The Trustees of the Property of J.D. Cummins A Bankrupt v Cummins & Anor [2005] HCATrans 989 (7 December 2005)

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The Trustees of the Property of J.D. Cummins A Bankrupt v Cummins & Anor [2005] HCATrans 989 (7 December 2005)

Last Updated: 7 December 2005

[2005] HCATrans 989

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S286 of 2005

B e t w e e n -

THE TRUSTEES OF THE PROPERTY OF JOHN DANIEL CUMMINS A BANKRUPT

Appellant

and

MARY ELIZABETH CUMMINS

First Respondent

AYMCOPIC PTY LIMITED

Second Respondent

GLEESON CJ
GUMMOW J
HAYNE J
HEYDON J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 7 DECEMBER 2005, AT 10.19 AM

(Continued from 6/12/05)

Copyright in the High Court of Australia

GLEESON CJ: Yes, Mr Sofronoff.

MR SOFRONOFF: Yesterday, your Honour the Chief Justice raised with me the issue whether an agreement for consideration to purchase this property for consideration might result in the inapplicability of section 121 on the footing that the promise to pay did not diminish the assets of the bankrupt. In our submission, however, section 121 would apply in any event, subject to the defence in section 121(4). Section 121(1) speaks of “A transfer of property” that would probably have become part of the estate where the transferor had a particular purpose. When one looks at the definition of purpose, subsection (1) which is engaged in this proceeding uses the expression:

the transferred property –

So, notwithstanding the presence of consideration in the transaction:

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

(i) to prevent the transferred property from becoming divisible –

subsection (1) is engaged.

GLEESON CJ: It is a question of fact going to purpose.

MR SOFRONOFF: It would be then, yes.

GLEESON CJ: If you transfer a half interest in a house in consideration for a promise to pay the market value of that half interest you have not done anything yet that is capable of disadvantaging your creditors, have you?

MR SOFRONOFF: Correct, and at that point there is no purpose that has been revealed that would fall within the section.

GLEESON CJ: Yes. So, the question of fact that we may have to address in our reasons in this case is what by way of defeating creditors was being achieved by the transaction in relation to the Hunters Hill property of 1987? On the face of it the answer to that question is nothing if you do not look beyond the terms of the transfer, including the agreement to pay the value. The question then arises what happened in this case about the obligation to pay the purchase price and what, if any, inference of fact ought to be drawn about the intention of the transferor in 1987 concerning what was to happen about payment of the purchase price because it was the process by which the purchase price became irrecoverable, at some stage, that defeated the creditors, was it not, if anything defeated the creditors?

MR SOFRONOFF: Your Honour, in our submission, assuming a finding that it was never intended that the purchase price be paid, whether by forgiveness or some other means, then that would be a neutral factor in this case because assuming there are two arguable logical possibilities, to defeat the Commissioner or to preserve the property against possible plaintiffs in the future, in each case the intention not to pay consideration would be consistent with such a purpose.

GLEESON CJ: Technically what happened, was, was it not, that the purchase price was paid by the undertaking by Mrs Cummins of an obligation in the form of a debt?

MR SOFRONOFF: Yes.

GLEESON CJ: The debt was never paid.

MR SOFRONOFF: Correct.

GLEESON CJ: The debt was never released.

MR SOFRONOFF: That is right.

GLEESON CJ: When and by what process did Mr Cummins cease to be a creditor of Mrs Cummins in relation to the amount of the debt?

MR SOFRONOFF: Only by the effluxion of time and the operation of the Limitation Act.

GLEESON CJ: When was that?

MR SOFRONOFF: Twelve years.

GLEESON CJ: Why was it 12 years?

MR SOFRONOFF: I am listening to my learned friend, Mr Ashhurst. In Queensland it would be six years because of a contract but I take it that in New South Wales it is 12.

GLEESON CJ: Well, somebody at some stage had better inform us of that.

MR SOFRONOFF: We will do that, your Honour.

GLEESON CJ: Was the case conducted below on the common understanding that it was Mr Cummins’ intention from the beginning that that debt would never be paid?

MR SOFRONOFF: No. That is to say we did not put it in issue but it was not conducted on a common assumption that Mr Cummins intended that debt never to be paid. I am sorry. No, that is not correct. We pleaded indeed that Mrs Cummins never intended to pay. We did not know anything about Mr Cummins’ state of mind beyond what we pleaded as the agreement.

GUMMOW J: There is also a lien, is there not, of the unpaid price?

MR SOFRONOFF: Yes.

GUMMOW J: How long would that take to become barred?

MR SOFRONOFF: Your Honour, I think that is dealt with in Justice Sackville’s reasons.

