Duus v Dalvella Pty Ltd (No. 3) [2008] FCA 546

FEDERAL COURT OF AUSTRALIA

PRACTICE AND PROCEDURE – consideration of an application to strike out an Amended Statement of Claim – consideration of contentions relating to s 121 of the Bankruptcy Act 1966 (Cth)

Bankruptcy Act 1966 (Cth), s 121

Bankruptcy Legislation Amendment Act 1996 (Cth), Item 208, Schedule 1; Item 457, Schedule 1

Federal Court Rules, Order 11, r 16

Duus v Dalvella Pty Ltd [2007] FCA 1921 - cited

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

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

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

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

Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564 - cited

Australian Competition and Consumer Commission v Fox Symes & Associates Pty Ltd [2005] FCA 1071 - cited

BWK Elders Australia Pty Ltd v Westgate Wool Company Pty Ltd & Ors (No. 2) [2002] FCA 87 - cited

Pan Continental Mining Ltd v Posgold Investments Pty Ltd (1994) 121 ALR 405 - cited

General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 - cited

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

QUD28 OF 2007

GREENWOOD J

23 APRIL 2008

BRISBANE

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QUD28 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 OF 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 OF ORDER:	23 APRIL 2008
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

1. The Notice of Motion of the first and second respondents filed 16 January 2008 is dismissed.

2. The first and second respondents shall pay the costs of the first and second applicants of and incidental to the Notice of Motion.

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	QUD28 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 OF 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:	23 APRIL 2008
PLACE:	BRISBANE

REASONS FOR JUDGMENT

1 The respondents in the proceeding are the applicants by Notice of Motion for an order that the Amended Statement of Claim of the applicant Trustees of the estates of Mr Richard Waters and his wife, Mrs Margaret Waters, be struck out pursuant to Order 11, r 16 of the Federal Court Rules. I will describe the applicants on the Notice of Motion as ‘Dalvella’ and ‘Donemate’ and the respondents to the motion as the ‘Trustees’. I will describe Mr and Mrs Waters, collectively, as ‘Waters’.

2 The issues framed by the Statement of Claim prior to amendment are described comprehensively in Duus v Dalvella Pty Ltd [2007] FCA 1921 (‘Duus v Dalvella’). That decision determined, largely unfavourably to Dalvella and Donemate, their challenge to the adequacy of particulars given by the Trustees of the Statement of Claim. Some of the arguments dealt with in that decision have been raised again in the present application although on this occasion in the context of whether the Amended Statement of Claim properly pleads a cause of action reliant upon the integers of s 121 of the Bankruptcy Act 1966 (Cth) (‘the Act’).

3 By their application, the Trustees seek the following declarations and orders in reliance upon s 121 of the Act:

1. A declaration that the mortgage granted by Mr and Mrs Waters as joint tenants in the Property [property located at 46 Victoria Terrace, Caloundra, Queensland of which Mr and Mrs Waters are registered proprietors as joint tenants] in favour of Dalvella on or about 3 February 1997 is void as against the Applicants pursuant to the provisions section 121 of the [Act];

2. A declaration that the Contract of Sale dated 25 May 1999 entered into by Mr and Mrs Waters as vendors with Dalvella as purchaser for the sale of the Property is void as against the Applicants pursuant to [s 121 of the Act];

3. An order that Caveat No. 707849705 registered by Dalvella over the Property is without proper grounds and should be withdrawn by the Registrar of Titles;

4. A declaration that as at 22 September 1999, Mr Waters legally and beneficially held a one half interest in the Property and accordingly that interest formed part of his bankrupt estate and vested in the First Applicant by virtue of section 116(1) of the [Act];

5. A declaration that as at 28 September 1999, Mrs Waters legally and beneficially held a one half interest in the Property and accordingly that interest formed part of her bankrupt estate and vested in the Second Applicant by virtue of section 116(1) of the [Act];

6. Such further or other orders as the Court thinks fit.

4 For the reasons indicated at [24] of Duus v Dalvella, since the date of bankruptcy of Mr Waters and Mrs Waters is 22 September 1999 and 28 September 1999 respectively, s 121 of the Act applies in the following terms:

SECTION 121 TRANSFERS TO DEFEAT CREDITORS

121(1) Transfers that are void. 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.

121(2) Showing the transferor’s main purpose in making a transfer. 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.

121(3) Other ways of showing the transferor’s main purpose in making a transfer. Subsection (2) does not limit the ways of establishing the transferor’s main purpose in making a transfer.

