 By para 30 of the SoC, the applicants plead that at the time of the 1997 transactions and the 1999 transaction, the main purpose of Mr and Mrs Waters in entering into those transactions was:

30.1 to prevent the Property from becoming divisible among their creditors; or

30.2 to hinder or delay the process of making the Property available for division amongst their creditors.

20 The particulars of the circumstances or facts supporting the pleaded fact of purpose, are these. First, the facts and circumstances relied upon to support the inferences pleaded at para 23 of the SoC, which in turn relies upon the facts and circumstances pleaded at para 22 of the SoC, and the particulars at 22.2.1 to 22.2.13. Secondly, three letters of demand sent to Mr and Mrs Waters by BSA on 20 February 1997, 3 April 1997, and 6 June 1997 claiming $14,368.44 (and a further foreshadowed claim of $57,465.00), $33,372.94 and $60,765.94 respectively, and threatening suit if payment should not occur. Thirdly, on 3 February 1997, the liquidator of Delvine commenced proceedings against Mr Waters to recover a contended preference payment of $17,000.00. On 12 February 1997, the liquidators of Freedom Homes commenced proceedings against the DCT seeking to recover a contended preference payment of $200,000.00 and on 17 March 1997, the DCT joined Waters and sought indemnity from them pursuant to s 558FGA (2) of the Corporations Law. Fourthly, between 24 April 1996 and 28 January 1998, Waters paid creditors of Freedom Homes holding personal guarantees from Waters, amounts totalling $823,811.00. Fifthly, on 17 February 1999, the liquidators of Freedom Homes commenced proceedings against Waters to recover damages for contended insolvent trading in an amount of $1,656,127.87. Sixthly, on 24 February 1999, the liquidator of Delvine obtained a judgment against Mr Waters in an amount of $30,536.25. Seventhly, on 26 February 1999, the liquidators of Freedom Homes commenced proceedings against Waters claiming $2,738.184.75 pursuant to s 588M(2) of the Corporations Law, $1,772,324.80 for contended breaches of duties by Waters as directors of Freedom Homes and $1,504,213.20 pursuant to s 588FF of the Corporations Law. Eighthly, on 4 March 1999, the liquidator of Delvine issued a Bankruptcy Notice against Mr Waters; and the liquidators of Freedom Homes, the DCT and the BSA each lodged proofs of debt in the bankruptcy of Mr and Mrs Waters.

21 By para 31 of the SoC, the applicants plead an inference drawn from the circumstances pleaded and particularised at pars 22 and 30 of the SoC that the liquidators of Freedom Homes, the DCT, the BSA, and the liquidator of Delvine were either creditors, contingent creditors, or anticipated creditors of Waters and “inevitably there would come a time when these creditors would press Mr and Mrs Waters for payment of moneys or obtain judgment that Mr and Mrs Waters would not be able to pay”; and, the 1997 transactions and the 1999 transaction amount to a “voluntary disposition” of the Caloundra property thereby contributing to Waters not having “sufficient assets to meet their debts”.

22 By para 32 of the SoC, the applicants contend that the 1996 transactions, the 1977 transactions, and the 1999 transaction purported to result in Donemate in its trustee capacity being indebted to Dalvella in its trust capacity; Waters being indebted to Donemate as trustee in that sum; Dalvella taking a third party mortgage over the Caloundra property to secure Donemate’s debt to Dalvella; and Dalvella being entitled to take a transfer of the legal and beneficial interest in the Caloundra property in terms of the contract.

23 By para 33 of the SoC, the applicants contend that the 1996 transactions, the 1997 transactions, and the 1999 transaction were circular transfers of funds between Waters, Dalvella and Donemate which resulted in no consideration or consideration of less than market value being given in that Dalvella, in its trustee capacity, did not advance $2,199,960.00 to Waters; Waters did not gift back to Dalvella $2,200,000.00; Dalvella did not advance $2,199.960.00 to Donemate; Donemate did not advance that sum to Waters; Waters did not repay that sum to Dalvella; the mortgage granted by Waters to Dalvella was granted for no consideration because no moneys were actually advanced by Dalvella to Donemate; and the contract of sale of the Caloundra property by Waters to Dalvella was not a genuine arm’s-length contract. The applicants say that the 1996 transactions, the 1997 transactions, and the 1999 transaction gave rise to dispositions within the scope of s 121 of the Bankruptcy Act and those dispositions are void against the applicants.

