Cannane and ANOR v J. Cannane Pty Ltd and ANOR S215/1996 [1997] HCATrans 236 (11 August 1997)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S215 of 1996

B e t w e e n -

DENISE MARY CANNANE

First Appellant

WISBECK PTY LTD

Second Appellant

and

J. CANNANE PTY LIMITED (In Liquidation)

First Respondent

JOHN VOURIS (as Liquidator of J. Cannane Pty Limited in Liquidation)

Second Respondent

Office of the Registry

Sydney No S216 of 1996

B e t w e e n -

ANDREW VINCENT CANNANE

First Appellant

WISBECK PTY LTD

Second Appellant

and

OFFICIAL TRUSTEE IN BANKRUPTCY AS TRUSTEE OF THE BANKRUPT ESTATE OF JOHN VINCENT CANNANE

First Respondent

BRENNAN CJ

GAUDRON J

McHUGH J

GUMMOW J

KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON MONDAY, 11 AUGUST 1997, AT 10.17 AM

Copyright in the High Court of Australia

MR D.M.J. BENNETT, QC: May it please the Court, in both matters I appear with my learned friend, MR S.J. McMILLAN, for the appellants. (instructed by Ferrier & Associates)

MR P.G. HELY, QC: If the Court pleases, I appear in each matter with MR J.W.J. STEVENSON for the respondents. (instructed by Mallesons Stephen Jaques)

BRENNAN CJ: Yes, Mr Bennett.

MR BENNETT: The issue in this case, your Honours, is the meaning of the words "with intent to defraud creditors" in section 121 of the Bankruptcy Act. There are two ways in which one can find such an intention in the present case. The first is to say that Mr Cannane intended to defraud creditors of the shares in Wisbeck simpliciter. The second is to say that he intended to defraud his creditors of those shares together with what was called the wealth which it was intended would accrue to those shares.

Although the respondent seems to rely primarily on the first, I really need to deal with both, and I will do so. The first proposition, then, put against us is that he intended to defraud creditors of the shares simpliciter. That proposition was bedevilled below by two red herrings. The first red herring was the issue whether one can have a fraudulent conveyance although full value is given. Now, although that was argued below, I do not press that proposition. Quite clearly, you can have a fraudulent conveyance, even though full value is given.

One can think of a number of examples. The clearest, I suppose, is if you convert something readily realisable into something not readily realisable so as to delay your creditors. Another is if you convert - and this is referred to in some of the earlier cases - if you convert an asset into cash so as to be able to dissipate that cash. A more whimsical example might be if one had a man who had $50,000 and he converted that into a bottle of 1945 Chateau Mouton Rothschild, which he then drank, having the intention of drinking it prior to his bankruptcy and, thus, preventing his creditors getting the $50,000. Now, the transaction might be for full value, but it would be a fraudulent conveyance if the vendor had the relevant notice.

So, clearly, you can have a fraudulent conveyance notwithstanding full value. Although, as was said below in the majority judgment at page 873, it would be difficult to show intention to defraud creditors where full value was given.

That was the first red herring. The second red herring was the answers given by Mr Cannane which are set out in the judgment on pages 873 to 874. I am going to take your Honours to those answers because the whole of the reasoning of both the trial judge and the majority on the issue on which we appeal is really contained in one sentence. That one sentence is at page 874 line 45. Your Honours see the sentence there:

In the light of these admissions there was no conclusion open to his Honour, other than that the object of the transfers was to put the shares beyond the reach of creditors.

Therefore, the ground of appeal fails. That is the whole of the reasoning, and it is the whole of the reasoning of the trial judge. May I just show your Honours those answers? They start on the preceding page, at the bottom of page 873 in its skillful cross-examination:

"Because the whole point of transferring these shares from your name and the company's name.....to the names of your wife and son was to preserve for the family such interest as Wisbeck might ultimately acquire in the CCI acquisition?---Yes.

The reason you were concerned to transfer your share and to cause the company to transfer its share was that you had in contemplation the possibility of your bankruptcy?---Yes.

And the winding up of J. Cannane Pty Limited?---Yes.

You were concerned to ensure that in the event that those unhappy events came to pass that neither the creditors of you or the company would get their hands on the shares in Wisbeck?---Yes.

You thought that the way to do that was to transfer the shares out of your name.....into the names of members of your family?---Yes.

So what I want to suggest to you, Mr Cannane is that your whole object in orchestrating these transfers of shares was to quarantine the shares in your family's name and beyond the reach of your creditors? That is right, is it not?---I'd like a definition of quarantine.

Place the shares beyond the reach of your creditors?---Yes.

And that there was no other reason that you would effect these share transfers or procure that the company effect the share transfers, was there?---At that time, no."

Those answers, of course, are seen as conclusive, but the first point to notice is that those answers were explained in re-examination. If your Honours go to volume 1 at page 162 your Honours will see the explanation, although your Honours may well think it is an unnecessary explanation because it is so obviously correct.

Your Honours will see at page 162 line 40, Mr Graham, my predecessor, in re-examination asks this question:

Do you recall that you conceded that the reason for the transfer of the two shares.....was so that neither your creditors nor J Cannane Pty Limited's creditors as the then shareholders would be able to get their hands on the shares in Wisbeck Pty Limited? The question that I ask is, what was the wealth represented by those shares which you did not want your creditors.....to get their hands on?

It is slightly leading but it gets by. And the answer is:

The wealth would be the future accumulation that might happen in that company from that time forward because in my belief the company had no value at that time.

Do you recall that my friend put to you a short time later that you wanted to quarantine -

them and -

there might have been some question by you as to what the word quarantine meant?

Do you recall that he then put it to you that it was your intention to place the Wisbeck shares beyond the reach of your creditors and no other reason; do you recall he put that to you and you agreed with him?---Yes.

Was the wealth represented by the shares which you wanted to put beyond the reach of the creditors the same as you have just indicated.....---Yes.

So, what he was seeking to put beyond the reach of his creditors was not the shares qua shares, but the proceeds of the intended transaction. Now, one does not need, in a sense, that evidence. Even without the re-examination it is quite obvious that no one would want to defraud creditors by transferring worthless shares for $2, that does not defraud anyone.

But the point is, his words only disclose half the picture. The true picture which one has to look at to see the real transaction he intended is that the creditors would and could never have obtained the real wealth involved had matters proceeded without the transfer. The key to the factual analysis of this case is the letter Mr Cannane wrote to his accountant at the time the transaction was first contemplated, and that is page 770 in the judgment of the trial judge, the original is at page 371 but it is probably easier to go to the trial judge's judgment.

Your Honours will see that he does not say, "I am intending this transaction - whoops, if I go ahead with this transaction, my creditors are going to get something, so I have got to transfer the shares." That is not how it happens. What he says is, line 40 on page 770:

I am near to concluding the deal....I would like to bounce a few ideas of (sic) you....

For the purchase of CCI my preferred position would be to acquire the shares in Denise's name -

that is his wife's name -

or a company controlled by her.

So, that is the transaction he is contemplating, that his wife or company controlled by his wife will enter into a future transaction.

My thoughts are:

As Wisbeck has no real purpose in life, and it's (sic) only asset is a few shares in Keycorp and a $82,000 liability -

in other words, it is just a shelf company -

we could sell/transfer the shareholding to Denise and my son. This could then be the vehicle -

and they stress the word vehicle -

to buy the shares in CCI. It would save setting up a new company.

That is probably one of the greatest false economies anyone has ever decided to exercise.

Alternatively I could put the CCI shares into Denise's name, however there is (sic) tax problems with dividends being assessable at top personal rate.

Then he goes on to discuss the other aspects.

So, what he is saying is, it is a question of finding a convenient vehicle. I have got this valueless company sitting round, why do I not use that? It was never - it is not as if he had said to himself, I plan this transaction for Wisbeck. Wisbeck will make a lot of money out of it. Then says to himself, having got to the stage where the transaction is under way in that manner, well perhaps I should transfer the shares in Wisbeck because it is going to make a lot of money.

That is not what he does. What he does is plan a transaction under which his wife and children are to receive something, not from anything he owns or any asset he has, but from a proposed future transaction which involves, as your Honours will see, the wife providing a guarantee and security and "I've got this convenient vehicle; I'll use that". Once one looks at all the circumstances of the transaction, as we submit one must do, it is absolutely clear that there is no fraudulent conveyance involved. This was not a case where the creditors were deprived of anything they were going to get. Before leaving this point, may I just show your Honours very quickly a couple of authorities.

BRENNAN CJ: Before you do, could I just ask you: at the time when that letter was written and at the time when the Wisbeck transaction was effected, was there any asset of value possessed by anybody?

MR BENNETT: No, your Honour, and that was held both by the trial judge and by all three of the members of the Full Court. The case was largely fought below on the issue of the valuation of the shares and it was unanimously held, and there is no longer a challenge to it in this Court, that the $2 paid for the shares represented full consideration and was their value at the time.

KIRBY J: That was originally contested by notice of contention, was it not?

MR BENNETT: Yes, it was, your Honour.

KIRBY J: And that is abandoned now?

MR BENNETT: That is abandoned. So there is no challenge to the proposition that at the time of the transfer the shares were worth what was paid for them, a nominal amount. All that there was was an intention which was coextensive with or parallel with the intention to transfer the shares that the future transaction take place in a vehicle controlled by the wife, owned by the wife and son.

McHUGH J: One problem - it may or may not be a problem - is that Wisbeck accumulated losses, did it not?

MR BENNETT: Yes.

McHUGH J: Does that affect the position?

MR BENNETT: No, your Honour, because that would be an argument for saying that Wisbeck had a value higher than the $2. But the issue of value is an issue on which we succeeded at both levels, with all four Justices, and there is no appeal against it. So, what your Honour's question would go to is the Wisbeck shares having some other value.

McHUGH J: It is not really that. At least, I think it may not be merely that. It indicates that the reason Wisbeck was really chosen was because it did have those accumulated losses, which could be offset against gains made in the subsequent period.

MR BENNETT: But it also had liabilities, your Honour.

McHUGH J: I know it had liabilities.

MR BENNETT: This Court is not in a position to evaluate the value of those losses against the liabilities, and to see if it was a positive or negative matter at the end of the day. I come to this Court with a finding in my favour that the shares were worth $2, or at least worth a nominal amount and no more.

BRENNAN CJ: Am I right in thinking that the disposition of property for the purposes of section 121(1) is the transfer of the Wisbeck shares?

MR BENNETT: Yes, your Honour.

BRENNAN CJ: And nothing else?

MR BENNETT: Nothing else. One share was owned by Mr Cannane, who was insolvent; one was owned by the insolvent family company.

BRENNAN CJ: So that, what you say is that there is one transaction - that is, the alienation of the Wisbeck shares, which is said to be the disposition - and that was made for full value.

MR BENNETT: Yes, your Honour. We do concede that one must look at the whole transaction, but, looking at the whole transaction, we say that the creditors were not deprived of anything they would, in any circumstances, have got.

GUMMOW J: When you say one looks at the whole transaction, was Mr Cannane in a position, by himself, to bring about the implementation of that transaction and the generation of what has been called this wealth?

MR BENNETT: Yes, your Honour. He could bring it about any way he wanted. It was not necessarily going to - - -

GUMMOW J: But he could do it by himself?

GAUDRON J: What about the security of guarantee?

MR BENNETT: No, he would need his wife to cooperate by giving security or a guarantee.

GUMMOW J: And anybody else?

MR BENNETT: No, the son did not have to give a guarantee. For present purposes, no.