121(4) Transfer not void if transferee acted in good faith. 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.

121(4A) Rebuttable presumption of insolvency. 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.

121(5) Refund of consideration. 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.

121(6) What is not consideration. 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.

121(7) Exemption of transfers or property under debt agreements. This section does not apply to a transfer of property under a debt agreement.

121(8) Protection of successors in title. 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.

121(9) Meaning of transfer of property and market value. 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

5 Section 121(1) of the Act prior to the Bankruptcy Legislation Amendment Act 1996 (Cth) (which introduced into the Bankruptcy Act s 121 in the terms above) addressed ‘fraudulent dispositions’. It was in these terms:

121(1) Subject to this section, a disposition of property, whether made before or after the commencement of this Act, with intent to defraud creditors, not being a disposition for valuable consideration in favour of a person who acted in good faith, is if the person making the disposition subsequently becomes a bankrupt, void as against the trustee in the bankruptcy.

6 Although s 121 in its present form addresses transfers of property made for the identified ‘main purpose’, the Amended Statement of Claim (like the earlier Statement of Claim) of the Trustees challenges particular transactions (called the ‘1996 transactions’) on the footing that they were part of a scheme orchestrated by Waters with an intent to defraud their creditors; constituted a disposition of property of Waters for no consideration in favour of Dalvella which did not act in good faith; and were entered into for a main purpose which is said to fall within the scope of s 121(1). In other words, there is an amalgam of the elements of the old s 121(1) and the present formulation of s 121(1). The Trustees say that they have chosen to formulate a case of fraudulent disposition because the facts support that conclusion as to those transactions and the disposition falls within the present formulation of s 121(1) having regard to the pleaded main purpose. There is, it is said, no inconsistency or failure to plead the required elements of the statutory cause of action. Dalvella and Donemate say inconsistency arises on both counts.

The pleading

7 The case pleaded by the Amended Statement of Claim is this.

8 On 10 August 1999, Richard Waters and Margaret Waters appointed Mr Bevan Schafferius controlling trustee of their property under s 188 of the 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.

9 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 referred to in the pleading as the ‘Property’.

The 1996 transactions

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

11 On 2 December 1996, Dalvella was incorporated as was 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’.

12 Between 3 December 1996 and 24 December 1996, Waters entered into ten transactions with Dalvella in its trustee capacity (called, in the pleading, ‘the 1996 transactions’) implemented by effecting ‘simultaneous flexiphone’ transfers between the account of 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 Waters. The others were gifts of money to Dalvella by Waters. In the result, Dalvella made unsecured loans to Waters in the aggregate of $2,199,960.00; and Waters gave a gift of $2,200,000.00 to Dalvella. By the end of those transactions on 24 December 1996, Dalvella had money receipts (gifts) of $2,200,000.00 and a debt due to it (payable according to its terms) from Waters of $2,199,960.00.

13 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

14 These facts are pleaded at paras 1, to 21 of the Amended Statement of Claim.

15 By para 22, the applicants plead:

22. 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.

16 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 Waters with an intent to defraud their creditors and in which Dalvella gave no consideration and 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.

17 By para 22, the Trustees further plead:

22. The 1996 Transactions were:

…

22.3 entered into by Mr and Mrs Waters with the main purpose being:

22.3.1 to prevent the purported gifted sums amounting to $2,200,000.00 from becoming divisible among Mr and Mrs Waters’ creditors; or

22.3.2 to hinder or delay the process of making the purported gifted sums amounting to $2,200,000.00 and, or alternatively, the Property available for distribution among Mr and Mrs Waters’ creditors.

Particulars

(a) The Applicants repeat and rely upon the particulars pleaded in paragraphs 22.2.1 to 22.2.13 and the facts pleaded in paragraphs 23 to 30 of the Amended Statement of Claim.

18 By para 23, the Trustees plead:

23. In the circumstances of:

23.1 the particulars pleaded in paragraph 22 herein, it is reasonable to infer that the Liquidators of Freedom Homes and the BSA were either creditors, contingent creditors or anticipated creditors for large sums of money and that inevitably there would come a time when these creditors would press Mr and Mrs Waters for payment of monies that they would not be able to pay;

23.2 the facts pleaded in paragraphs 20 to 22 above, the purported gifted sums amounting to $2,200,000 would probably have been available to creditors if that property had not been the subject of the purported gift.