24 The transactions under challenge by the applicants occurred in December 1996, February 1997, and concern a contract made on 25 May 1999. The order sequestrating the estate of Mr Waters was made on 22 September 1999 and ITSA accepted the debtor’s petition of Mrs Waters on 28 September 1999. The Bankruptcy Act was amended by the Bankruptcy Legislation Amendment Act 1996 (Cth) (No 44, 1996) which, by Item 208 of Schedule 1 repealed s 121 of the Bankruptcy Act and inserted a new s 121 entitled “Transfers to defeat creditors” and by Item 457 of Schedule 1, the new s 121 applies to bankruptcies for which the date of the bankruptcy is on or after the commencement of Schedule 1. Schedule 1 commenced on 16 December 1996. The term “the date of the bankruptcy” is, by s 5 of the Bankruptcy Act, the date on which a sequestration order is made of the individual’s estate or the date on which an individual becomes bankrupt by virtue of the presentation of a debtor’s petition having regard to ss 55, 56E, or 57, as the case requires. The relevant event in that case is “acceptance” of the debtor’s petition. Although these dates determine the date of the bankruptcy, “the commencement of the bankruptcy” is determined by s 115 of the Bankruptcy Act. In this case, since the date of the bankruptcy of Mr Waters and Mrs Waters is 22 September 1999 and 28 September 1999 respectively, s 121 applies in the following terms:

121 Transfers to defeat creditors

Transfers that are void

(1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:

(a) the property would probably have become part of the transferor’s estate or would probably have been available to creditors if the property had not been transferred; and

(b) the transferor’s main purpose in making the transfer was:

(i) to prevent the transferred property from becoming divisible among the transferor’s creditors; or

(ii) to hinder or delay the process of making property available for division among the transferor’s creditors.

Showing the transferor’s main purpose in making a transfer

(2) The transferor’s main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.

Other ways of showing the transferor’s main purpose in making a transfer

(3) Subsection (2) does not limit the ways of establishing the transferor’s main purpose in making a transfer.

Transfer not void if transferee acted in good faith

(4) Despite subsection (1), a transfer of property is not void against the trustee if:

(a) the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property; and

(b) the transferee did not know that the transferor’s main purpose in making the transfer was the purpose described in paragraph (1)(b); and

(c) the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.

Rebuttable presumption of insolvency

(4A) For the purposes of this section, a rebuttable presumption arises that the transferor was, or was about to become, insolvent at the time of the transfer if it is established that the transferor:

(a) had not, in respect of that time, kept such books, accounts and records as are usual and proper in relation to the business carried on by the transferor and as sufficiently disclose the transferor’s business transactions and financial position; or

(b) having kept such books, accounts and records, has not preserved them.

Refund of consideration

(5) The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.

What is not consideration

(6) For the purposes of subsections (4) and (5), the following have no value as consideration:

(a) the fact that the transferee is related to the transferor;

(b) if the transferee is the spouse or de facto spouse of the transferor – the transferee making a deed in favour of the transferor;

(d) the transferee’s love or affection for the transferor.

(e) if the transferee is the spouse of the transferor – the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975.

Exemption of transfers or property under debt agreements

(7) This section does not apply to a transfer of property under a debt agreement.

Protection of successors in title

(8) This section does not affect the rights of a person who acquired property from the transferee in good faith and for at least the market value of the property.

Meaning of transfer of property and market value

(9) For the purposes of this section:

(a) transfer of propertyincludes a payment of money; and

(b) a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and

25 By para 1(a) of the Request for Particulars, the respondents sought full particulars of the contention at para 22.1 of the SoC that the 1996 transactions were “part of a scheme orchestrated by Waters with the intent to defraud creditors”. The respondents say that they are entitled to know the whole of the contended scheme and since the pleading alleges a statement of mind, O 12 r 3 of the Federal Court Rules requires the applicants to give particulars of the facts relied upon to establish the contended state of mind; and O 11 r 10 of the Federal Court Rules requires the pleading of any matter of fact or particular of fact that might take a party by surprise, if not pleaded.

26 The applicants say they have been responsive to each separate paragraph of the request and as to para 1(a) of the Request , which seeks particulars of the “scheme” asserted, the particulars of the scheme are those facts and particulars pleaded at paras 8 to 21 of the SoC. Those paragraphs plead incorporation of Dalvella and Donemate; formation of the trusts; retirement of Waters as Principals; the substitution of their children as new Principals; the loans and gifts; and the method of transfer as between Dalvella and Waters. The ‘1996 transactions’ (defined as the money transfers) are pleaded as part of the scheme elements at paras 8 to 21 of the SoC.