GUMMOW J: Thank you.

MR BENNETT: But it is not like a case where one has a contingent event which may enhance value. One of the examples given, I think by my learned friend, is a property which one believes is going to be rezoned. Of course, if one transfers a property that one believes is going to be rezoned for its present value, that is really a valuation issue, because the possibility of rezoning depends on third parties and will increase the value. Here, one has something which is just not going to happen unless he chooses to go ahead with the transaction, which he has no reason to go through for the benefit of his creditors.

GAUDRON J: You keep saying, "he chooses", but ultimately was it not Wisbeck who made the choices?

MR BENNETT: The decision to sell the shares was made by him and by J. Cannane Pty Limited. The shares being in Wisbeck.

GAUDRON J: Yes, but the transaction has generated the wealth.

MR BENNETT: It involved a number - - -

GAUDRON J: Was ultimately the company, was it not? Is it not confusing the legal reality to say it was his choice?

MR BENNETT: Yes, I would accept that, your Honour. It was his choice in the sense that he was the negotiator but it was the company and his wife and his son, indeed, as a new director and shareholder of it who, as a matter of law, put the transaction through - and the wife who put up her house and gave her guarantee which no doubt she would not have done had it remained in his name, his control.

The two authorities I refer to very briefly are first the decision of this Court in Hardie v Hanson[1960] HCA 8; 105 CLR 451. It is only really one sentence I am citing. The passage in the judgment of Chief Justice Sir Owen Dixon is at page 456 point 8. This was a case involving not a fraudulent conveyance, but a company carrying on business with intent to defraud creditors, but the phrase has the same meaning. At point 8 of the page do your Honours see the words "on of the business" in the left-hand margin? Just adjacent to that:

The phrase `intent to defraud creditors of the company" suggests that present or future creditors of the company will, if the intent is effectuated, be cheated of their rights.

I stress the words "cheated" and "their rights":

An intent to defraud creditors has been described, for the purposes of bankruptcy legislation, as an intent by deceit to deprive creditors of something to which they are entitled

The case his Honour cites for that, the old English case, the judgment of another Justice Hill in Reg v Ingham [1859] EngR 99; (1859) Bell 181 and volume 169 of the reprint at page 1221. What happened in that case was, that concerned alteration of records with intent to defraud creditors - forgery of one's own books, if one likes, with intent to defraud creditors.

McHUGH J: But is that statement of Sir Owen Dixon correct? It really is not, is it not, because it is not a question as to whether you intend to deprive creditors of something to which they are entitled, it is to deprive them of something to which they will be entitled at the relevant date.

MR BENNETT: I was about to give that qualification, your Honour. I would put it slightly differently. We would submit the best formulation would be to deprive the creditors of something which they would have obtained - perhaps would and should, but certainly would - and here they would not.

GUMMOW J: Have obtained if what?

MR BENNETT: If the transfer had not taken place. If the transfer of shares had not taken place, this transaction would have been done, if at all, in another vehicle. There was never any proposal to carry out this transaction in a vehicle owned by Mr Cannane. There was never such an intention. It simply was not something which anyone had in mind or that was going to happen. All that happened was that rather than spend a few hundred dollars buying a new shelf company, he made the mistake of using an old shelf company. That is all that happened.

BRENNAN CJ: I am having difficulty in understanding how this wealth, as it has been called, has been transferred or whether there was anything in existence which was worth his consideration.

MR BENNETT: There was nothing in existence, your Honour.

BRENNAN CJ: Then let us put it this way. If he had already put the transaction into Wisbeck in the sense that all communications in relation to the CCI transaction had been on Wisbeck notepaper and so forth, would it be right to say that the Wisbeck shares were worth no more than $1? I know what you say about the fact that it comes here without controversy, but how did the potential wealth, if one likes to call it that, disappear?

MR BENNETT: There was not potential wealth. The answer to your Honour's question, I suppose, is that he had an intention and nothing more that a transaction might be entered into in the future which would generate wealth. He intended that that would be done for his wife and child. There was no asset which that intention represented. He then says to himself, "Well, what vehicle shall I use? Here's a convenient company which has no assets and liabilities, it's a $2 company. I'll transfer the shares for $2 and she can use that". My friend then takes from those questions half the truth. What he does is he says, "Ah, he intended that Wisbeck obtain the benefit of the transaction". That is a half-truth.

The truth is he intended Wisbeck to obtain the benefit of the transaction provided that Wisbeck was not then owned by him and the other company. His real intention was that a vehicle, either his wife or a vehicle owned by his wife, would obtain the benefit and Wisbeck was a convenient way of doing it. But what the questions that he used against me say and what my friend's submission says is to take half the position and say, "That's it. He intended Wisbeck to get the benefit of the transaction, he transferred the shares in Wisbeck to stop the creditors getting it", which again is true on its own but does not give the whole truth - the whole truth is given by the re-examination - "and therefore there's a fraudulent conveyance".

BRENNAN CJ: So when you say the benefit of the transaction, the benefit is not an asset and was not worth anything until such time as the benefit was turned to account by the Wisbeck transactions which produced the ultimate CCI transaction?

MR BENNETT: Yes, your Honour, and which involved, inter alia, a guarantee by the wife and a mortgage over her house.

McHUGH J: Did Mr Cannane have an enforceable promise in respect of the CCI transactions?

MR BENNETT: No, your Honour, he did not.

McHUGH J: There is no finding, and is there any evidence that he was negotiating on behalf of Wisbeck?

MR BENNETT: No, not that he was negotiating on behalf of Wisbeck. He was certainly negotiating a transaction.

McHUGH J: Yes.

MR BENNETT: But he had not identified the vehicle. Your Honours, I can give your Honours some page references which I will not take your Honours to. There are eight of them which show how the transaction went through many changes between the date of transfer of the shares in May and its ultimate effectuation in August. I will just give your Honours the pages. These are all letters showing the changes, 485, 519, 540, 542, 547, 555, 573 and 586.

GUMMOW J: Can you just help me in this respect, Mr Bennett? With respect to the matters the Chief Justice was raising with you, can you just go to paragraphs 19 and 21 of Mr Hely's submissions and just elaborate for me what it is that you say breaks them down.

MR BENNETT: Yes, I was going to come to that, your Honour. I will do it now. Paragraph 19 says:

Section 121 renders void dispositions of property made with intent to defraud creditors.

We agree.

Here the facts are that there was a disposition of property (the Wisbeck shares).-

We agree.

and that such disposition.....was made with the admitted intention of placing the shares beyond the reach of Mr Cannane's and JCPL's creditors.

That is, we would say, a half truth. It is correct but it only shows half the picture without showing the other half.

GUMMOW J: What is the other half?

MR BENNETT: The other half is that if you look at the shares qua shares ignoring the future wealth, that was not his intention because no one would have the intention of defrauding his creditors of worthless shares. In so far as it says that, it was not his intention. If you take it as meaning it was the intention of preventing the creditors obtaining the future wealth attaching to those shares, that is not right either because that wealth was conditional on the transfer taking place for all practical purposes. Once one adds those two factors the proposition in that sentence just does not lead to the result contended for.

He then goes on:

Whether those facts reveal an intention to defraud those creditors depends on why the shares were disposed of.

We agree with that:

The answer is because Mr Cannane thought he would become bankrupt -

Yes -

that JCPL would be wound up -

Yes -

and because he had a reasonably based apprehension that, for reasons which were largely within his control, the Wisbeck shares would substantially increase in value -

Now, that is, again, a half truth. It is a conditional apprehension. He has a "reasonably based apprehension" that if the shares are transferred that will occur. He does not have any apprehension that it is going to happen if the shares are not transferred. It is all half truth:

There was no other reason for him to cause the shares to be transferred.

We agree:

It follows that Mr Cannane's intention was to defraud his and JCPL's creditors.

And we dispute that.

GUMMOW J: What about paragraph 21?

MR BENNETT: Yes:

The transfer of the shares in Wisbeck on 15 May 1991 did "deplete" and make "less accessible and advantageous" the assets available for Mr Cannane's creditors and those of JCPL on bankruptcy and liquidation. Those assets should have included the shares in Wisbeck at their value at the that time.

That is, the time of liquidation, not the time of transfer:

Such shares would have comprised "property divisible amongst creditors" -

That begs the question. We say that it should not have included the shares with their value at that time. The shares with the value at that time, if the transfer had not occurred, would have been zero, would have been worthless shares. Again, it puts half the position and draws the conclusion.

GUMMOW J: Yes, thank you.

BRENNAN CJ: Mr Bennett, could I just take that one step further? If Mr Cannane had negotiated this transaction up to the point of the transfer of the Wisbeck shares on behalf of JCPL, and then transferred the Wisbeck shares and procured the consummation of the CCI transaction in Wisbeck, would he have been in breach of his fiduciary duty to JCPL?

MR BENNETT: No, your Honour, because where a person has a family company, or number of family companies, and he sees an opportunity for profit, it is a matter of total discretion whether he chooses to take that profit in this name or the name of one of the companies. It is not a misfeasance to say, "I will take it in my own name," or, "I will take it in the name of another company." If the company had paid him to expend his time in identifying the transaction and negotiating it, one might then have a fiduciary duty which there might be a breach of. But certainly that was not the evidence in this case. There was no suggestion that anything which had taken place prior to these decisions had taken place on behalf of Wisbeck. It was simply him setting up a transaction in general form, vehicle to be decided later.

So, it would be a different case if one had a situation where there had already been a decision to do in the name of Wisbeck. But the decision here was, the decision to do it in the name of Wisbeck was simultaneous with the decision to transfer the shares in it. There is no suggestion that Wisbeck contributed in any way to whatever contingent asset there was in May. So, it is not this case and even if it was, that might be a breach of fiduciary duty rather than a fraudulent conveyance but that does not arise. Even then, of course, it would only be as to one of the shares - my friend would succeed with one of his hats but not with his other hat, so he would only get half the amount. But because that would only effect J. Cannane Pty Limited, not Mr Cannane's bankrupt estate. But, in any event, that was not the way it was put and it could not have been on the facts.

Now, so far I have been dealing with what I have called the first possible approach which is to say that what was fraudulently transferred was the shares simpliciter. The arguments in relation to the second approach I have really covered already in the course of doing that. The second approach is to say, his intention was to prevent his creditors obtaining the shares with the intended benefit of the transaction. Now, we have already dealt with that and shown why that did not give rise to a fraudulent conveyance. It was something the creditors would not have obtained.

May I, just before leaving this part of the case, refer your Honours to one other authority and that decision in PT Garuda Indonesia Ltd v Grellman 35 FCR 525 for the purpose of just showing your Honours one proposition. The passage is at page 523. It is the paragraph at about point six of the page beginning, "The first submission for Garuda". The court says - this is the Full Federal Court:

The first submission.....was that "fraudulent intent on the part of the bankrupt must be expressly proved" -

and there is a reference to a statement -

there must.....a real intent to defeat or delay creditors.....also to the statement by Gibbs J, that there must be.....actual fraud and an actual intent to defeat or defraud creditors.....However, in both of these passages, their Honours also referred to the necessity to have regard to all the circumstances of the transaction, and Gibbs J said it was a question of fact whether the existence of such an intention should be inferred from the circumstances.

GUMMOW J: Just stopping there, Mr Bennett, that would mean that many breaches of fiduciary duty would not be sufficient.

MR BENNETT: It would not, your Honour, no.

GUMMOW J: Is that right?