GUMMOW J: Paragraph 34, is it, in the first judgment?

MR SOFRONOFF: That is it, your Honour. Paragraphs 33 and 34 deal with these issues.

GLEESON CJ: When you say “these issues”, there was another issue in the case that went out of it, was there not? There was not actually a claim by the Trustees for the debt.

MR SOFRONOFF: Paragraph 33 deals with that.

GLEESON CJ: Yes, and that eliminates that issue.

MR SOFRONOFF: Yes.

GLEESON CJ: But what does it do about the issue I have been asking you about? That is the application of section 121 and in particular the factual issue about the purpose of Mr Cummins having regard to the circumstance that the 1987 transaction on the face of it did not diminish his assets.

MR SOFRONOFF: Your Honour, the way it was dealt with was that Mr Coles for the Trustees argued as part of his case that the judge should infer that the transaction was voluntary in the sense that there was no intention that money ever change hands.

GLEESON CJ: Did the judge make that finding of fact?

MR SOFRONOFF: I think he did, your Honour. He recites the proposition at 1656. The judge deals then with the question of payment of money towards the end of his reasons when he is dealing with the evidence of the solicitor’s notes. It was in the second part of the hearing at 1712.

GLEESON CJ: Thank you. Paragraph?

MR SOFRONOFF: Paragraph 74, your Honour. He is dealing with the resulting trust issue in the third-last sentence of that paragraph.

GLEESON CJ: But he is using as an admission against Mrs Cummins at that stage her willingness to pay half of the value of the house. How is that consistent with the conclusion that it was never intended that she would pay anything?

MR SOFRONOFF: It is inconsistent and, in our submission, for that reason and other reasons he ought not have used it as an acknowledgment by her that her husband had a 50 per cent interest in the property.
]
GLEESON CJ: But apart from what you have referred us to in paragraph 74, did Justice Sackville or did the judges in the Full Court of the Federal Court make any finding of fact about the intention of either Mr Cummins or Mrs Cummins in relation to the payment of that debt?

MR SOFRONOFF: I think I am correct in saying the answer is no.

GLEESON CJ: If you are right in your statement that it took 12 years for the debt to become statute barred, does that involve as a corollary that it was going to take 12 years for this scheme of divesting of assets to work?

MR SOFRONOFF: No, your Honour. If one takes the solicitor’s notes at face value they, your Honour will recall, contained a note that Mary must be a purchaser and he contemplated preparing a deed of forgiveness within about six months, I think was the timeframe, and he wrote a note to himself to check whether a deed of forgiveness would itself constitute a settlement for the purposes of the statute.

GLEESON CJ: Is the inference that people forgot to execute the deed of forgiveness?

MR SOFRONOFF: Yes.

GLEESON CJ: Was that common ground that - - -

MR SOFRONOFF: I do not know that it was common ground, your Honour, but our side at least did not put any of these matters that your Honour is putting to me in issue.

HAYNE J: In particular, you did not advance in support of the no case submission the proposition that there had been a transaction for value.

MR SOFRONOFF: That is right.

HAYNE J: Well, does not the failure to advance that as a ground in support of the no case submission lend some support to the proposition that the conventional basis on which this litigation was conducted was that the transaction in issue was one in which a purchase price was recited, but which it was at the time intended should not be paid.

MR SOFRONOFF: That is correct, your Honour. We did not fight the case on the footing that Mrs Cummins and Mr Cummins intended that the purchase price be paid. Leaving aside questions of onus of proof, we fought the case on the footing that the transfer was one made by Mr Cummins because of a concern that he might be sued one day.

GLEESON CJ: Did you also fight the case on the basis the transfer was voluntary?

MR SOFRONOFF: We never asserted that the transfer was voluntary. The other side asserted it and we never challenged it.

GLEESON CJ: So is it fair to say that the case was conducted on the conventional basis that the transfer was voluntary?

MR SOFRONOFF: Yes. Could I, your Honours, for the sake of completeness, say this about section 121 though. Assume against us that Mr Cummins’ main purpose was to ensure that his share, and assume against us that he had a 50 per cent share, that his share of the family home ought not become divisible among his creditors, including the Commissioner; assume that that was his main purpose. It would follow then that he had effected a transfer of property having later become a bankrupt, property which would probably have become part of his estate. His main purpose was the relevant one “to prevent the transferred property from becoming divisible”.

Assume further that the contract was one for full consideration, subsection (1) would still be engaged, then, assuming it was for full consideration Mrs Cummins would look to subsection (4) as a defence.