27 The particulars of the scheme contended for by the applicants are sufficiently identified.

28 As to para 1(b) of the Request which seeks particulars of the allegations that Waters “orchestrated” the scheme, the applicants say that the facts, matters and circumstances relied upon are those pleaded and particularised in paras 11 to 16 and paras 20 to 21 of the SoC. Paras 11 and 12 of the SoC plead the establishment of the Cliffside Trust on 2 December 1996, the appointment of Dalvella as trustee, and the position of Waters as Principals of the trust. Paras 13 and 16 of the SoC plead the establishment of the Kings Beach Trust, the appointment of Donemate and the position of Waters as Principals of that trust. Paras 15 and 16 of the SoC plead the retirement seven days later of Waters as Principals of each trust and the appointment by them by deed of their children as the new Principals on 9 December 1996. Paras 17, 18, and 19 of the SoC plead the details of the bank accounts operated by Waters, Dalvella, and Donemate at the Caloundra branch of the NAB, and paras 20 and 21 of the SoC plead precise details of the ten transactional transfers between 3 December 1996 and 24 December 1996 between the account operated by Waters and the account of Dalvella at the Caloundra branch, effecting the loans and gifts. The facts and particulars pleaded at paras 11 to 16, and 20 to 21 of the SoC identify the contended participation by Waters in the elements of the scheme pleaded and relied upon. Waters would understand from the pleaded facts and particulars that the applicants, plainly enough, contend that Waters caused the trusts to be established with Waters as Principals of those trusts under the trust deed, shortly after formation, they retired as Principals and substituted their own children as the new Principals, and participated in effecting the transfers between their own account and that of Dalvella at the Caloundra branch in order to borrow money from Dalvella and make gifts of $2.2 million to Dalvella. The pleaded contention is clear. Discovery of documents going to the instructions to form the trusts, incorporate the trustees, retire as Principals, substitute their children as new Principals, and instructions to effect the money transfers is likely to enable the identification of each specific step taken by Waters in relation to the elements of the contended scheme.

29 As to para 1(c) of the Request which seeks particulars of each and every one of the creditors the applicants contend Waters intended to defraud, the applicants say the reference to ‘creditors’ in para 22.1 is a reference to ‘all of [Waters] then present creditors and all future creditors … including Jefferson and Stevenson and BSA’. The applicants say these particulars are sufficient and adequate as the response identifies all the then present creditors and, by class, all of the future creditors with a specific reference to two identified future creditors. The respondents say the particulars are inadequate and too broad as they capture all future creditors and adopt the ‘inclusive’ reference that does nothing to limit the field of inquiry the subject of the alleged intention. Paragraph 22.1 asserts money transfers as part of a scheme put in place by Waters with an intent to defraud creditors. There must be a relation between the steps taken in the scheme and an intention to defraud identified creditors. Those creditors might be existing creditors with provable debts or future creditors (Barton v Deputy Federal Commissioner of Taxation (1974) 131 CLR 370 at 374; PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515 at 525‑526; DM Cannane & Anor v J Cannane Pty Ltd (1998) 192 CLR 557 at 566 and 593; Ebner v Official Trustee in Bankruptcy (1999) 91 FCR 353 at 370‑371) or any present or future creditor. In this case, the applicants contend Waters held the relevant intent at the time of orchestrating the scheme, in relation to present creditors and those who, like Jefferson and Stevenson and BSA, might become creditors. A trustee at pleading stage, seeking to recover assets on behalf of the beneficiaries of a bankrupt estate is not likely to know whether a scheme has been implemented with an intent to defraud each present creditor or a group of present creditors (perhaps those agitating the most); or future creditors or a group of future or anticipated creditors perceived by the former bankrupt to be those who might pursue claims or causes of action arising out of the conduct of the bankrupt; or both classes of claimant. What is important is the identification of the contention within the limits of what might reasonably be put having regard to all the circumstances pleaded. In this case, the applicants plead a sequence of steps including a set of inherently odd transactions by which Waters borrowed money from a trust established by them in which they were formerly principals and substituted almost immediately after formation, their own children as principals, and immediately made gifts of the borrowing back to the trust. The applicants say all the scheme steps were made with an intent to defraud all creditors (that is, to remove the assets from the reach of those who ultimately might call upon them should payment not occur) whether present creditors or future creditors. The function of particulars is to put Waters on notice of what is contended against them, enable them to plead and to isolate those documents relevant to the issues. Waters would understand from this pleading as particularised that the trustees say Waters took scheme steps with an intention of removing assets from anyone who was at the time a creditor or anyone who might be a creditor, emblematic of which are the nominated future creditors. The pleading as particularised enables each of Waters to ask, ‘Did I take the contended steps (if any) with the intention of defrauding my present creditors or future creditors?’; and although the answer might be ‘no’, ‘Am I aware, after reasonable enquiry, of any document relevant to a contention that I put in place the contended steps with an intention to defraud present creditors or future creditors?’ being a document falling within Order 15, r 2(3).