MR BENNETT: But one must look at the overall circumstances. If one takes my bottle of 1945 Mouton Rothschild, that is a good example of having to look at the overall circumstances. If one looks with blinkers, one sees the purchase of an asset at full value. If one looks at the whole transaction and the intent, one sees an attempt to defraud creditors. One has it also if one sells an asset for money so as to dissipate the money or if one exchanges money for an annuity. If one looks at the transaction in blinkers one sees simply an exchange for something of equal value. If one looks at the whole transaction and the overall intention, one sees an intention to defraud creditors.

Here, when we look at the overall transaction, there is no intent to defraud creditors. One only finds an intent to defraud creditors if one looks at half of it and not the other half if one says, "Yes, he gave these answers in cross-examination; he transferred the shares; he did it to stop his creditors getting them". But, when one looks at the whole picture, the shares were transferred for full value. Had the creditors got them they would have had no value and it was simply a convenient shelf company that he utilised. Once one says that, looking at the whole transaction shows no intent to defraud creditors.

My learned friend's submissions have other paragraphs in them dealing with this between paragraph 14 and paragraph 21. I will just deal with those very briefly if I may and then go on to the question of bona fides of the wife and the son. In paragraph 15 there is a point made about time. What my friend says there is:

Mr Cannane intended that if he became bankrupt or if JCPL went into liquidation then his or its creditors at that time would not have available to them the shares in Wisbeck, whatever they were then worth.

That is a condensed sentence. His intention was that they would not have available to them the shares with an increased value, but that was never going to happen, whatever happened. His intention, certainly, was not to deprive them of shares in a worthless company, and his intention was simply that they should not have something they were not going to have.

His intention was to deprive his creditors of something to which they would be entitled at that time -

That ignores the conditionality of his intention.

His intention was, in that sense, to defeat future creditors -

It does not matter if they are past or future; it is the creditors at that time, certainly. But it does not help to talk about future creditors; it does not affect the argument in this case.

The fact that Mr Cannane could have effected the CCI acquisition otherwise than through Wisbeck is beside the point. This was not what he intended to do, nor what he in fact did.

It is not a question of being able to avoid it in another way. I am not coming to the Court saying, "This is not a fraudulent conveyance because I could have structured the transaction in such a way as to prevent my creditors getting it lawfully". That is not what I am saying. What I am saying is that if events had simply taken their course without any positive act by him and his wife and son, there would have been no wealth for the creditors. That is the point I am making. It is not that he could have done it in some elaborate other way. It is that in the ordinary course it would never have happened. There was never an intention by anyone that this transaction would go through with Wisbeck with him controlling Wisbeck. My friend goes on:

Nor is it relevant that Wisbeck had no legal right to acquire the CCI shares or to require Mr Cannane to acquire the shares.....What is relevant is that Mr Cannane intended and expected that the shares in CCI would be acquired -

but that is the conditional intention I have referred to.

Mr Cannane intended that his creditors and those of JCPL would be deprived of the benefit of any such increase in value.

No, not "deprived of"; that they would never get it in the first place.

BRENNAN CJ: That seems to me to have a kernel of a problem here. If there is to be no disposition of any property at all but the CCI transaction is to be brought to its consummation, then would the creditors receive the benefit of the CCI transaction?

MR BENNETT: No, your Honour, only if he made the quite whimsical decision that he would go ahead with the transaction knowing that none of the benefit would flow to his family.

BRENNAN CJ: Then one can understand that he would not willingly take that decision but, if he is in a position to bring the CCI transaction to its consummation but for obvious reasons says, "I will not bring it to its consummation without some transaction which puts the benefit of it outside the control of my creditors", is that sufficient to stamp the transaction by which he puts it out of the control of his creditors with the character of a fraudulent transaction in the sense that but for that transaction the creditors, assuming CCI was consummated, would have had the benefit of it?

MR BENNETT: No, your Honour, no on the facts and no as a matter of law. No on the facts because it would not have happened without - the transaction was still substantially unnegotiated. There were some very preliminary discussions he had had and he thought he could bring it through. The eight references I have given your Honours show how much it changed between May and August. It was nothing more really than an idea in his head that he had some preliminary discussions about with a number of people.

Secondly and more importantly, it could not go ahead without him, his wife and his son doing things to enable it to go ahead: the giving of the guarantee by the wife, the putting up of her house by the wife. Those things had to occur. One cannot just assume that she would have happily done that for the benefit of his creditors, he would have continued to put the transaction through, when he can put it through in any vehicle he likes. He has no obligation to put it into Wisbeck.

The only reason he puts it into Wisbeck is that he is going to transfer the shares in it and it is a convenient shelf company. As I say, this was really about saving $500 to buy a shelf company. So, when my friend says "deprive" in the first sentence of paragraph 18, we submit that is not the correct word. "Deprive" suggests deprive of something one would have obtained. One is not deprived of something one never would have obtained, and had no chance of obtaining.

A disposition of property made with the intention of depriving creditors of something which they would, or might,.....be entitled -

is with intent to defraud. Yes, that is the zoning example. But there is no "might" here. The only benefit is the conditional one. I think that deals with those matters. So, for those reasons, your Honours, we submit there was no fraudulent conveyance.

May I now come, secondly, to the position of Mrs Cannane, and I can deal with this very briefly. Certainly she was held to have knowledge of his financial position and, in one sense, she knew of the purpose in that she knew that the purpose of the transaction was to ensure that the benefit of the CCI transaction went to herself and their son, or their sons. In that sense, she - - -

KIRBY J: You said "sons". I just did not quite follow what happened to the allotment of the share to Richard Cannane.

MR BENNETT: There were two shares in the company.

KIRBY J: Yes, I realise that.

MR BENNETT: One was transferred to the wife, one was transferred to a son, and third share was allotted.

KIRBY J: Yes, on 847 - that is right.

MR BENNETT: A third share was allotted to the other son. So, the company then became one wholly owned by the wife and the two sons.

KIRBY J: What is the position so far as Richard is concerned?

MR BENNETT: Well, there is no challenge. There is no conveyance to him.

KIRBY J: I see.

MR BENNETT: That seems to have been accepted. So, she knew those matters. But she also knew something else. She also knew that she was being asked to go into a transaction in which she was putting up the risk to enable it to take place - she mortgaged her house, she gave the guarantee - and all that the company was was a vehicle. She used the word "shelf company" in her evidence. That may not be a completely accurate description, because "shelf company" usually implies a clean, new shelf company, rather than a used one. But nevertheless, it is a useful description because it indicates the function she saw it as performing.

Now, where is the fraud in that? What is she defrauding the creditors of, or participating in defrauding them of? She is entering into a transaction which no doubt she would not have entered into otherwise, which creates wealth for herself and her sons. The only fraudulent, or so-called fraudulent element, is that she is using a shelf company formerly owned by the insolvent husband and insolvent company, the shares of which are worthless and which are transferred for the full value of $2.

So, really, it is as short as that. I should say this: my friend seems to suggest that good faith, in paragraph 34 of his submissions, and I will come to this again when I deal with Andrew, but my friend seems to suggest that failure to act in bad faith is not necessarily good faith. That is not what the authorities say. May I just remind your Honours of the World Expo Case 129 CLR 685 at page 702 - I am sorry, I have the wrong reference, your Honours. I will come back to it if I may. There is a case which defined good faith as the absence of bad faith but I have given your Honours the wrong reference.

GUMMOW J: So, in other words, there is a logical universe with those two halves - it is one or the other?

MR BENNETT: Yes, your Honour, neutrality is good faith. I give your Honour a simple example: suppose I buy a car from an insolvent person, who is about to go bankrupt, for full value and have no particular knowledge of anything except that I am buying a car. Clearly, that is a transaction in good faith but I have not applied my mind positively to thinking, is this a transaction with intent to defraud creditors? Is it something I should be thinking about? I am just totally neutral. It is in good faith. That is point I am making. It becomes clearer when one looks at what happened with Andrew Cannane, because in relation to Andrew Cannane, what the courts below said was wilful blindness is insufficient. Of course, there is no question of that, but wilful blindness involves knowing some facts and then making no inquiry, or not making the inquiry which those facts would cause them to make.

The example of buying the car - if I do not say to the seller, "Are you insolvent; do you have some other purpose behind this?", my failure to ask that question is not wilful blindness, because there is simply no reason to ask it. The evidence in relation to Andrew is this: first of all, his evidence, in his affidavit at page 184 was not that he had wilful or other blindness but that he just did not remember. This occurred, of course, around the time of his HSC; he was 18 at the time. His whole affidavit is extremely short. He says at paragraph 3:

Some time after I had finished my exams I remember my father saying to me words to the effect:

"I have sold Ausminco to an American based company which has substantial interests in Switzerland. I am now concentrating my efforts in Keycorp."

That does not say anything.

On about 15 May 1991, I signed a share transfer -

which is annexed.

I do not have a clear recollection of precisely where I was when I signed this form but I believe it was somewhere in the family home. In addition, I do not have a clear recollection of the precise words that my father said to me before I did so.

My father often said to me words to the effect:

"I've got a document here mate for you to sign, would you please sign it."

I cannot now be certain whether he said these words or similar words or other words prior to my signing the said transfer.

So he is not saying, "This is a case where I simply signed without knowing anything." What he is saying is, "I just don't remember."

Now, his father's evidence is much more important. Mr Cannane's evidence appears at page 213, in his affidavit in paragraph 108.

KIRBY J: Andrew was not cross-examined on that affidavit.

MR BENNETT: He was, but not on - the only thing he was asked was whether he knew about his father's problems and he said, "No." At page 213, paragraph 108:

Shortly after the abovementioned conversation with my wife I had a conversation with my son Andrew who at that stage was aged 18. In that conversation I said words to the effect:

"Andrew, there is an opportunity for us to do a commercial deal. We have a company called Wisbeck which we would like to use but I would like Mum, you and Richard to own the company. Will you please sign this transfer so that you can become the owner of one of the shares? Mum is gong to buy the other share and we will issue another share to Richard."

Andrew said: "Yes I will".

Now, that is not cross-examined on either. So that is the father's recollection, and the son simply says, "I don't remember what he said."

The important thing about that is that it is a perfectly rational sensible explanation for a father, talking to his 18-year-old son, which does not call for inquiry. That statement to an 18-year-old son does not cause him to say, "Oh, I wonder if my father is doing this to defraud his creditors?" It does not call for that at all. So, where is the wilful blindness? What is he suppose to do? To say, "Oh, Dad, are you insolvent or something? Is that why you are doing it?" Is that what he is supposed to do.? He is not cross-examined, of course, to suggest that. But where is the wilful blindness?

We would submit it is a classic case of good faith in the sense that there was neither bad faith nor any reason to think of bad faith. There is no evidence anywhere that he knew anything about his father's affairs. He was asked two questions in cross-examination which appear at page 76.

KIRBY J: Just to test your proposition. Does this not mean that if a person, in order himself to defraud creditors, chooses some stooge or some person who is mute or cannot understand, that thereby he immunises himself or quarantines himself from the consequences?

MR BENNETT: That may well be so, your Honour.

KIRBY J: That cannot be right.

MR BENNETT: In most cases of that sort, there would be something resembling wilful blindness. If the person is unable to form a view, if the person is a three-year-old child, for example, one might have a different situation because there you might say that the intention of the donor is imputed to the donee because the donee merely acts as a cipher of the donor.

KIRBY J: Why would not one do so in a case where he says, "I have got a document for you to sign here, mate, please sign it."