The 1997 transactions

19 The Trustees then plead a number of transactions that occurred in February 1997 between Waters, Dalvella (in its capacity as trustee of the Cliffside Trust) and Donemate (in its capacity as trustee of the Kings Beach Trust), to this effect.

20 On 1 February 1997, 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 debt due by Waters to Dalvella from December 1996 and thus extinguish that debt.

21 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 Waters over the Caloundra property. 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. 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.

The 1999 transaction

22 The Trustees plead another transaction in May 1999 between Dalvella and Waters.

23 On that date, by REIQ contract subject to the conditions of special Annexure A, Waters sold the Caloundra property to Dalvella at ‘market price’ and Dalvella agreed to the release of the third party mortgage given by Waters. By para 29 of the Amended Statement of Claim, the Trustees 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.

24 By para 30 of the Amended Statement of Claim, the Trustees plead that at the time of the 1997 transactions and the 1999 transaction, the main purpose of 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.

25 The particulars of the circumstances or facts supporting the pleaded fact of purpose are these.

26 First, the facts and circumstances relied upon to support the inferences pleaded at para 23 of the Amended Statement of Claim, which in turn relies upon the facts and circumstances pleaded at para 22 and the particulars at 22.2.1 to 22.2.13.

27 Secondly, three letters of demand sent to 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.

28 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.

29 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.

30 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.

31 Sixthly, on 24 February 1999, the liquidator of Delvine obtained a judgment against Mr Waters in an amount of $30,536.25.

32 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.

33 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 Waters.

34 By paras 31, 32, 33 and 34, the Trustees plead these matters.

31. In the circumstances of the particulars pleaded in paragraphs 22 and 30 herein, it is reasonable to infer that:

31.1 Jefferson & Stevenson, the DCT, the BSA and the Liquidator of Delvine were either creditors, contingent creditors or anticipated creditors for large sums of money and that inevitably there would come a time when these creditors would press Mr and Mrs Waters for payment of monies or obtain judgments that Mr and Mrs Waters would not be able to pay.

31.2 The 1997 Transactions and the 1999 Transaction amount to a voluntary disposition of the Property which contributed to Mr and Mrs Waters being left without sufficient assets to meet their debts.

32. Alternatively, the 1996 Transactions, the 1997 Transactions and the 1999 Transaction purport to have resulted in:

(a) Donemate [as Trustee] being indebted to Dalvella [as Trustee] for the sum of $2,199,960;

(b) Mr and Mrs Waters being indebted to Donemate [as Trustee] in the sum of $2,199,960;

(c) Dalvella being granted a third party mortgage over the Property by Mr and Mrs Waters to secure Dalvella’s loan to Donemate; and

(d) Dalvella being entitled to take a transfer of Mr and Mrs Waters’s legal and beneficial interest in the Property on the terms set out in the Contract.

33. In fact, the 1996 Transactions, the 1997 Transactions and the 1999 Transaction were manifested by circular transfers of funds between Mr and Mrs Waters’s Account, Dalvella’s Account and Donemate’s Account which resulted in no consideration or consideration of less than market value being given, in that:

33.1 Dalvella [as Trustee] did not advance the sum of $2,199,960 to Mr and Mrs Waters;

33.2 Mr and Mrs Waters did not gift back the sum of $2,200,000 to Dalvella [as Trustee];

33.3 Dalvella [as Trustee] did not advance $2,199,960 to Donemate [as Trustee];

33.4 Donemate [as Trustee] did not advance the sum of $2,199,960 to Mr and Mrs Waters;

33.5 Mr and Mrs Waters did not repay the sum of $2,199,960 to Dalvella [as Trustee];

33.6 The mortgage granted by Mr and Mrs Waters to Dalvella was granted for no consideration because no monies were actually advanced by Dalvella [as Trustee] to Donemate [as Trustee]; and

33.7 By virtue of the facts pleaded in paragraphs 33.1 to 33.6 herein, the Contract was not a genuine arms length contract.

34. By virtue of the matters pleaded in paragraphs 1 to 31 herein, the 1996 Transactions, the 1997 Transactions and the 1999 Transaction were dispositions pursuant to the provisions of section 121 of the Bankruptcy Act 1966 (Cth) and accordingly are void against the Applicants.