30 By para 1(d), the respondents sought full particulars relied upon by the applicants to support the allegation that Waters held an intent to defraud their creditors. In answer, the applicants relied upon the facts, matters and things contained in the particulars of para 22 of the SoC ([11] of these reasons). The respondents contend that the applicants have failed to provide proper particulars of the facts relied upon to support an alleged condition of mind including an allegation that a party has engaged in conduct with malice or fraudulent intent. Order 12, r 3 provides that a party pleading any condition of mind shall give particulars of the facts relied upon (Order 12, r 3(1)) and ‘for that purpose, a condition of mind includes any disorder or disability of mind, any malice and any fraudulent intention …’ (Order12, r 3(2)).

31 In addition, the respondents contend that the applicants have not pleaded any nexus between Waters undertaking the 1996 transactions and any of the matters alleged in the particulars to para 22 of the SoC. However, by para 22 of the SoC, the assertion is made that Waters engaged in the 1996 transactions as part of a scheme they put in place with an intent to defraud their creditors. The particulars then set out a sequence of factual matters and particularly events occurring between 29 February 1996 and December 1996 which concern the financial circumstances of entities with which either Mr Waters or Mr and Mrs Waters were engaged or with which one or other of them or both had a relationship in a particular capacity; and events which relate to the potential liability of Mr and Mrs Waters pursuant to claims foreshadowed or threatened against them or the subject of a report and discussion as to a liability by them or claims to be made against them. These facts in conjunction with the facts pleaded at paras 8 to 21 provide a foundation upon which an inference might reasonably be drawn that Waters acted with an intent to defraud creditors. The allegation is that the events at paras 8 to 21 were engaged in by Waters with a fraudulent intent. That factual contention is sought to be made out as an inference drawn from all of the circumstances which, having regard to the pleaded conduct, explain, in the absence of any other evidence, the motivation for the conduct. As a matter of pleading, the sequence of matters identified in the particulars to para 22 in conjunction with the inherently odd 1996 transactions, gives rise to an inference to support the condition of mind alleged as a fact. This approach is entirely consistent with PT Garuda Indonesia Ltd v Grellman (supra) at [526] per Wilcox, Gummow and Von Doussa JJ. In proving a contended intention to defraud creditors it may not be necessary to establish that the transferor of the property in question actually had in mind an intention to defraud creditors if the effect of what that person did would reasonably be expected to have such a consequence (Re Trautwein; Richardson v Trautwein (1994) 14 ABC 61 at 75; PT Garuda Indonesia Ltd v Grellman at 523‑524). Courts will therefore ‘infer the intention in issue, in deciding it as a question of fact. This does not mean that the intention so derived is one imputed by law. It is not a fiction. It is the real intention of the transferor decided objectively rather than upon protestations of innocence on the part of the debtor or outraged accusations on the part of suspicious creditors’ (Cannane, per Kirby J at p 592). In deciding that objective question, the Court looks to all the circumstances to support the inference.

32 By para 1(f), the respondents seek full particulars of the facts, matters and things relied upon by the applicants to support the allegation that Dalvella did not act ‘in good faith’. The applicants rely upon paras 20 and 21 of the SoC and the particulars of those paragraphs and the particulars contained in para 22. The respondents say that the applicants bear the onus of proving that in accepting the transfers by Waters, Dalvella was not acting in good faith. The respondents say that paras 20 and 21 of the pleading simply set out a schedule of the loan and gift transactions; and the particulars to para 22 do not provide any particulars of facts relating to the conduct of Dalvella. Further, the respondents say that the applicants must plead facts which support a conclusion that Dalvella knew of the fraudulent intent of Waters. The respondents concede that knowledge of the fraudulent intent of Waters can be inferred from foundation facts known by Dalvella but no particulars of such facts have been pleaded from which an inference could be drawn that Dalvella knew that Waters made dispositions of property with an intent to defraud anyone.