MR BENNETT: But that is not the evidence, your Honour.

KIRBY J: That is what Andrew said.

MR BENNETT: No, your Honour, he says he does not remember whether it was that or something else. He said that happened from time to time.

KIRBY J: That is the best he could do.

MR BENNETT: No, your Honour, he does not say that. What he says is, in the next sentence, he does not recall if that or something similar or something else was said.

KIRBY J: Well presumably he tenders that as the best recollection of what would have occurred as he can best recollect it.

MR BENNETT: No, your Honour, he says that was said to him from time to time as one of the things that may have been said. But his father is not cross-examined on an actual recollection. So there is no challenge to the father's statement as to what was said and, of course, the father's statement is not inconsistent with the son's. It is not inconsistent with the son having no recollection.

If one goes to page 76, this is the only evidence about the son's knowledge of insolvency, two questions in cross-examination, line 40:

Were you made aware in the say six month after you finished your exams of demands having been served on your father by some banks?---No, I wasn't.

Do you recall becoming aware in the first half of 1991 of the fact that legal proceedings had been commenced against your father by the State Bank and by Barclays Bank?---No.

Were you still living at home?---Yes.

Were you working?---No.

Were you studying?---Yes.

You were at university?---Yes.

And so on. There is not the slightest evidence that he knew of insolvency and it is different, your Honour. The answer to your Honour Justice Kirby's question is this, that if one was dealing with a minor or a person who had no mental capacity, then one might say in that case, because you impute the intention of the other party, that you find bad faith. But this is an adult, he is 18. It is not suggested that he does not have the capacity to understand. What is said to him on the evidence is, "This is something I am doing. I am transferring this company to you and your mother and your brother so that you will have this benefit." A perfectly normal thing for a father to do for his wife and children and he has no reason to - - -

KIRBY J: Why would not the law impute the father's intention to such a person who is really simply a nominee?

MR BENNETT: Your Honour, I suppose because in so far as there is any conscious act required on the part of a recipient to validate a transfer, the only operative intention is that of the donor. If I give my three-year-old son my car the only operative intention one can look at is mine.

KIRBY J: So if it is seven year old, perhaps the same. If it is 11 year old, perhaps the same and if it is a busy 18-year-old university student who is rushing around and he has told his mate to sign this and the father says that he told him to sign it and he usually did and he did on this occasion, you see you have got to test your proposition by what happens if it becomes the standard.

MR BENNETT: The father goes further than that, your Honour.

KIRBY J: It just encourages people to choose those who will simply do their bidding.

MR BENNETT: Your Honour, if that were the finding of fact, it might be one thing. But here, one has the father's evidence, which is not cross-examined on, and which must therefore be accepted - there was no reason not to accept it - that he gives an explanation, and it is a rational explanation, and not an explanation which puts the other person on inquiry, he having no other relevant knowledge. There is a distinction between this case and the case of the three year old. Certainly, as your Honour says, there is a line somewhere, and where the line is must be a question of fact, but - - -

McHUGH J: From a practical point of view, many of the cases concerning three year olds, seven year olds, would probably be settlement cases, because what we are looking at here is where there has been a transfer of valuable consideration for the disposition. And this case is rather unique in the sense that we are dealing with a dollar.

MR BENNETT: And, of course, the settlement claim failed here, and failed on appeal. The case I was looking for earlier and did not find, for which I apologise, is the decision of Justice Kekewich, affirmed by the Court of Appeal, in Mogridge - - -

McHUGH J: Well, that is an event in itself.

MR BENNETT: If one believes the legends, that is so, your Honour. As I say, he was a - - -

KIRBY J: You would say that it was submitted to the greatest scrutiny, and yet survived.

MR BENNETT: Precisely. It is Mogridge v Clapp (1892) 3 Ch 382, and the passage in his Lordship's judgment is at page 391 and, at about point 4 of the page, his Lordship says this:

But the argument is that Mr Mogridge was not dealing in good faith. Now, what does "good faith" mean? What is meant by those two English words which are the exact equivalent in every sense of the expression which is perhaps more commonly used, though not more correctly or properly, bona fides? I think that the best way of defining the expression, so far as it is necessary or safe to define it, is by saying that it is the absence of bad faith - of mala fides.

McHUGH J: Is it not the fallacy of what the philosophers call "black and white reasoning", that it is either black or white? It does not necessarily follow, because you have got an absence of bad faith, that you are acting in good faith, that this judgment assumes that.

MR BENNETT: Your Honour, in my submission, it does for this reason: that in the normal transaction of good faith, no thought is given to the transaction or to the good faith or otherwise of it. In the normal good faith transaction, it is simply a purchase of an asset, or the sale of an asset, without any reason to apply one's mind to the question whether there is fraudulent conveyance, or any need to ask. That is the normal situation of good faith.

It does not involve sitting down and trying, like a court would, whether there was a fraudulent conveyance and coming to a conclusion. One does not need to do that to be in good faith and that is what is meant when one says, good faith is simply entering into a transaction which looks all right on its face with no reason to assume otherwise and in that sense the absence of bad faith. If there is something which indicates something is wrong with it and one does not ask, then there is wilful blindness and that is bad faith.

So, in that sense it is correct to say that good faith and bad faith cover the universe. Certainly, there are grey areas in individual cases but there will be one or the other. There will not be cases of no faith, if I can so describe it.

BRENNAN CJ: Now am I right in thinking that this aspect of the case was not considered in the Court of Appeal?

MR BENNETT: I thought it was, your Honour.

BRENNAN CJ: There is a reference to it at page 396 in the judgment of Lord Justice Lindley.

MR BENNETT: I am sorry, your Honour. I thought you were asking about this case. I think that is so, your Honour. The Court of Appeal did not need to deal with that aspect of it. It is a dictum not a ratio. But it is a useful dictum and it is - - -

KIRBY J: It rather softens it, though, to say a thing is not in bad faith. It is not quite the same as it being in good faith.

MR BENNETT: No, bearing in mind that bad faith covers wilful blindness, it - the reason his Lordship is right, is the reason I have given, that in almost every case of good faith, the party has not applied his or her mind to the question because there has been no reason to do so. That is the reason why one has to have something that takes it out of good faith and that is the same as something that makes it bad faith.

GUMMOW J: Where does the onus of proof lie?

MR BENNETT: The onus of proof lies on me, on the recipient.

GUMMOW J: To establish good faith.

MR BENNETT: Yes. It is an exception to the - it is subsection (2) which operates by way of an exception to it and the Vines v Djordjevitch principle. But one satisfies the onus by showing an absence of faith, if one likes, by showing that there was no reason to ask oneself the question, nothing to put one on notice, and it appeared to be a normal transaction. This was, on its face, a perfectly normal transaction by a person not having bankruptcy in view, even assuming your Honour is against me on the first part of the case.

Your Honours, to conclude, may I say this. This is, as far as we have been able to ascertain, a unique case in that there is no case we have found - and, as far as we can see, no case my learned friends have found, but I as always say that is subject to correction - in which there has been this type of situation where there has been a transfer of shares in a shelf company or in a dormant company with the intention that some future transaction may occur and with the sort of desire one has in this case. We would say, of course, that is because it has never occurred to anyone before that that would be a fraudulent conveyance. One only gets there, as I have submitted, by looking at half the facts with blinkers. Once one looks at all the facts, there is no fraudulent conveyance. If one looks merely at the transfer of shares with total blinkers, it is a transfer for full consideration; no one is defrauded of anything.

McHUGH J: Are there any cases where, although something has been transferred for full value, nevertheless there is a chance that a substantial gain will be made from that asset and that has been the reason for the transfer? I am assuming that that chance is discounted in the value.

MR BENNETT: The answer to your Honour's question is: not so far as I am aware and not so far as we have been able to find.

McHUGH J: Supposing somebody had a racehorse and transferred it for full value to a family member because it was entered for the Derby and the person said, "Well, it could win the Derby. I don't want the creditors getting their hands on this money"?

MR BENNETT: One would have to ask: assuming that the value for which it is transferred takes into account that possibility, one is simply exchanging one asset for another. It might be in some cases of that type that one could draw an analogy with the fraudulent conveyance cases where one intends to give one's creditors something which is less attractive to them, like the annuity case where you are delaying it, but it is hard to see how it would. The creditors in one sense have done better if the horse loses the Derby because they then have more money than the horse might otherwise have been worth. So certainly one has to take into account future contingencies in valuing an asset, but here that has been done. That is the issue on which we succeeded the whole way and as to which there is no challenge. So one starts here with the assumption that this company's shares were of nominal value or in fact negative value.

McHUGH J: You have not placed any reliance in your submissions on a statement of Justice Kitto in Hardie v Hanson which I always thought was perhaps the best explanation of intent to defraud when he said that it requires an actual purpose consciously pursued of swindling creditors out of their money. It gives you - - -

MR BENNETT: I am grateful to your Honour for that and I would adopt that. We have referred to World Expo about an intention to do something dishonest and an actual intention to do it. That is in paragraph 10. If one stands back from this, if one imagined - and it is not a bad test in this sort of area - this case being decided before some sort of hypothetical ecclesiastical court where the only issue was the morality of what was done and that was the only issue, we would succeed because we simply did not take away from the creditors anything they would have obtained. What we did at the highest is decide not to enter into a transaction which we had no obligation to enter into which might have benefited them. That is the highest the moral guilt could be put, if I can put it that way. So, if one tests it that way and looks at statements like those of Justice Kitto and those appearing in Expo, one simply does not have the sort of opprobrium, the sort of evil intent or fraudulent intent, that one needs to have. It is simply not there.

McHUGH J: Have you looked at the criminal cases? I remember I used to rely on this passage in criminal cases, I can remember in a case called Van Someren relying on what Justice Kitto said about intent to defraud on company-type situation. It ultimately came up to this Court. You have not looked at the criminal cases?

MR BENNETT: Not specifically, your Honour, no. Certainly a number of the cases we looked at were criminal. If your Honour looks at paragraph 18 we looked a number of criminal cases on wilful blindness.

McHUGH J: Yes.

MR BENNETT: But, in relation to this area, we have not gone specifically to that. We have looked, obviously, at the intent to defraud generally, and the way it is defined in the cases.

McHUGH J: The companies legislation have had criminal offences very much geared on the question of intent to defraud.

MR BENNETT: Hardie v Hanson was such a case, itself, your Honour. One thing I did not finish saying earlier was the English case it relies on, the very early case of Reg v Ingham, that was a case where the bankrupt falsified his books in order to inhibit the investigation of his affairs, which investigation might have disclosed criminal offences. That was held not to be an intent to defraud because his intention was not to stop the creditors getting money they would have got, but simply to hamper criminal investigation of himself. So, intent to defraud has to involve taking something away from them. That is the context in which Justice Dixon said, it must be something to which they are entitled.

The word, "entitled" is probably inaccurate, and as I have said, we would prefer "something they would have obtained". But, here, they were not deprived of anything they would have obtained unless he had had a different intention and chosen to act in a particular way, and his wife had co-operated by mortgaging her house and giving a guarantee.

BRENNAN CJ: This is the difficulty I have with this provision because it says "with intent to defraud", which one might think is really the gravamen of the provision. It does not say, "with intent to defraud creditors of anything". It does not say what they are to be defrauded of, or on what hypothesis they will be defrauded of. Provided the intent exists, then any disposition of property which is made with the intent falls, but the section seems to be glibly quiet about what they are to be defrauded of, or in what circumstances.