35 In the course of dealing with the challenge by Dalvella and Donemate to the adequacy of particulars given by the Trustees of the Statement of Claim, I set out extensively the elements of the pleading as then formulated. For the sake of completeness in these reasons, I have recorded the matters pleaded by the Trustees by the Amended Statement of Claim. It should be noted however that there is no change to the formulation of the 1996 transactions nor the pleaded particulars of those transactions. The Amended Statement of Claim introduces a new para 22.3 which pleads the main purpose of Waters in entering into the 1996 transactions. Paragraph 23.1 of the amended pleading adopts para 23 of the earlier pleading but also pleads that in the circumstances the facts pleaded in paras 20 to 22, the amount of the purported gifts by Waters to Dalvella ($2.2m) would probably have been available to creditors, but for the gifts. There is no change to the formulation of the 1997 transactions nor the 1999 transaction. The main purpose of the 1997 transactions and the 1999 transaction pleaded by para 30 of the Amended Statement of Claim is that pleaded by para 30 of the earlier pleading. There is no change to para 31. Paragraph 32 as previously formulated is now simply introduced by the word ‘Alternatively’. Paragraphs 33 and 34 are in the same terms as the earlier pleading.

The contentions of Dalvella and Donemate

36 The contentions of Dalvella and Donemate are these.

37 The first contention goes to para 22 generally.

38 Paragraph 22 is said to be embarrassing and ought to be struck out because it is inconsistent with para 23. The inconsistency is said to arise in this way. Paragraph 22 pleads that the 1996 transactions were part of a scheme orchestrated by Waters with intent to defraud their ‘creditors’. Paragraph 22 does not plead that such creditors included ‘future creditors’. Paragraph 23.1 however pleads that having regard to the particulars of para 22 (and thus operating in reliance upon para 22), a reasonable inference is open that the liquidators of Freedom Homes and the Building Services Authority were either ‘creditors, contingent creditors or anticipated creditors’ of Waters. The two paragraphs are said to operate inconsistently in their scope.

39 There is no inconsistency.

40 Paragraph 22 pleads that the 10 transactions comprising the debt drawdowns and gifts back by Waters were part of a scheme orchestrated by them with the intent to defraud their creditors and involved a disposition by Waters of property for no consideration in favour of Dalvella which did not act in good faith. The Trustees provided particulars on 30 March 2007 (Particular 3) of the creditors for the purposes of para 22, in these terms:

The reference to ‘creditors’ in paragraph 22 … is a reference to all of Mr and Mrs Waters then present creditors and all future creditors of Mr and Mrs Waters, including Jefferson and Stevenson and the BSA.

41 Paragraph 23.1 pleads that in the circumstances of the particulars identified at 22.2.1 to 22.2.13 (and Particular 3) a reasonable inference arises that within the field of existing and future creditors, a claim by the liquidators of Freedom Homes (appointed on 29 July 1996 by the creditors in the light of a report from the administrators of Freedom Homes that a claim could be made against Waters for an amount up to $2,647,255.00) is a claim by a creditor, a contingent or an anticipated creditor of Waters for that substantial sum. Similarly, the particulars of para 22 provide the content of the contention that the BSA was either a creditor or a contingent or anticipated creditor. It is true that the particulars of 30 March 2007 of para 22 use the term ‘future creditors’ to define, in part, the field of creditors Waters is said to have sought to defraud as ‘then present creditors and all future creditors’ and para 23.1 uses the term ‘contingent creditors or anticipated creditors’. It seems to me the distinction is not a real one in the context of the pleading. As I said at [29] of Duus v Dalvella, there must be a relation between the steps taken as part of the contended scheme and an intention to defraud identified creditors. Those creditors however might be existing creditors with provable debts or future creditors or any present 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). Future creditors include anticipated creditors (such as the liquidators of Freedom Homes or the BSA) or contingent creditors.

42 The following further observations should be made.

43 Plainly enough, paras 22 and 23 are to be read together; para 23 is the expression of at least two creditors which fall within the broader class of present or future creditors; paras 22 (and the particulars of para 22) and para 23 assert facts arising out of the identified chronological events which give rise as a matter of pleading to an inference that Waters knew particular entities would inevitably pursue claims against them of substance.

44 The remaining contentions are these.

45 First, para 22 is said to be deficient because although it alleges that the 1996 transactions were part of a scheme implemented by Waters with an intent to defraud creditors, para 22 does not plead, as a material fact, that any particular act undertaken by Waters was undertaken by them with the relevant intention. Further, it is said no material facts are pleaded that could, as a matter of law, support an inference of an intent to defraud creditors.

46 Secondly, it is said the particulars of the ‘scheme’ and the particulars of ‘orchestration’ of the scheme are inconsistent as two schemes are identified at paras 8 to 21, 11 to 16 and 20 and 21 of the pleading.