33 By paras 20 and 21 of the SoC, the applicants plead the loan and gift transactions between Waters and Dalvella having pleaded the role of Dalvella, its incorporation, the formation of the trust, the role of Waters in retiring as principals and appointing their children as principals and the method of drawdown and transfers of money between accounts by flexi‑phone transfers at the Caloundra branch of the NAB. I have described transactions by which a borrower borrows money from a lender and at the same time or as part of a sequence of transactions immediately ‘gifts’ the money back to the lender as inherently odd or to use the language of Garuda at 528 and 529 either ‘strange’ or ‘all was not being regularly and properly done’. It seems to me that paras 20 and 21 together with the sequence of events all of which necessarily have an impact to a greater or lesser degree upon Waters, support an inference that the 1996 transactions were part of a scheme as previously described in which Dalvella received transfers other than in good faith. An inference is open that by reason of the examination of the conduct of Mr Waters in connection with particular entities; the investigation of the personal liability of Waters by Waters and their advisers consequent upon particular events; the content of the report prepared by the administrators of Freedom Homes foreshadowing a potential substantial liability on the part of Waters and the discussion of that report at a meeting of creditors; and, the particulars of steps foreshadowed by claimants against Waters, Waters took particular steps to remove assets from the reach of existing and future creditors which, as implemented, directly involved Dalvella, a company having had the particular association with Waters and then their children. Paragraphs 20, 21 and 22 of the SoC as particularised, support an inference that Dalvella was not acting in good faith.

34 By para 1(h), the respondents seek particulars of the group of companies of which Freedom Homes formed part. At para 22.2.2, the applicants allege that Freedom Homes formed part of a group of companies that included Delvine. The applicants in response identified four companies, Delvine Pty Ltd, Freedom Homes (Qld) Pty Ltd, Haljaquin Pty Ltd as trustee of the Waters Family Trust and Clontart Credit Co. Pty Ltd. The respondents say that that response simply specifies some of the companies in the group but not the whole of the group and the respondents do not wish to be taken by surprise at trial. The applicants say that only two companies are relevant in any event namely Freedom Homes and Delvine and to make the position clear the applicants confine the contention at para 22.2.2 to one that the only two relevant entities are Freedom Homes and Delvine.

35 By para 1(j), the respondents called upon the applicants to identify the method by which a s 439A report was provided to Waters ([11], para 22.2.8). In response, the applicants contended that the request was not a proper request as the request is a request for evidence.

36 Paragraph 22.2.8 identifies the report and the content of the report. Paragraph 22.2.9 identifies the meeting of creditors at which the content of the report was ‘ventilated at length’ and the resolution of the creditors to place Freedom Homes in liquidation to enable the foreshadowed claims to be pursued against Waters. The assertion at para 22.2.8 is that Mr and Mrs Waters were provided with the second report to creditors issued by Jefferson and Stevenson in the voluntary administration. I accept that the critical matter is whether Waters were provided with the report. The assertion is clear. Waters would not be taken by surprise because they would be in a position to know whether and if so by whom the report was provided to them. If they say that they did not receive the report, they are in a position to plead to that fact from their own knowledge.

37 By para 1(k), the respondents sought particulars of matters contained in para 22.2.10 of the SoC which involves a contention that between 13 June 1996 and 16 August 1996 Waters obtained personal insolvency advice from Mr John Ebbage of BDO Kendalls, Chartered Accountants and Mr Philip Pan of Minter Ellison Lawyers concerning seven matters (a) to (g) (see [11], p 5, of these reasons). The respondents seek particulars of whether the advice was oral or written; if written, the identification of the documents; and, if oral, the place where the advice was given and who gave it. In response, the applicants say that Mr Waters sought advice from Mr Pan on 13 June 1996 by facsimile and the advice sought was given by Mr Pan and Mr Ebbage to Mr Waters acting on his own behalf and that of Mrs Waters at a meeting that took place at Brisbane on 15 August 1996. The respondents say that the response does not particularise whether the advice received from Mr Ebbage and Mr Pan was written or oral or partly written and partly oral and no particulars have been given as to that part of the advice said to have been given to Waters by Mr Ebbage and that given by Mr Pan. The respondents say these particulars are a basic element of the pleading and the respondents are entitled to know the case made against them.

38 Plainly enough, neither trustee was present at the meeting or a participant in Waters seeking advice about their affairs. The particulars identify a document by which Mr Waters sought advice from Mr Pan and the date of that document. The particulars also identify a meeting, the date of the meeting, the participants at the meeting and the provision of advice responsive to the request of 13 June 1996. In the absence of any other identified document, the particulars of the meeting suggest that advice must have been given orally. Mr Waters would not be ‘taken by surprise’ about these matters as he sought the advice and received it as he was at the meeting with Mr Pan and Mr Ebbage and in that sense, unlike the trustees, was a direct participant.