MR BENNETT: That is probably because it picks up the statute of Elizabeth I of 1571 - - -

BRENNAN CJ: Yes.

MR BENNETT: - - - which really says the same thing at much greater length but does not go any further. What the draftsman has done, we would submit, is simply say, "I am seeking to adopt the common law; the line of cases as to what this means". One has to have an attempt, really, to reduce what the creditors will get in some way.

May I give another example which was referred to, I think, in some of the argument. Suppose I have a family home to which I am deeply, emotionally attached. It has been the family home for three generations, and I am insolvent, the home is valuable and unencumbered, and my wife, we will assume, is independently wealthy. I say, "I do not want, when I go bankrupt, for an official receiver just to sell the house quickly, to a stranger, perhaps, and take away the sentimental value the home has for me. So, I will sell it to my wife at full value, and obtain a valuation which is not disputed, and sell it to my wife for 100 cents in the dollar of the full value of the house in cash, and next day I go bankrupt and that cash is handed to my official trustee. That is not an intent to defraud creditors. But, if I am asked half the question, "Did you transfer the house so as to prevent your creditors getting their hands on it?" - "Yes, I did, but I did not intend to defraud them". So, intent to defraud must involve something more than merely preventing one's creditors getting something. It must be preventing them getting something and giving them something in exchange which is of less value, or of no value. That must be the intention.

BRENNAN CJ: Which they would, or should otherwise have got.

MR BENNETT: Yes.

BRENNAN CJ: If only what?

MR BENNETT: If only events had taken - I had not carried out the transfer and no other intervening act had occurred, or at least no act on my part had occurred. That example is a useful one, because the bankrupt there would have given exactly the same answer as Mr Cannane gave, but no one would suggest that was an attempt to defraud. If the house, after bankruptcy, increased in value for reasons totally unanticipated, no one would suggest that the creditors can set aside the transfer because of that answer. The point is, my purpose was not to defraud my creditors, it was to prevent them getting something; but it was also, looked at as a whole, to give them something of equal, and indeed better, value from their point of view, in that example.

McHUGH J: It may be that when the section talks about "intent to defraud creditors", it is an intent to defraud them of the value of the property, bearing in mind its qualities, present and potential.

MR BENNETT: Yes. One has to go a little further, your Honour, because it includes delay. In the definition section, there is a special definition of "intent to defraud creditors" in section 6 of the Bankruptcy Act.

A reference in this Act to an intent to defraud the creditors of a person or to defeat or delay the creditors of a person shall be read as including an intent to defraud, or to defeat or delay, any one or more of those creditors.

So, "delay" comes into it, and the qualification to the answer I have to your Honour Justice McHugh's question is this; that one could defraud creditors by translating an asset into an asset of equal value, which delays them. The classical example is the annuity - exchanging money for an annuity. But subject to that qualification, I would accept what your Honour puts to me and, for those reasons, we would submit that the appeal should be allowed. May it please the Court.

BRENNAN CJ: Yes, thank you, Mr Bennett. Mr Hely.

MR HELY: Might I offer the Court a chronology. The purpose of doing so is to direct attention to a couple of entries: 5 December 1990, JCPL, which, of course, was one of the shareholders in Wisbeck - he is making application to the Bank of Singapore for a loan facility; 5 February 1991, JCPL makes a further application to the Bank of Singapore; 22 February 1991, we have the $6.5 million demands served by the two banks on Mr Cannane and upon his company; 2 April 1991 is the letter to the accountant that Mr Bennett took the Court to indicating a preference to have the shares taken up in the wife's name, a tax problem in giving effect to that preference and the suggestion that Wisbeck be used as the purchasing vehicle; 17 April 1991, the Bank of Singapore is told that Wisbeck is to be substituted for JCPL as the borrower; 18 April 1991, the Bank of Singapore offers a facility to Wisbeck; 29 April 1991, Wisbeck pays an establishment fee to the Bank of Singapore; 15 May 1991 is the transaction in question.

Whilst it is true that Mr Cannane was not bound to take up the opportunity to purchase the CCI shares in his own name or in the name of JCPL, the fact of the matter is that for whatever reason he came to a decision that he wanted to take up that opportunity within the company, Wisbeck.

If one looks at page 212 in volume 1 of the appeal books one can see his evidence-in-chief as to the conversation which took place between himself and his accountant and there is a recommendation at about line 10 for the use of a "shelf company", coupled with an intimation that "Wisbeck would suffice" and then there is a discussion with the wife, at about line 35 and, at line 45:

The advice is to use a shelf company. However, we are thinking of using Wisbeck because it is no more than a shelf company now.

For whatever reason the decision is taken that it would be Wisbeck which is to be the acquirer of these shares but that presented an impediment because the two shareholders in Wisbeck were Mr Cannane himself and his company. Mr Cannane's bankruptcy was impending and the liquidation of his company was impending.

GAUDRON J: Why do you not then say that at the time that decision is made the shares in Wisbeck increase in value?

MR HELY: Because the decision was not irrevocable. There was no contract pursuant to which Wisbeck was entitled to acquire this property, it was simply something that Mr Cannane wanted to do, on the evidence.

GAUDRON J: I just do not see how you can treat the matter as fraud separately and independently of value.

MR HELY: Value, in our submission, is irrelevant for what light it throws upon intention. It is clear, in the circumstances of this case, that the shares were not sold for the purpose of obtaining a promise to pay a dollar in return for them. The purpose of the sale of the shares was altogether different, hence, in the particular and peculiar circumstances of this case, the fact of consideration, or the quantum of it, throws no light, in our respectful submission, upon the issue of intention. That is the only relevance, we submit, that consideration has. We submit for your Honours' consideration that there is a - - -

BRENNAN CJ: Why do you not say, "If you acquire these two shares in Wisbeck - mother and son - I will procure the CCI transaction to go through Wisbeck's name." What does that say about Wisbeck shares - the value of them?

MR HELY: Well, the finding of fact is, and we have not sought to challenge it, that on 15 May the Wisbeck shares were valued at a dollar.

BRENNAN CJ: That is the question Justice Gaudron put to you. If you accept that they are valued as a dollar may be cadit quaestio. Why were they valued at a dollar in the light of that?

MR HELY: Your Honour, we would submit not cadit quaestio at all. The question still becomes why was it that the shares were transferred? At once you can see a combination of two things; first, that they were transferred to put them outside the reach of creditors and, second, that the reason that that was done was that a conviction was a conviction that between that date and the date of probable bankruptcy they would increase in value, that the section is at its - - -

GAUDRON J: But why does the increase in value not occur at the minute where it is said, "If you agree to buy them, I will procure this transaction through Wisbeck." That is prior to the sale, but contemporaneously with the agreement for sale, because then you have got a real prospect. I mean, we are not unfamiliar with valuing chances. This one was a near certainty, I should have thought.

MR HELY: It was not completely a certainty, because things were not utterly within the gift or control of Mr Cannane.

BRENNAN CJ: Mr Humphrey valued it at a fairly substantial sum, did he not?

MR HELY: Yes, he did, but upon the hypothesis that there was a covenant by Mr Cannane that he would in effect procure the transaction to proceed and to proceed through Wisbeck. That was the pivot on which his valuation depended and it was because of that pivot that the courts at first instance and on appeal preferred the view of the other accountant that the shares were valueless.

GUMMOW J: What is the answer to what Justice McHugh said to Mr Bennett that this section is all concerned about deprivation of the value of the asset or time?

MR HELY: The question is one of timing.

GUMMOW J: Just of timing, is it?

MR HELY: Timing. If what one can see is that the intention is that an asset be subtracted from the bankrupt's estate because of a concern that at the point of bankruptcy it will be more valuable, then we would submit that the conditions in the section are enlivened.

GUMMOW J: Will be or is very likely to be and that comes to pass in fact.

MR HELY: Whether it comes to pass in fact perhaps does not matter because it is the intention, as the Chief Justice put to Mr Bennett, which triggers the operation of the section.

McHUGH J: But that is a problem, is it not, because from a valuation purpose all its potential uses and capacities are taken into the valuation at the point of disposition? It does not matter what you want to value, if you want to value a share today or a property. What you pay for includes all its potential future uses.

MR HELY: As what? It is Spencer's Case proposition. Can I take three examples perhaps, appreciating that examples are not often illuminating, but, if I could take Mr Bennett's example first, the sentimental transfer of the family home. Clearly that transfer was effected with the intention that the family home would be put out of the reach of creditors. One then says to oneself "Why?", and the answer is not with a view to depriving them of any economic interest or gain, but really it has nothing to do with the creditors; it simply is concerned with sentiment. So we would say in those circumstances section 121 is not enlivened.

If I could take your Honour's horse which is a potential entrant in the Derby, no doubt at a particular point in time its value would take into account the fact that it is eligible to participate in the Derby but it would not take into account the fact that it is going to win it because that is for the future. But if I were to dispose of that horse, I being its owner and I believing that it has a good chance of winning, if I were to dispose of that horse with the intention that it would not form part of my bankrupt estate at the time of my impending bankruptcy, then there would be a contravention of section 121 unless the purchaser was in good faith and without notice, because my intention is that my estate, at the time when the creditors' rights crystallise, will not contain something which I now think will then be of much greater value than it is at the moment.

McHUGH J: You would reject the proposition then that an intent to defraud, for the purposes of section 121, means an intent to deprive, hinder, delay or defeat the creditors in obtaining the value of a property, that value including all its potential uses and capacities?

MR HELY: We would submit that an intention to defeat creditors by subtracting from your estate one of your assets because of the conviction that it is going to increase in value is sufficient to enliven the section. So, it is the three things: impending bankruptcy, subtracting an asset and the reason for the subtraction and being an apprehension that it is going to be worth more than it is at the moment.

McHUGH J: Supposing, let us say, in 1992 a person owns BHP shares which the market then valued at $10. That person says, "I think the market is totally wrong. These shares are worth a lot more than $10 and because of that I am going to transfer them to my wife so they will not be available to my creditors", and it comes to pass that the share price goes up to $19 at the time the person becomes bankrupt. Now, is that a fraudulent intent within the meaning of the section, even though the wife pays the $10, or pays the market price?

MR HELY: We would submit that it is unless she can bring herself within one of the protective provisions of consideration which is present and acting in good faith. The scheme of section 121 is that there is to be no dislocation of the statutory process whereby, at the point of bankruptcy, assets become available for distribution amongst creditors, if the motive which underlies that dislocation is an intention to defeat what the creditors' rights would be in the working out of that process. That is the basis on which we would seek to put it.

McHUGH J: So, on that theory, it would still be a breach of the section, even if you sold it to her for $12.50 when the market was $10.

MR HELY: It could be, depending on the circumstances, yes. But one should not, if I may respectfully put it this way, shudder at that proposition because all this section does, unlike the Hardie v Hanson section, is to avoid something if the requisite intent is present, and if the disponee is not for consideration and in good faith. Unlike Hardie v Hanson, there is no imposition of a civil liability. There is no criminal punishment. It simply says that if what you do is infected by an impure intention, then unless somebody is taken for value in good faith, it is undone.

McHUGH J: So, your theory of the section is that it provides an absolute bar against the disposition of property whenever that disposition is accompanied by the relevant intention and it does not matter what is paid for, or what value is transferred to the bankrupt's estate. The purchaser is only protected if that person comes within section 95(2) - I am sorry, it is 121(2) under the present - - -

MR HELY: Yes. In substance, my response to your Honour's question is, yes, subject to the possible qualification which I think is probably implicit in your Honour's question, anyway, that the presence of consideration and the quantum of it may, and in many cases - - -

McHUGH J: Throw light on it.