47 Thirdly, para 22.1 is said to have no utility as the facts pleaded at para 22.1 do not satisfy the elements of s 121 of the Act and thus provide no basis for relief reliant upon s 121; motive is said to be irrelevant and therefore the phrase ‘with intent to defraud their creditors’ should be struck out; para 22.1 is thus said not to disclose a cause of action; to the extent that the Trustees place reliance upon the facts pleaded at para 22.1, the Trustees, must, it is said, also plead that at the time of the disposition, the effect of the disposition was that creditors would be deprived of payment, not simply that a disposal had the effect of reducing assets available to creditors; and para 22.1 does not plead that the creditors Waters sought to defraud included all present and future creditors at the time of the transaction.

48 Fourthly, para 22.3 fails to properly plead the elements of s 121 as the Trustees plead Waters’ main purpose in entering into the 1996 transactions rather than the required statutory main purpose of a transferor ‘in making the [relevant] transfer’.

49 Fifthly, para 22.3.2 pleads, it is said, a main purpose in the alternative to a main purpose related to a disposal of the gifted amounts, that of entering into the 1996 transactions for the main purpose of hindering or delaying the process of making the Caloundra Property available for distribution among Waters’ creditors. However, the Trustees do not plead facts to the effect that the Caloundra Property has been ‘the subject of any impugned transfer’.

50 Sixthly, because the Trustees do not claim in the principal Application any relief in relation to the 1996 transactions and the Amended Statement of Claim confines the relief sought in the action to that sought in the Application, para 34 which pleads that the 1996 transactions are void dispositions, ought to be struck out as the 1996 transactions form no part of the controversy. Similarly, it is said that paras 20, 21, 22 and 23 which concern the 1996 transactions also ought to be struck out. Dalvella and Donemate say that the Trustees do not plead that the void character of the 1996 transactions is relevant to any relief sought in relation to the 1997 or 1999 transactions; nor is there any pleaded nexus, it is said, between the 1996 transactions and either the 1997 transactions or the 1999 transaction. Moreover, it is further pressed that because the scheme to which the 1996 transactions relate is confined to the matters pleaded at paras 8 to 21 of the Amended Statement of Claim which do not include the 1997 transactions or the 1999 transaction and because the particulars of the ‘orchestration’ of the pleaded scheme are confined to the 1996 transactions, paras 20, 21, 22, 23 and 34 ought to be struck out.

Considerations

51 Before dealing with each of these contentions, the case pleaded by the Trustees against Waters needs to be examined in the context of the pleading overall so as to test whether the Statement of Claim makes clear to Waters the case advanced against them which they must answer especially having regard to their contention that the 1996 transactions have no coherent relationship, within the pleading, with the 1997 and 1999 transactions in terms of remedial relief. The principles guiding the exercise of the discretion for the purposes of Order 11, r 16 are well settled (Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564 at 585‑586 at [47] – [51] per French J; Australian Competition and Consumer Commission v Fox Symes & Associates Pty Ltd [2005] FCA 1071 at [92] to [109] per Lander J; BWK Elders Australia Pty Ltd v Westgate Wool Company Pty Ltd & Ors (No. 2) [2002] FCA 87 at [2], [3], [20] and [21] per Mansfield J; Pan Continental Mining Ltd v Posgold Investments Pty Ltd (1994) 121 ALR 405 at 414 per Beaumont J; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129 and 130, per Barwick CJ).

52 In sequence, the elements are these.

53 From about February 1996 companies associated with Waters began to fail financially. Jefferson and Stevenson became voluntary administrators of Freedom Homes on 29 February 1996, David Clout was appointed voluntary administrator of Delvine on 14 March 1996 and official liquidator of that company on 10 April 1996. Mr Waters was the primary examinee in a seven day public examination of the affairs of Freedom Homes and Delvine. In July 1996, Mr Waters sought legal advice as to his personal liability concerning guarantees he had given to the BSA in support of Freedom Homes and in July 1996 Waters were provided with a report to creditors of Freedom Homes prepared by Jefferson and Stevenson postulating a potential claim against Waters on a number of bases in an amount up to $2,647,255.00.

54 On 29 July 1996, the creditors of Freedom Homes resolved to place that company in liquidation. Between June and August 1996, Waters sought advice from solicitors and accountants concerning their liability to creditors and in relation to asset protection steps. In December 1996, the BSA issued letters of demand to Waters. These matters are recited as the particulars to para 22 and are set out in full at [16].