39 By para 3 of the request, the respondents seek particulars of the ‘large sums of money’ referred to in para 23 of the SoC. Paragraph 23 asserts the inference previously discussed that the liquidators of Freedom Homes and the BSA were either creditors, contingent creditors or anticipated creditors for large sums of money and inevitably these creditors would press Waters for payment and they would not be able to pay. In response, the applicants gave particulars that the large sums of money are said to ‘include debts claimed in the proofs of debt lodged in the bankruptcies of Mr and Mrs Waters by Jefferson and Stevenson and the BSA. The applicants say that the proofs of debt have been identified and copies of the proofs of debt lodged in the bankruptcies of Waters have been provided to the respondents and those proofs identify the precise amount claimed. Nevertheless, the applicants ought to provide the respondents with a statement based on the proofs of the amount of the debt and to whom it is owed.

40 By para 4 of the request, the respondents seek particulars of the monies Waters would not be able to pay as contended in para 23 of the SoC. The applicants say the monies unable to be paid include the debts claimed in the proofs of debt previously mentioned. The provision of the particulars extracted from proofs of debt will provide particulars for the purposes of para 4 of the request.

41 By para 9 of the request, the respondents seek particulars of the monies the applicants allege by para 31 of the SoC that Waters would not be able to pay. By para 31 the applicants say that in the circumstances of the particulars pleaded in paras 22 and 30 of the SoC an inference arises that Jefferson and Stevenson, the Deputy Commissioner of Taxation, the BSA and the liquidator of Delvine were creditors for large sums of money; a time would come for payment of those monies by Waters; and Waters would not be able to pay. The applicants provided particulars of para 9 that the monies include ‘the debts claimed in the proofs of debt lodged in the bankruptcies of Mr and Mrs Waters by Jefferson and Stevenson, the DCT and the BSA and the judgment debt owed by Mr Waters to the liquidator of Delvine’. The respondents say that those particulars do not identify the monies. The applicants say the respondents have been provided with copies of the proofs of debt. However, a statement extracted from the proofs of debt of the amounts claimed and by whom ought to be provided to the respondents.

42 By para 10 of the request, the respondents request the applicants to specify the property referred to in para 33 of the SoC for which market value was not given. By para 33, the applicants contend that the 1996 transactions, the 1997 transactions and the 1999 transaction were circular transfers of funds between the accounts of Waters, Dalvella and Donemate and no consideration was given for the relevant transactions or, alternatively, consideration less than market value was given having regard to the matters contended at 33.1 to 33.7 of the SoC. The applicants contend that para 10 is not a proper request for particulars as para 33 does not refer to ‘property’ for which market value was not given. The respondents say that para 33 can only be read as referring to a disposition of property from Waters to Dalvella and the ‘property’ the subject of the contention is not identified. However, para 33 pleads that the 1996 transactions, the 1997 transactions and the 1999 transaction were expressions of a circular transfer of funds unrelated to any true underlying transaction as a result of which there is no consideration or consideration of less than a true market value referable to a true market transaction. Mr and Mrs Waters would understand that the fundament of the contention made against them is that the transactions are simply a sham put in place to try and insulate from the creditors’ assets that would otherwise have been available.

43 By para 11 of the request, the respondents request the applicants to specify the ‘market value’ referred to in para 33. The applicants say that the request is not a proper request and constitutes a request for evidence. The respondents say that they are entitled to know the relevant market value referable to the relevant property. The request by para 11 is not a proper request having regard to the observations made at [42].

44 Accordingly, I propose to order the applicants to provide the particulars mentioned at paras [39], [40] and [41], adjourn the Notice of Motion generally and reserve the costs of the application. In terms of the future directions for the matter, the parties ought to try and agree consent orders and submit proposed consent orders to my Associate during the course of next week.

I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.

Associate:

Dated: 6 December 2007

Counsel for the Applicants (Respondents on the Motion):	Mr Sullivan

Solicitor for the Applicants (Respondents on the Motion):	DLA Phillips Fox

Counsel for the Respondents (Applicants on the Motion):	Mr Perry SC

Solicitor for the Respondents (Applicants on the Motion):	Lynch & Company

Date of Hearing:	22 June 2007

Date of Judgment:	6 December 2007

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