MR HELY: - - - have an awful lot to say about what one's intention is.

McHUGH J: Yes.

MR HELY: But not in this case.

McHUGH J: Is there any difference in wording between section 121 - it used to be section 95, was it not, under the old 1924 Bankruptcy Act? Is there any difference?

MR HELY: I think it came in for the first time in the 1966 Act.

McHUGH J: I think it was in the 24 Act.

MR HELY: I do not think so, your Honour.

McHUGH J: Do you not?

MR HELY: Because one of the cases that is referred to, and I think it is a decision of this Court in Williams v Lloyd - - -

GUMMOW J: That is under the State Act.

McHUGH J: Yes, that is under 37 Elizabeth.

MR HELY: Yes, I know, but the point of drawing the Court's attention to it is that that is a 1933 case.

GUMMOW J: Yes, but it is still under the State Act.

MR HELY: Yes, and it was section 37A under the State Act.

McHUGH J: Under the State Act, yes. So, it was still under the Statute of Elizabeth, or a State equivalent.

MR HELY: It is still under the Statute of Elizabeth or section 37A, as Justice Gummow says, of the Conveyancing Act. I am not completely certain, but I think it was 1966 that it came in - - -

McHUGH J: I think now you are right, yes.

MR HELY: - - -and up till that time one had to rely upon the State Act.

BRENNAN CJ: But your definition of intention to defraud, on that approach, is satisfied if there is either an expectation, or at least a foreseen possibility of an increase in value, and it is that foreseen expectation, or possibility that the creditors are to be deprived of. Is that right?

MR HELY: Yes. The way in which I would seek to put - - -

BRENNAN CJ: So, it is to defraud on a contingency that may or may not occur.

MR HELY: No; I would prefer to put it, if I may, with respect, this way: that what enlightens the operation of the section is a disposal of property with the object of depriving creditors of the likely value of that property at the point of bankruptcy.

BRENNAN CJ: Likely?

MR HELY: Yes.

McHUGH J: That is something I have difficulty in understanding. I cannot understand the concept of "likely value". Things have a value now which takes into account all - - -

MR HELY: The question becomes, "Why am I doing something? Am I selling property to realise its worth, or am I selling it to put it out of the hands of my creditors? If I am selling it to put it out of the hands of my creditors I have to say why am I doing it?".

McHUGH J: I know, but I can understand the concept of a likely price, a future price - that is easy. But, I do not understand this concept "likely value".

MR HELY: The likelihood that it will be worth more at the point of bankruptcy than it is at the point of disposition.

McHUGH J: But a valuer will take into account in his or her valuation process all the potential income earning or other attributes of that particular asset in determining what its present value is now, discounted, of course.

MR HELY: But the dispute between the valuers was whether you would do that in a case such as the present, where there was no contractual entitlement and no right to get them.

McHUGH J: That is another question.

MR HELY: The valuer whose evidence was preferred said, in effect, you do not take it into account because it is too ephemeral; it is not real, it is not concrete, it does not exist, it is just a prospect, like winning the lottery. In effect, the value lay in an assumed covenant by Mr Cannane that he would procure these things to come to pass and that, of course, was not the property that was in question. What we put for your Honours' consideration is that the only reason for selling these shares was because of a soundly-based apprehension that they would be worth more at the point of bankruptcy than they were at the point of disposition.

GAUDRON J: Be worth more at the point of bankruptcy if the transaction went ahead through that company.

MR HELY: Which it was intended to happen. Otherwise, one gets back to the position that one is saying because things could - I know Mr Bennett does not accept this, but we would submit it is implicit in his argument that what he is saying is that my submissions are a half truth because things could have been done differently. Our submission is that one does not consider hypothetical alternatives; one looks at what happened and makes an inquiry as to why, as a matter of fact, it happened. And what happened was that they decided to use Wisbeck, and they decided to get rid of the shares because they wanted to put them outside the hands of the creditors because of a conviction that they were going to be worth more.

BRENNAN CJ: Perhaps the "half truth" problem arises because there is a dichotomy being forced between the value of the shares at the time of the transfer and the possibilities of what might occur thereafter. I mean, you are focusing on the fact that the shares were worth only one dollar, but because it was likely, or foreseen that they would be worth more, and that was the intention, therefore the mental element is satisfied. If, on the other hand, you say it is not just a question of a warranty that this would be put through Wisbeck, that is better than a warranty, a family understanding that it would be put through Wisbeck, then the transfer was for an under-value, and you can look at the shares at the time of that transfer. Now, is there any real dichotomy to be found?

MR HELY: We would submit that the controlling factor is intention, that once one can see the combination of circumstances that I have mentioned, keep it outside the reach of creditors because you do not want them to have what they will be then worth, then the controlling factor is triggered and our submission is that it matters not that one comes to the conclusion that at the precise point in transfer they have been valued at a dollar which - - -

GUMMOW J: To defraud of what?

MR HELY: The shares. I am sorry, disposition of property; the property which is disposed of is the shares and what they are to be defrauded of is the value that the shares would have, in the light of the actual facts as they happen, as at the date of bankruptcy.

McHUGH J: I have not read the valuation reports but did either value examine the question of valuation after the execution of the share transfers but in the light of the prospect that the company would then be used as a vehicle for the CCI transaction?

MR HELY: Our valuer made an assumption that there would be a warranty by Mr Cannane in effect to pursue this transaction and to pursue it through Wisbeck and it was the existence of that warranty which he treated as giving rise to the value in the shares.

McHUGH J: In the real world, the fact, for example, that a company has a substantial prospect or even a prospect of obtaining a contract is something that people will take into account in valuing the share. If it is thought that in two or three months a canning company is going to get a particular contract, that affects the price of the shares, even though it has not any legal right to that particular contract. Was there any analysis along those lines?

MR HELY: Not as I recall it. One can, of course, think of other examples that perhaps just make life more complex but if one had, say, a share in a company and the rights that were attaching to the share were such dividend rights and such rights to participate in assets as X shall determine, that share at a particular point in time might be a purely worthless share. If the holder of it learnt that X would be willing to make a determination it could be quite valuable. A decision to transfer that share from one's estate because of impending bankruptcy so that creditors would not be the beneficiaries of X's decision, we submit, comes within section 121. At the point of transfer, that share is denuded of the gain which is later to emerge.

BRENNAN CJ: Is this the proposition then, that the section is set aside if the disposition is accompanied by an intention on the part of the disponer that the creditors will not obtain the benefit of assets at the time of bankruptcy which they would have obtained in some form or another but for the disposition?

MR HELY: I am just trying to consider what assumptions are implicit in the concept of "would have". We submit that the shares in Wisbeck are an asset of the bankrupt. Those shares are subtracted from his estate by his decision to dispose of them to his wife. That happens because of a conviction which he has as to the future worth of those shares, and that combination of circumstances is what we submit triggers the section.

BRENNAN CJ: I was not trying to focus you on this particular case. I was trying to understand what is meant by the concept of "intent to defraud".

MR HELY: "Intent to defraud" as an expression, as I think Sir Garfield Barwick said in Balcombe v De Simoni, does not have a universal connotation applicable to all statutes. In the context of the current statute, one has to take into account, I suppose firstly, that it is a bankruptcy statute; second, that it is intent to defraud creditors; and third, because of the history linking it to the statute of Elizabeth I. We would submit that intent to defraud is to defeat what, but for the disposition, would be the operation of the bankruptcy law.

McHUGH J: That cannot be right, can it, because it contradicts the first example about the house sold for sentimental value which you conceded was outside the section?

MR HELY: But that would not be defeating the operation of the bankruptcy law because the decision to take the sentimental value house out of the estate was in no sense value driven.

McHUGH J: But "intent to defraud" has to mean more than an intent to deprive the creditors of this property.

MR HELY: This property because.

McHUGH J: That is what I mean; it has to be something else. The question is: what is the "because"?

MR HELY: I am sorry, I meant to say that I respectfully agree that it has to be more than to deprive the creditors of this property. One has to ask why is it that that is the intention which the debtor has. Once one comes to the conclusion that that intention is economically based, if I can use that expression, then the section is enlivened.

BRENNAN CJ: Well, it is the "economically-based" which is the weasel word.

MR HELY: I was trying to talk in general terms, and not to confine myself to the facts of this particular case. But naturally, whenever one talks in generalities one has to be very careful that one does not say something that might create more problems than it solves.

BRENNAN CJ: If, in this case, for example, it had been said by the accountant, "Look, it is hopeless. Because of section 121 of the Bankruptcy Act it is too late now to do anything. Even if you try to put it in your wife's name, it will not work, the creditors will get the lot," and if, at that time, Mr Cannane had said, "Well, I will not trouble to persist with it. The CCI transaction can fail but, nonetheless, here is a $1 transfer of Wisbeck shares", or perhaps he had decided to throw it up after the Wisbeck shares had been transferred because of later advice he received, would there have been, then, an intent to frustrate the bankruptcy law?

MR HELY: We would submit so. If the transaction went through, and there was then a disposition of the Wisbeck shares, there would be a frustration of the bankruptcy law. But in order to have a frustration of the bankruptcy law there has to be a conjunction of two things; one is an intention that creditors will not get the benefit of something, but that intention has to be associated with a disposition of property and if all you can see is the circumstance in which the intention exists - as, for example, where a newly acquired shelf company was used to take up this opportunity - you have got the intention without the disposition and, hence, the section does not operate. But because he chose Wisbeck, and because he had to get rid of the shares in Wisbeck, you have both the disposition of property, coupled with the intention. That is the basis on which we seek to put it.

BRENNAN CJ: Could I put another example to you? "I cannot do anything for the benefit of my family in this situation, but they have had some commercial dealings with Ausminco and I will offer the deal to them", and Ausminco buys at whatever value it may be, and I want to give it to Ausminco rather than have those creditors come in and take the benefit of this transaction.

MR HELY: There is no disposition of property; there is simply an intention that creditors should not get something, and a decision to organise his affairs in that way, not involving any disposition of his property and, therefore, not attracting the operation of the bankruptcy laws. We do not say that he is bound to take up opportunities in any particular fashion, and we do not say he is bound to conduct his affairs for the benefit of creditors, so as to maximise their position, but what we do submit is that he cannot dispose of assets if his intention, or object in subtracting them from his estate is as I have indicated.

McHUGH J: What would be the position if there was a shelf company of which he owned the two shares, never traded, and he then transferred those two shares to his wife and son? Would you still be seeking to set aside that transaction?

MR HELY: That is essential in this fact situation.

McHUGH J: I know it is.

MR HELY: In fact, it is no different, I could submit, from this and so the answer to your Honour's question is, yes, we would.

GAUDRON J: Does it come down to this? It is because Mr Cannane Senior had the negotiations in prospect,that you say the section is activated? Because had it been the case that there was simply a transfer for value and then quite independently of Mr Cannane, Mrs Cannane entered into this transaction using the company as the vehicle, there would not be any question of it, would there, of the sections being activated?

MR HELY: Yes. What causes the sections to be activated, in our submission, is that the only reason for selling the shares was that he intended to inject value into the company and he wanted the shares to be outside the control of his creditors in those circumstances. They are the factors that we seek to rely upon to bring the matter within the section.

GUMMOW J: The intention to defraud is not an intention, the implementation of which is solely linked to the transfer, the conveyance, the disposition. It requires the taking of other steps but you say those steps were all in the control of the transferor.