GLEESON CJ: Just before you pass over that statement, it is one thing to say that if the contract was for full consideration the section was still engaged. There is a factual issue about the transfer about what happens when you engage the section and if the transaction was for full consideration it would be hard to make a conclusion about the transferor’s main purpose being as described in the section, would it not?

MR SOFRONOFF: That might be right, but could I deal with the section theoretically and then come back to that?

GLEESON CJ: Yes.

MR SOFRONOFF: Assume that there is clear evidence as to the main purpose by way of admission, that could arise if a person had owned a family property that had been in the family for generations and wants to protect it against division amongst creditors and enters into a transaction for full consideration. The terms of subsection (1) would still catch that transfer but subsection (4) would then come into play and if, firstly, the consideration was at least as valuable as the market value that would be satisfied.

If the transferee did not know of the main purpose then in the old terms that would be good faith and if the transferee could not have inferred that the transferor was about to become insolvent, well, that is the other element of the old-fashioned good faith, then that would furnish a defence. However, absent that defence then subsection (1) is engaged and the only relief that the transferee has is under subsection (5) to recover the consideration.

It appears that, as Justice Gummow put to me yesterday, the Harmer Report sought to widen the scope of section 121 and to the extent it did it it did it – the section was widened in two respects. One was to remove the necessity to prove an intent to defraud and substitute the words in subsections (1) and (2) and the other way was to import the definite article into (b)(i) “to prevent the transferred property” rather than to say “to prevent property” from becoming divisible. As a consequence, if a person has the relevant purpose of preventing:

the transferred property from becoming divisible –

then subsection (1) is engaged but in most cases where there is good faith, and for consideration, that will be the answer.

GLEESON CJ: That is a very big “if” that you just put into that proposition.

MR SOFRONOFF: Yes, it is and that would be a rare case.

GLEESON CJ: Because the question would be why would you bother to do that?

MR SOFRONOFF: One can think of cases where one would do that but the more general question is the one, with respect, that your Honour put to me. Once one sees for consideration there is a big question mark about whether the purpose could have existed.

GLEESON CJ: Could I ask you another question about the basis on which this case was conducted? Was there evidence that Mr Cummins was a committee member of the Australian Jockey Club?

MR SOFRONOFF: There was evidence that he was involved in racing because there were some reconstructed accounts of his that showed fees paid with respect to racing matters but I do not know that – excuse me, your Honours. My learned junior does not recall any evidence to that effect and I did not see any in the record book.

GLEESON CJ: So in the evidence and in the arguments in the courts below, no attention was paid to any questions relating to gambling or expenditure on horseracing activities?

MR SOFRONOFF: There was evidence in relation to expenditure on horseracing activities. In volume 4, your Honour, page 1626, Mr Porter was a witness called by the appellants and at 1626 you will see in the middle of the spreadsheet under the heading “Description in accounts”, halfway down the words “Horse – Salivate” and then “JB Cummings” I would hazard is a horse trainer and “L. Hawke Betting”.

HAYNE J: Final item on the spreadsheet “Horses”, first item on the spreadsheet on the next page “Livestock Trans”, “JB Cummings”, et cetera, “Randwick Equine”, “NSW Breeders Assn”.

MR SOFRONOFF: Yes, and the same over the page. In fact, on page 1628 there are lots of references to racing activities.

GLEESON CJ: And at page 506.

MR SOFRONOFF: At 506, my learned friend Mr Coles pointed out, is the reference to his membership of the committee.

GLEESON CJ: Did the majority in the Full Court of the Federal Court appear to consider how activities of that kind might be funded?

MR SOFRONOFF: No. Could I mention finally on this aspect relating to the construction of 121, your Honour Justice Gummow raised the issue of the Harmer Report yesterday. Justice Sackville dealt with it at volume 4, pages 1662 to 1664, which are paragraphs 88 to 93.

Could I move on then, your Honours? I need to deal with three points to conclude. The first is the competing inference and why, in our submission, it is an equal competing inference and the treatment of the Full Court of that. The second point is what is a creditor for the purposes of section 121, and I can deal with that briefly in due course, the question being whether, if Mr Cummins’ purpose was, as we submitted it was, whether that would be outside section 121 and then thirdly the issue of the resulting trust.

Could I take your Honours to Cook’s Construction Pty Ltd v Brown [2004] NSWCA 105; [2004] 49 ACSR 62 a case I mentioned yesterday. Your Honours, this was a preference action and the respondent, which had been paid money by a company that was later wound up, had to establish that it was a person which had no reasonable grounds for suspecting that the company was insolvent so it bore the onus. The only evidence that it called on that issue, apart from documentary evidence, was one person from the office who in the result it seems conceded that she had no real memory of what she thought or suspected at the time and so the question arose whether on the documentary evidence which supported the absence of such a suspicion the judge had been justified in rejecting the payee’s defence?