55 On 2 December 1996, Dalvella and Donemate were incorporated; the Cliffside Trust and Kings BeachTrust were established; and Waters retired as principals of each trust seven days after the creation of the trusts, in favour of their children on 9 December 1996. Between 4 December and 24 December, Waters caused 10 inherently odd transactions to occur by which Dalvella lent $2,199,960.00 to Waters and Waters made a gift of all of it plus $40.00 ($2.2m) to Dalvella. These transactions purportedly gave rise by 24 December 1996, to a debt due by Waters to Dalvella of $2.199m and a gift or disposition by Waters to Dalvella of $2.2m.

56 The pleaded events concerning the incorporation of Dalvella and Donemate, the creation of the two trusts, retirement of Waters and appointment of their children and the drawdowns and gifts back are said to be a scheme (see Particular 1) put in place by Waters with the intention of defrauding their present and future creditors. The Trustees say Dalvella did not give consideration nor act in good faith. The 10 transactions were part of a sham ‘orchestrated’ by Waters in December 1996 against the background of the adverse financial events emerging throughout 1996 as particularised (22.2.1 to 22.2.13). The Trustees’ use the term ‘orchestrated’ to describe the conduct of Waters in implementing the scheme with intent to defraud their creditors. The events of orchestration are the steps taken on 2 December 1996 to create the trusts with companies (incorporated on the same day) as trustees; Waters retirement as principals and the consequent appointment of their children together with the sequence of simultaneous flexiphone transfers.

57 On 1 February 1997, Waters sought to deal with the resolution of their debt to Dalvella.

58 Waters made a request for an interest free loan for 25 years of $2.199m to Donemate. On 3 February 1997, Donemate borrowed that sum from Dalvella so as to lend it to Waters so that Waters could immediately pay it to Dalvella and thus extinguish their debt to Dalvella leaving Waters with a debt to Donemate and Donemate with a debt to Dalvella. The difference, apart from the new debtor/creditor relationship, was that Dalvella lent the money to Donemate (and thus to Waters with payment to Dalvella) on the strength of a third party mortgage by Waters over 17 lots of land including the Caloundra Property in favour of Dalvella to secure Dalvella’s loan to Donemate. The transfers effecting the loans and payment all occurred on 3 February 1997.

59 These transactions and payments are described as round‑robin payments.

60 On 25 May 1999, Waters purported to enter into a contract with Dalvella to sell the Caloundra Property to it at market price and secure the release of the mortgage. The elements of that transaction are pleaded at para 28 of the Amended Statement of Claim.

61 The Trustees say that had Waters not entered into the 1997 transactions and round‑robin payments nor the 1999 transaction, each of Mr and Mrs Waters would have retained an equal beneficial interest in the Caloundra Property. The Trustees say the main purpose of Waters in entering into the 1997 transactions and the 1999 transaction was to prevent the Caloundra Property from becoming divisible among the creditors of Waters or to hinder or delay the process of making the Caloundra Property available to creditors.

62 The facts from which an inference is to be drawn of this main purpose are the sequence of adverse financial events (and consequent steps taken by Waters) particularised at 22.2.1 to 22.2.13 [16] (and para 23) which identify demands made or claims to be made against Waters by then present or anticipated creditors; three letters of demand made by the BSA; proceedings taken by the Deputy Commissioner of Taxation against Waters for indemnity in respect of a preference claim ($200,000.00); proceedings taken by the liquidators of Freedom Homes to recover damages for insolvent trading ($1,656,127.87) and other proceedings identified in the particulars to para 30.

63 The Trustees say that the liquidators of Freedom Homes, the DCT, BSA and the liquidators of Delvine were either creditors, contingent creditors or anticipated creditors for substantial sums at the time of the 1997 transactions and the 1999 transaction; and those transactions effect a disposition of the Caloundra Property to Dalvella when the property would have been part of the estate of Waters.

64 Alternatively, the Trustees say the 1996 transactions involving the drawdowns and gifts back to Dalvella in December 1996, the transactions and payments in February 1997 and the proposed sale of the Caloundra Property and release of security in 1999, purported to result in a debt due by Waters to Dalvella, compromised and discharged by a payment by Waters, made possible by a loan by Donemate to Waters, in turn, reliant upon a loan by Dalvella to Donemate on terms that Waters provide Dalvella with security, which entitled Dalvella to take a transfer of the legal and beneficial interest of Waters in the Caloundra Property on the terms of the 1999 contract.