MR HELY: Yes. To effectuate the intention may require the taking of other steps but the intention antecedently exists independently of them.

GAUDRON J: But there are two intentions. One is to inject value.

MR HELY: Second, to transfer the shares and the reason - - -

GAUDRON J: It really may be a problem in identifying the real intention. The intention might simply be to inject value into shares which are beyond the reach of creditors.

MR HELY: In some circumstances, there may be difficulties in labelling or categorising intention, but if one has a look at page - - -

GUMMOW J: That is why, in a way, I think, Mr Hely, Mr Bennett belabours you with putting half the truth because the intention is qualified in these ways.

MR HELY: Except that nothing conditional happened. It may be that somebody made a mistake. It may be that somebody was given some bad advice. All of these things are possible. But the one thing that one cannot escape from are the actual facts, and the actual facts are that shares were transferred, because of a desire to put them outside the reach of creditors because of a conviction that bankruptcy was about to occur and the shares would then, at that time, be worth more.

McHUGH J: But that may be confusing motivation with intention. It may be - this occurred to me earlier in the argument - that his intention was simply to provide his family with a vehicle for obtaining a valuable asset, and that it is wrong to characterise it as an intention to defeat creditors.

MR HELY: I cannot do any better than what Mr Cannane said of his own intentions. Can I take your Honours to it. Page 130.

McHUGH J: Page 130, Mr Hely?

MR HELY: Yes, your Honour. Firstly, perhaps, line 30:

You intended, did you not, at that time, that Wisbeck would be the vehicle by which the family in substance would acquire an interest in Mendolsohn?---Yes.

In the event that Mendolsohn bought the CCI shares?---Yes.

Then at, perhaps, line 42:

You certainly proposed to do, so far as you could, everything you could to ensure that the deal was delivered in substance into Wisbeck?---Yes.

Then, page 131 at lines 5 to 22 are the passages which are extracted in the judgment of the Full Court. Then, line 25:

You did not contemplate, did you, that either Mrs Cannane or Andrew would play any active role in the business of Wisbeck?---Other than directors, no.

it had been agreed between you and Mrs Cannane that the business of Wisbeck Pty Limited would be in substance entrusted to you?---The operations of it.

You did not see that situation changing after the transfer of these shares?---No.

And it did not, did it?---No.

At page 132, lines 15 to 25 are extracted in the judgment in the Full Court.

McHUGH J: But see, this seems to me to throw up the problem about intention and reason, which are not necessarily the same thing. In other branches of the law one strikes this problem and has to distinguish between them.

MR HELY: But, his intention - and I am guilty of repeating myself, for which I apologise, your Honour - was to put the shares out of the reach of creditors. The reason he wanted to do so was that he was convinced they were going to increase in value.

McHUGH J: But you concede the fact that you have an intention to put property out of the reach of creditors is not self-sufficient. You say, nevertheless, if you add reason to it of a particular kind, then you can characterise the whole thing as an intention to defraud.

MR HELY: Yes, your Honour. That is the way in which we seek to put it, except the mere intention to put it outside the reach of creditors is not sufficient if only because of the sentimental value illustrations.

GUMMOW J: What makes it sufficient?

MR HELY: In my considerations, the reason why you do it.

GUMMOW J: Is?

MR HELY: Because you do not want them to have what you are convinced the property will be worth at the point of your bankruptcy.

GUMMOW J: That would explain this case but it might be an odd sort of passage to write down if you are seeking to expound the operation of this section, for the instruction of future readers.

MR HELY: This case is, shall we say, an unusual one.

GUMMOW J: It is a one-off case, I would imagine.

MR HELY: The section, I think, has recently been repealed so your Honour may take such comfort from that as your Honour thinks appropriate in the circumstances. That is what I wanted to put - I am sorry, there are just two more things. Could I ask your Honours to turn to page 892 in the judgment of Mr Justice Lehane at lines 44 to 50. We simply make the point that the question here is a timing question and we submit that the relevant time is at the point of bankruptcy and if one can see a subtraction of assets from an estate because of an apprehension that at that time they will have a value which the disponer does not want to inure for the benefit of creditors. then his Honour's test is satisfied. At page 893 at about line 36:

The intention that the shares should be put out of the reach of creditors is not itself necessarily an intention that creditors be defrauded;

We agree, but we respectfully submit that the superadded reason which is present in the circumstances of this case leads to a different conclusion.

Now, could I then come to the second part of the case which is whether the disposition was of valuable consideration - - -

BRENNAN CJ: Just before you leave that, could I ask you one further question? Let us assume that Wisbeck was already owned or the shares had already been issued to the present holders of the shares before the CCI transaction was contemplated but then the CCI transaction got under way and all the events which are in your chronology then took place and as a result of those events Mr Cannane decided that the benefit of this burgeoning transaction should be taken by Wisbeck, would the section have been enlivened?

MR HELY: No, because there is no disposition of property. There is simply the intention in effect to organise his family affairs in such a way that an opportunity goes in one direction rather than a different direction, but there is no disposition of his existing property. What makes this case different is that there is a disposition of existing property with the requisite intention, in our submission.

BRENNAN CJ: So it really could have been done in this case by arranging for the CCI transaction to be carried through by the wife and sons personally.

MR HELY: Yes, could have but was not. For reasons that he thought sufficient, it is not what he wanted to do because of the wife's tax problems and the availability of Wisbeck. If I could come then to the second aspect, which is this question of the person who acts in good faith, so far as Mrs Cannane is concerned, the notice of appeal does not challenge this aspect of the findings of the Full Court. It is challenged in the case of Andrew specifically, the son, but there is no challenge in the notice of appeal for Mrs Cannane in relation to this aspect of the matter.

Against the contingency that that is not the end of the matter, could I direct attention to the findings of fact which were applicable to Mrs Cannane. Firstly on page 814, lines 30 to 40, which amounts to a finding that the husband and wife had what I might call a community of purpose; at page 815, lines 30 to 40, a belief common to husband and wife that the expected benefits should be diverted from the creditors by the transfer of shares to the family members; at page 877 in the judgment of the Full Court, lines 5 to 10:

Mrs Cannane had full notice of her husband's intention that the shares in Wisbeck should be put beyond the reach of creditors.

At page 68, lines 5 to 10, in the cross-examination of Mrs Cannane:

Because you understood, did you not, that if Wisbeck bought the CCI shares through Mendolsohn and the bank succeeded in the current court case and your husband became bankrupt, that any share in Wisbeck in your husband's name would go to his creditors?---Yes.

And you wanted to avoid that situation, did you not?---Yes, I did.

Would your Honours pardon me? I have got what is obviously a wrong reference written down here. Yes, 188, paragraph 13 of her affidavit indicates a communication by the husband of what is being done and why. So that our submission is that if Mr Cannane's conduct involved an intention to defraud creditors, then his wife both knew of and shared that intention. So far as Andrew Cannane is concerned, the factual findings are these: firstly, page 809, lines 45 to 50:

He has only been aware for the past 18 months or so that he was a shareholder in Wisbeck. He had no recollection of signing the share transfer forms. As at 15 May 1991 he was 18 years old.

Page 810, lines 5 to 20:

Clearly he acted on his father's bidding.

And the conversation is there recorded. Page 813, lines 20 to 30, and this is the basis on which we seek to put it:

I am satisfied that Andrew Cannane was content to accede to his father's request to execute the transfer without inquiry and to participate in the transaction so as to give effect to the father's intentions or purposes, whatever they may have been. Indeed, his affidavit states -

and so on.

KIRBY J: Mr Bennett says that that is not very reliable evidence in the sense that it was just a statement of what generally happened, but he could not affirm that that is what happened on this occasion, but there was the evidence of the father.

MR HELY: I will take your Honour to a piece of evidence which indicates that the position is not quite as clear cut as Mr Bennett's submission would have it. We do not suggest that this is a wilful blindness case in the sense that that term is often used in the criminal law. What we do submit is that Andrew Cannane was nothing more than a cipher for his father, doing what his father wanted because his father wanted it, and that he cannot be acting in good faith unless he had some state of mind about the matter, and he really, other than obedience to his father's wishes, had none. Then 815, lines 45 to 50:

Andrew Cannane was simply doing this father's bidding and was in effect serving as his alter-ego in implementing the diversion.

And the Full Court, at page 877, line 40, to the bottom of the page. Then, if I could go back to page 76, line 30 - and this is what I had in mind when answering Justice Kirby's question a moment ago:

Is your position that you just cannot say whether or not your father said to you words to the effect set forth in paragraph 6 when you signed this share transfer?---Yes.

He does not recall being conscious of signing a share transfer. And on page 77, lines 5 to 20, used the proposition that it is only in the last 18 months that he has become aware that he is a shareholder in Wisbeck. There is, as a matter of language, a difference between the terminology used in section 120 from that which is used in section 121. Section 120(1) talks in terms of "a purchaser or encumbrancer in good faith", whereas, section 121 talks about a disposition in favour of a person who acted in good faith. We submit that a person cannot meaningfully be said to have acted in good faith unless he had some particular state of mind about the matter under consideration, whereas Andrew had none.

So that, contrary to Mr Bennett's submission, we would submit, both generally and in particular in the context of section 121, there can be cases of - if I may borrow his expression - no faith, which, if they exist, mean that the relevant person is not acting in good faith. Some support for that proposition comes, firstly, from a decision of Mr Justice Fisher in The Official Trustee v Marchiori (1983) 69 FLR 290. On page 297, point 8:

I attach some significance to the fact that s. 121 requires the person taking to have acted in good faith whereas s. 120(1) refers to a settlement "made in favour of a purchaser or encumbrancer in good faith."

And 298, point 2:

In such a case, in my opinion, the transferee does not necessarily discharge her onus by merely proving lack of knowledge or inability through immaturity to act in bad faith. I do not consider that the question whether the transferee acted in good faith is established exclusively by reference to her subjective state of mind. It is rather, in my opinion, a matter for objective determination -

and so on. And then, at about point 5, there is a convenient reference to the Court of Appeal in Mogridge v Clapp. Your Honours will recall that Mr Bennett took the Court to the decision of Mr Justice Kekewich at first instance in that matter, remarkable in his submission for the fact that it was upheld by the Court of Appeal. That is true, but not for the reason given by Mr Justice Kekewich, because as Lord Justice Kay says at page 401:

Good faith.....must mean or involve a belief that all is being regularly and properly done;

KIRBY J: That suggests an affirmative belief. In other words, in order to get the exemption you have to demonstrate that you had the affirmative belief that - - -

MR HELY: Yes, your Honour.

KIRBY J: Is that how the section as a matter of principle is expected to operate?

MR HELY: One sees in the context of this another but associated sections a whole host of different formulae which are substitutions for the words "good faith" but we do submit that the phrase "acting in good faith" tends to signify something a little more positive than where those words "acting in" were not present.

McHUGH J: In other areas good faith - when I say other areas, I mean other areas of the Bankruptcy - the preference provision. It has always been the case, has it not, that "good faith" means without notice that any fraud or fraudulent preference was intended?

MR HELY: That is right, your Honour. Without notice that whatever it is the statute proscribes was happening but we would submit that even if one takes that test and applies it to Andrew here, if what he does in effect is to go along with whatever his father wants him to do, then he takes the position with all its infirmities otherwise these provisions do become, if I can borrow an expression used elsewhere, a cheat's charter where one can in effect drive the horse and cart through them by selecting a particular individual as the person to participate in the transaction. So that our submission is the Mogridge v Clapp Court of Appeal test is the one which is to be applied but even if the "without notice" test is applicable, Andrew was not acting in good faith because he simply did what his father wanted. Those our submissions, if the Court pleases.