The Court of Appeal concluded that the judge was justified because of the failure of the payee to lead evidence that might reasonably have been expected to be available and that consequently the available evidence ought to have been judged, and the trial judge correctly judged it, in the light of the inadequacies. If your Honours would go to page 69 of the report. Without dealing with the facts, if I can just isolate the statements of principle. Just in paragraph [41], the second half, Justice Hodgson said:

However, prima facie there was evidence that the appellant could have called that would have directly dealt with the question of what grounds if any of those persons had, namely the evidence of the person or persons who made the numerous verbal requests and who received the promises.

Then he deals with a submission that was made and then just below line 25 he says:

However, in my opinion, where a party has to prove something and prima facie has available evidence that would directly deal with the question, a court will be very hesitant in drawing an inference in that party’s favour from indirect and second-hand evidence when the party doesn’t call the direct evidence that prima facie it could have called, at least unless some explanation is given, or the circumstances themselves provide an explanation -

If you go back to page 67 the Chief Judge deals with it at paragraph [32]. He refers to Jones v Dunkel:

That wider principle is that in judging evidence the court has regard to the material available to a party. If the person that the court is considering is a person who does not bear the onus of proof and that person fails to call a witness, the inference may be drawn that the witness is not likely to assist the person’s case. That is Jones v Dunkel itself.

[33] If on the other hand the person bears the onus and has a witness which he or she does not call then the court takes that into account when assessing the evidence as a whole.

In our submission, in this case it should have been the approach of the trial judge, and it was the approach of the Full Court, that in assessing the sparse evidence of Mr Cummins’ purpose one has to have regard also to how that evidence weighs when there has been a failure to call other evidence that one would think should be available and where no explanation has been furnished for the reason for that failure.

HEYDON J: What is the available evidence?

MR SOFRONOFF: We list it in the schedule, your Honour, but an obvious piece would be evidence from Mr Cummins of what assets he had and what income he had.

GLEESON CJ: All this is a subsidiary point to your argument, as you introduced it, in support of the competing inference.

MR SOFRONOFF: Yes, it is.

GLEESON CJ: Would you mind saying what exactly is the competing inference?

MR SOFRONOFF: The competing inference is that Mr Cummins, fearing that he might one day be sued for giving negligent advice, considered that he ought to protect his family home from any claims and his chambers from being divided amongst creditors and for that reason made the transfer.

GLEESON CJ: And was that, at all stages of the proceedings below, advanced as the case for your client?

MR SOFRONOFF: Yes.

GLEESON CJ: That explains the conventional basis on which the case was conducted.

MR SOFRONOFF: Yes. So, looked at then, if we are right in submitting that one measures the evidence led in this case against the possibility that other evidence that should have been available was not called without explanation, then one goes, in our submission, to the way in which the High Court in Bradshaw v McEwans (1951) 217 ALR 1 put the question and the relevant passage for our purposes is at page 6 where their Honours, after dealing with the sort of case where different possibilities arise as a matter of inference, go on to say:

All that is necessary is that according to the course of common experience the more probable inference from the circumstances that sufficiently appear by evidence or admission, left unexplained, should be that the injury arose from the defendant’s negligence. By more probable is meant no more than that upon a balance of probabilities such an inference might reasonably be considered to have some greater degree of likelihood -

which is not a very heavy test to satisfy.

GLEESON CJ: But those words, “left unexplained” are important, are they not? It really, as I think was pointed out on a couple of occasions you have already referred to us, Jones v Dunkel is really only a particular illustration of a wider principle. It is a question of evaluating evidence and if you have evidence on one side of a case that is “left unexplained” the inferences that you might draw from it rationally might be much more readily drawn by reason of the fact that it is unexplained depending, of course, on the circumstances.

MR SOFRONOFF: Quite. We would add a second part to that principle, your Honour, that before one arrives at the conclusion that there is something that needs explanation one must weigh the available evidence, taking account of what else could have been called, should have been called, to firm up but was inexplicably not called.

GLEESON CJ: This litigation theoretically might have been conducted after both Mr and Mrs Cummins had been killed in a car accident.

MR SOFRONOFF: That is true.

GLEESON CJ: Presumably much of the same evidence would be there, and a court would be left to draw inferences from it.