65 The Trustees say that the 1996 transactions, the 1997 transactions and the proposed 1999 sale and transfer transaction involving Waters, Dalvella and Donemate are evidenced by circular transfers of funds in which no consideration arose as Waters did not borrow $2.199m from Dalvella nor gift back $2.2m; nor did Dalvella make a loan to Donemate of $2.199m; nor did Donemate advance that sum to Waters; nor did Waters repay a debt due to Dalvella of $2.199m; and nor was a third party security granted for consideration in favour of Dalvella.

66 By reason of these matters, the Trustees say that the 1996 transactions, the 1997 transactions and the 1999 transaction are dispositions for the purposes of s 121 of the Act and are void as against the Trustees.

67 Waters could not seriously be in any doubt that the Trustees say these odd transfers between Waters and the trustees of the trusts in the events described were consciously put in place to defraud present or future creditors and the main purpose of Waters in entering into the 10 flexiphone transfers between them and Dalvella was, as to the gifts back of $2.2m, to prevent those monies remaining available to any present or future creditors of Waters or to hinder or delay the process by which those monies would become available to creditors. Alternatively, the Trustees say Waters entered into the 10 transfers, with an intent to defraud creditors, for the main purpose of hindering or delaying the process of making the Caloundra Property available to creditors.

68 Accordingly, it seems to me that from the Amended Statement of Claim, Waters would understand the challenge by the Trustees to the 1996 transactions and the 1997 and 1999 transactions.

69 Against that background, I reach these conclusions.

70 As to [45], it can be seen that the pleading asserts by para 22 that particular acts, namely, the 1996 flexiphone transfers and the scheme events giving rise to the pleaded disposition were orchestrated or consciously undertaken by Waters with an intention to defraud creditors. Secondly, intention is a question of fact determined, almost always, as an inference drawn from foundation facts. The chronology of the scheme events and orchestration together with particulars of para 22 are capable of supporting an inference of acts undertaken with an intention to defraud creditors.

71 As to [46], the particulars of the scheme are those facts commencing with incorporation of the companies and creation of the trusts (and related structural changes) and concluding with the 10 flexiphone drawdowns and gifts back at the same NAB branch. The particulars of orchestration are the particular sequential steps between 2 December and 9 December 1996 and substitution of the Waters’ children for Waters as principals and the implementation of the transfers in the manner and on the dates pleaded. There is no inconsistency. The pleaded scheme of which the transfers are a part are identified and the method of organisation and implementation of the scheme is plain from the pleading.

72 As to [47], it is true that, in terms, s 121(1) of the Act is no longer framed by reference to a disposition of property with an intent to defraud creditors not being a disposition for valuable consideration in favour of a person who acted in good faith. The section operates upon a transfer of property to another if that property would probably have become part of the bankrupt’s estate or would probably have been available to the creditors of the bankrupt where the transfer was made for one of two main purposes identified by the Act (s 121(b)(i) or (ii) [4]). Here, the Trustees plead facts going to the identification of property comprising the 10 transactions; the identity, formation and creation of the companies and trusts participating in the events of transfer; the circumstances of transfer and the accounts used to effect the transfers; the intention of Waters in implementing the scheme and their main purpose for doing so. Those facts go to the question of whether a transfer of property occurred; whether, in all the circumstances, that property would probably have become part of the bankrupt’s estate or would probably have been available to creditors but for the transfers. In any event, if the Trustees seek to establish that the character of the conduct of Waters was fraudulent, that is, they set about a course of defrauding creditors, the Trustees are simply asserting facts that if proved, satisfy, they say, the statutory standard although on one view they may have set the bar for themselves unnecessarily high. In addition, the assertion that the transfers in December 1996 were part of the identified scheme implemented with a fraudulent intent may be relied upon if proved as part of the factual matrix going to the pleaded main purpose. Therefore, para 22.1 does not suffer the vice of inutility; the facts pleaded of an intent to defraud creditors ought not to be struck out and para 22 does disclose a cause of action. Two further final contentions are identified at [47]. First, the notion that the Trustees must plead that at the time of the disposition, the effect of the disposition was that creditors would be deprived of payment not simply that assets would be reduced. Secondly, para 22 fails to plead that Waters sought to defraud all present and future creditors at the time of the transaction.