BRENNAN CJ: Yes, thank you, Mr Hely. Mr Bennett.

MR BENNETT: If your Honour pleases. First, in relation to my learned friend's chronology, your Honours will see from the chronology that there is no mention of Wisbeck prior to the letter to the accountant on 2 April. My friend then says look at 17 April where, prior to the transfer of shares, Mr Cannane told the Bank of Singapore that Wisbeck was to be substituted, and that is then approved. What is significant about that, of course, is that the Bank of Singapore very obviously does not care who it is. The Bank of Singapore does not care whether it is Wisbeck or some other company. The transaction is what is important to them, and in response to his nomination they say that is fine.

Of course, when one looks at the letter of 18 April at the top of the next page - your Honours need not do it now, but, page 443 demonstrates quite clearly that there was still to be a mortgage over the property, over the house property, and we know elsewhere, of course, that that was owned by Mrs Cannane. So, one of the conditions the bank had even then was that there be a mortgage over the wife's property.

The other matter to note is your Honours will see that my friend's chronology substantially stops at the transfer of shares on 15 May. There is a couple of minor items, and then goes straight to the transaction in August. The list of eight page references I gave your Honours should be inserted there. What those eight page references show is that the transaction changed a number of times and, in effect, was completely renegotiated between those dates. So, there certainly was not anything fixed and substantial available to anyone in May.

BRENNAN CJ: When did the Bank of Singapore approve the loan on terms of that security?

MR BENNETT: It did it a number of times, your Honour, each time the transaction changed. It did it first on 18 April and it then, in the course of the eight references I have given your Honours, it did it, I think, two or three more times.

BRENNAN CJ: There was no response to the application of 5 February?

MR BENNETT: No, at that stage there was no approval. The first approval document was 18 April, and there were two, possibly three, subsequent ones in the eight references I have given the Court.

GUMMOW J: That signature at page 445, accepted; is that Mr Cannane's signature?

MR BENNETT: Yes. It was ,but that was, first of all, only part of the transaction and, secondly, it still could not have gone ahead without further actions on his part and, more importantly, on Mrs Cannane's part. Secondly, my friend gave a number of examples which related to your Honour Justice McHugh's example about the Derby in relation to cases where there is a conviction of increase in value. The highest one could possibly put that is to say that if one had a case where a person believed an asset to be worth much more than it really was and transferred it for that reason at its true value but not the value he believed it to have, there may be a question of intent to defraud creditors.

One can imagine the case where the man is absolutely convinced his horse is going to win the Derby but objectively the market would not take that view and objectively the horse is sold at the value which it objectively has. One might say there, because one is looking at intention, one looks at the facts as he understands them and says perhaps there is an intention to defraud creditors there. But, even if one takes it that far - and no case does - that is not this case because here the value was on any view conditional on the transfer as a matter of fact, and that is the distinguishing feature. One could not imagine this transaction occurring absent the transfer, and that is the ultimate point.

If I may deal with Andrew Cannane next and then come back to Mrs Cannane. In relation to Andrew Cannane, there are just four matters I wanted to refer to briefly in reply. The first is to point out that at page 877, which is one of the pages my learned friend took your Honours to, the statement at lines 44 to 46 is incorrect. Your Honours see the statement:

It does not seem that his father proffered any explanation of the transaction.

I am not going to take your Honours through the evidence again but your Honours will recall the evidence in the submissions about that.

The second matter is, my learned friend referred to section 121 and contrasted it with section 120 and he refers to section 121 requiring one to act in good faith. That is actually putting it a little more highly than the words of the subsection. If one looks at subsection 121(2), what it says is:

Nothing in this section shall be taken to affect or prejudice the title or interest of a person who has, in good faith and for valuable consideration, purchased or acquired.

He does not quite say acted in good faith, it says purchased or acquired in good faith. Now, certainly that is different to section 120, so my friend's point is available, but it is not quite as strong as was suggested by the word "acted". The word "acted", incidentally, is the word inserted in Marchiori inaccurately.

Here, of course, we say that the statement made by the father to the son providing a perfectly rational reason for the transfer is sufficient to make it good faith and I have given your Honours my submissions on that. I will not repeat them.

McHUGH J: I am sorry, I just did not quite follow that argument about acted in good faith. Section 121(1) uses the expression "acted in good faith", does it not?

MR BENNETT: I am sorry. Your Honour is perfectly correct. Yes, I was looking at subsection (2) which seems to repeat the concept but it does state that, yes, I accept that. The main point I make remains which is that one does act or receive in good faith where one is given a good explanation and goes no further.

My friend referred to Marchiori. May I just say this about Marchiori 69 FLR 290. It is a hard case on the facts but I suppose accepting the cliche about hard cases one has to face up to it. But may I say this about it. This case is quite different to the present one in the factors which are there found to give rise to the bad faith of the daughter. If your Honours look at page 298 in the middle of the page:

There is no doubt that Christine knew of her parents' financial difficulties.

That is different to this case. Then, further down the page, the last full paragraph:

It would be unrealistic to accept as evidence of her good faith her limited understanding consequent upon her immaturity.

She was 17 at the time.

This circumstance may make it more difficult for her, and the bankrupt, to sustain a defence of the transaction but, in my opinion, properly so. The crucial fact is that she failed to ask any questions of her father or to give any consideration to the consequences -

That was a transaction (a), where she knew of his insolvency and (b), if your Honours go back to page 292 which is the agreement between the father and daughter, your Honours will see that a car is sold for $5,600 on the basis:

That she pays $325 (Three Hundred and Twenty Five Dollars) as down payment.....

That the remainder be paid in regular instalments as soon as she is fully employed after the termination of her education.

She was 17 and planning to do medicine so that was a fair way off on any view of it.

"Regular Instalments" meaning by definition at least $20 (Twenty Dollars) per week -

which would take more than five years even when she does start and:

That she will lend her Motor Vehicle to her Father and Mother whenever requested or required,

and

that she is forbidden from selling it.

Almost all the badges of fraud of Twine's Case are present in that case. It is a very different case to this one.

McHUGH J: What do you say about the passage on 298 where Justice Fisher says that the question under the section is not to be determined "exclusively by reference to" the "subjective state of mind" of the donee but that there is an objective element in it?

MR BENNETT: I accept that, your Honour, but here, if one looks at what the father said to the son, it is objectively reasonable. He has no reason for making an inquiry. It is objective in the sense that where you have this case with all the badges of fraud present, the fact that she is 17 and does not understand fraudulent conveyances does not help her. She knew he was insolvent. She knew she has not got to start paying until she has finished her education and she knew it was $20 a week and she knew she has to let him continue using the car. Objectively it cried out for a person to ask questions. Finally in reference to Mogridge may I just say this. The passage in the judgment of Lord Justice Kay is not really inconsistent with - it is at page 401:

Good faith in that connection must mean or involve a belief that all is being regularly and properly done -

I do not have any problem with that. What one does not have to do is analyse the transaction to form that view if there is nothing to put one on notice.

KIRBY J: But that seems to be a slightly different submission though than the one you put earlier because here it is involving a belief which seemed to be an affirmative belief, whereas you were putting earlier that it is merely the absence of bad faith. That is what you drew from the primary judge in that case.

MR BENNETT: Your Honour, I do, but if the sole extent of affirmative belief required is one of regularity, then I have that here. So, I do not need to go as far as that.

KIRBY J: But it has to be an affirmative belief of regularity and propriety, whereas if you do not take a very positive or active part then you simply do not have any belief. It is a no faith situation.

MR BENNETT: If one has no belief at all then one would, I suppose, have assumed that it was proper and regular because one would not assume impropriety or irregularity unless there was some reason to do so. In a sense, it is a semantic distinction. The important point is, and I think we are agreed on this, if a person asks nothing and says nothing in a transaction which objectively appears quite normal, that is good faith. If a person knows some factors which would put the person on notice and makes no inquiry, that is bad faith. So, in a sense, neither is going to be no faith, and in a sense, it really makes no difference whether one puts it the way Justice Kekewich put it, or one puts it the way Lord Justice Kay puts it. But, to the extent that there is a difference, we submit the Court would prefer the approach of Justice Kekewich.

I do note that the other two Justices of Appeal did not consider the point at all. Lord Justice Lindley does not refer to it, and Lord Justice Bowen agrees with Lord Justice Lindley. So, it is one judge alone in the Appeal Court and one judge alone below.

Those are the submissions about Andrew. In relation to Mrs Cannane, before I come to the question of the notice of appeal, may I just make two points. The first, that we accept that she knew almost as much as her husband knew, if not as much as he knew.

KIRBY J: Why are you making this submission in advance of an application to amend your notice of appeal?

MR BENNETT: To show you how short it is, your Honour.

KIRBY J: Yes, but, unless your appeal is amended, you have no locus on this point.

MR BENNETT: Your Honour, I can do it in the other order but it is only going to take one minute to put the argument. I just wanted to show how short it was.

KIRBY J: I am not objecting; I am simply saying there is a procedural barrier to you because you have not raised this in your appeal.

MR BENNETT: Your Honour, it is raised in the submissions. We had not noticed in was not in the appeal and I do seek leave to amend.

BRENNAN CJ: What is the amendment?

MR BENNETT: The amendment, your Honour, is simply - if your Honour goes to page 902, your Honours see ground 4 in Andrew's appeal. I simply seek to add that mutatis mutandis on page 899 as 2(a) in the other appeal.

KIRBY J: The juxtaposition of the two in such short notices of appeal rather suggests a certain want of confidence in the point by the drafter of the two notices of appeal.

MR BENNETT: That may be, your Honour, but it is a very short point. It was put in the submissions. My friend dealt with it. It may not arise, of course, if I am successful in the main ground. May I just say one thing about it because part of my - - -

BRENNAN CJ: Before you do, Mr Hely, what do you say about the application to amend?

MR HELY: Would your Honours permit me to say that it is a matter for your Honours. I do not point to any prejudice.

BRENNAN CJ: Very well, you have leave to amend; that is, by adding paragraph 2(a), is that right?

MR BENNETT: It has to have one alteration, that instead of "John Vincent Cannane" it has to say "J. Cannane Pty Limited" because Mrs Cannane acquired the company's share and Andrew Cannane acquired his share.

BRENNAN CJ: Yes.

MR BENNETT: I will have the appropriate steps taken to formalise that. I am indebted to my learned friend. Your Honours, the argument is extremely short. The only additional factor in her case is the putting up of her home and the guarantee. When one adds those factors, one adds the factor that the wealth could not be achieved without her co-operation and her taking the risk, which was the substantial cost of it. In my respectful submission, even accepting that she knew whatever he knew, that cannot possibly make her guilty of bad faith.

The second part of the submission is that looking at bad faith in this context may be in one sense broader than fraudulent intention because if by some process of the type applied below, one characterises his intention as in some way an intention to defraud creditors in a technical sense, the moral submission I made before rather indicates that it is not bad faith or not in good faith and she knowing as much about the transaction as he did for this purpose would be entitled, in my respectful submission, to be regarded as being in good faith, but once one adds the guarantee and the house, that becomes clear beyond doubt. May it please the Court.

BRENNAN CJ: Thank you, Mr Bennett. The Court will consider its decision in this matter and will adjourn until 10.15 tomorrow morning.

AT 12.52 PM THE MATTER WAS ADJOURNED