73 As to the first, the pleading asserts by para 22 that at the time of the 10 flexiphone transfers, Waters undertook the transactions with an intent to defraud creditors, that is, so as to deprive creditors of the disposal funds. This is not an allegation that steps taken by a transferor had the effect of reducing a pool of assets then available to a person who subsequently became bankrupt coupled with an allegation that the effect of a general reduction of assets from the pool should be regarded as an event of contravention of s 121(1). The Trustees contend for something quite specific: a scheme calculated to defraud creditors at the moment of implementation of the disposition of property undertaken for the main purpose of preventing the monies becoming available to creditors or as part of a process of hindering or preventing the Caloundra Property from becoming available to the creditors of Waters.

74 As to the second matter, the Trustees contend that Waters sought to defraud creditors. The particulars make it clear that the contended intention was held in relation to all present and future creditors. In other words, Waters engaged in the conduct to defeat any person who had a debt then due and payable or any person Waters anticipated would, if put to it, be able to establish in the future a claim against them. Examples of such persons included the liquidators of Freedom Homes and the BSA, not in any class closing way but only in the sense of future creditors emblematic of all future creditors.

75 As to [48], para 22.3 is to be read with paras 22.1 and 22.2 which are in turn reliant upon paras 8 to 21. That is, para 22.3 must be read in context. It pleads that the 1996 transactions were entered into for an identified main purpose. The entry into those transactions resulted in the transferor, it is said, making a disposition for no consideration in favour of Dalvella for the main purpose (put in the alternative) pleaded. Paragraph 22.3 does not fail for the reason contended at [48].

76 As to [49], the Trustees plead that the 1996 transactions were entered into for, in the alternative, the purpose of hindering or delaying the process of making the Caloundra Property available to creditors. At para 30, the Trustees say the main purpose of Waters entering into the 1997 and 1999 transactions was to prevent the Caloundra Property becoming divisible among the creditors of Waters or to hinder or delay that process. The facts of the circular money transactions of 1997 are pleaded and the 1999 transaction. The facts from which an inference of purpose is invited are pleaded as particulars of para 30. Paragraph 32 pleads the construct arising out of the 1996, 1997 and 1999 transactions. Paragraph 33 pleads the contended true effect of those transactions. Paragraph 34 pleads that the 1996, 1997 and 1999 transactions are void as against the Trustees. In reliance upon the void character of those transactions and instruments, the Trustees seek declarations in relation to the mortgage and the 1999 Contract of Sale. Accordingly, the contention at [49] is not made out.

77 As to [50], the Trustees claim [3] a declaration that the mortgage granted by Waters to Dalvella on 3 February 1997 and the contract of 25 May 1999 is void; an order for removal of Dalvella’s caveat; declarations as to the beneficial interest of each bankrupt in the Caloundra Property; and such further or other order as the Court thinks fit, in the resolution of the controversy. The controversy of fact upon which the relief dispositive of the controversy rests includes a contention as to the efficacy of the 1996 transactions, the events surrounding those transactions and the intent and purpose of Waters in effecting those transactions. The controversy comprehends contentions as to the relationship between the money transfers in December 1996, the round‑robin of loans and payments in 1997 and the contended transfer of Waters’ interest in the Caloundra Property to Dalvella in 1999. Arising out of those events and the identified transactions, the Trustees seek the relief formulated in the principal application and in particular declarations that particular instruments purporting to effect a transfer of property by Waters are void. Section 121(1) of the Act operates so as to render a transfer of property to another void (in the relevant circumstances). Orders declaratory of the legal effect of a transfer of property might well be made in circumstances where declarations are not sought as to each step in a sequence of steps the combined effect of which is to render a transfer made in reliance upon the steps void notwithstanding that findings of fact might be made about each step. The relief claimed by the Trustees is confined to the transfer of property effected by the mortgage and the contract, and the nature of the interests held by Waters in the Caloundra Property. That relief, in part at least, is framed by a controversy extending to the 1996 transactions and the validity of those transactions in the circumstances pleaded. Accordingly, there is no basis for striking out paras 20, 21, 22, 23 and 34 of the Amended Statement of Claim.

78 Accordingly, the application by Dalvella and Donemate must be dismissed with costs.

I certify that the preceding seventy-eight (78) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.

Associate:

Dated: 23 April 2008

Counsel for the applicants on the Motion, the First and Second Respondents:	Mr R Perry SC

Solicitors for the applicants on the Motion, the First and Second Respondents:	Lynch & Company, Solicitors

Counsel for the respondents to the Motion, the First and Second Applicants:	Mr T Sullivan

Solicitors for the respondents to the Motion, the First and Second Applicants:	DLA Phillips Fox

Date of Hearing:	5 March 2008

Date of Judgment:	23 April 2008

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