MR SOFRONOFF: Yes. Yes, that could be. But we would still have, in addition to Mr Cummins, who then could not be called, we would still have the available other things that might have been done by the Trustee to determine what was Mr Cummins’ true position in 1987. The position we are in actually is that we know nothing about his position in 1987, and we do not know why we do not know anything about his position in 1987. We might surmise as is the fact that it would not be easy to define his position exactly in 1987, but his position was defined sufficiently in 1992, and one would think logically that 1987 would not be much more difficult and some work could have been done.

If it could not be done then it would have been easy to lead evidence to explain that that work could not be done, that evidence could not be produced, unless it were so obvious but it is not so obvious in this case. So, in our submission, in the absence of Mr Cummins not being dead, Mr Harris not being dead and no explanation to the effect that expected records are not in fact available, then why should a judge feel comfortable in making a decision against Mrs Cummins, who is not said to have been implicated in any wrongful conduct, why should a judge feel comfortable in drawing the available inferences against her when there is another logical possibility that arises on the material which has not been displaced, and in respect of which there is a great deal of support in the evidence, equal support we submit, and could I turn to that and sketch it out as efficiently as I can.

Before I do that, Mr Ashhurst has reminded me that there is an important passage in Bradshaw v McEwans on the preceding page, page 5 of the report, at line 25:

In questions of this sort where direct proof is not available it is enough in the circumstances appearing in the evidence –

and that should read “it is enough if the circumstances” –

give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture –

and it is our case that the choices in this case were mere matters of conjecture. We know that, as we have acknowledged, there was evidence from which a court could conclude that he was a debtor to the Tax Office, but we do not know how much.

That is just the starting point, in our submission. Plainly, that would give rise to the logical possibility that our learned friends advocate. We also know from the evidence that I have traversed that there was this other possible purpose. When one then looks at the evidence that the Trustees led, one is left with nothing more than mere conjecture as to which is the more probable of those two, given Mr Cummins’ peculiar history in particular. Could I take your Honours to the Full Court reasons at 1765?

GUMMOW J: Paragraph?

MR SOFRONOFF: It starts at paragraph 119, your Honour, but the substance of it begins at paragraph 121. Their Honours, in our respectful submission, correctly summarise the principle whether the evidence was “strong enough to exclude that hypothesis on a balance of probabilities.” That is to say, to render the Trustee’s thesis more probable. There was nothing to suggest that in 1987 he anticipated being unmasked. On the contrary, your Honours, in 1986 he had bought the shares in the Parramatta chambers in his own name. In 1987 nothing had happened that might have evoked some kind of reaction from him. The only thing that did happen, for what it was worth, was the Giannarelli litigation occurred, and there are arguments both ways about the significance of that. Of course, there is no evidence that he knew of it except to the extent that everybody in the profession knew of it.

GUMMOW J: Another curiosity in this litigation is that it was conducted in such a way that the court did not have regard to the affair of the Australia Card, nor to the introduction of the tax file system in 1988.

MR SOFRONOFF: That is right. There was argument about that, as your Honour appreciated.

GUMMOW J: Yes. The introduction of the tax file number system is a matter of notice surely.

MR SOFRONOFF: Pardon?

GUMMOW J: It is a matter we can take notice of surely. It is a statute of the Parliament in 1988.

MR SOFRONOFF: Of course it is, your Honour, but the question of when that matter became a matter of public notoriety and whether it happened by August 1987 is a matter, I would submit, that - - -

GUMMOW J: All I am putting to you is that this case seems to have been conducted in such an artificial atmosphere that exhortations to us to look to the realities do not go very far. Maybe the cards just have to fall where they fall. This paragraph 121 is an exhortation to look to the practical realities of what was going on but we cannot look to the practical realities going on: (a) having regard to the conventional basis in which we have spent some time exploring; and (b) having regard to the exclusion of the Australia Card drama which gripped the country from my recollection in this period in 1987. It was said to be threatening a gross invasion of privacy and the government would be spying on people and finding out about their affairs and so on and so forth.

MR SOFRONOFF: If that was led the question would be when that furore reached a point where it came to be accepted that that legislation would not be enacted. I am not saying anything, your Honour, because I do not remember, but I accept what your Honour says about tax file numbers.

GUMMOW J: The sequel is that the revenue people got their way, to a degree, after 1988 by the tax file number system. That was the sequel.

MR SOFRONOFF: Yes. But, on the evidence before the Court, in our submission, there were two competing inferences and much of the evidence, in our submission, which was relied upon in support of the Trustee’s inference, was neutral in the sense that it was equally capable of supporting the other inference. Could I take your Honours to our written outline at page 9, paragraph 23?

We set out in paragraph 23 the facts that support the competing inference and in paragraph 22 we set out what in our submission is the forensic context in which the Trustee’s evidence and those facts ought to have been considered. Then against those, if I could summarise the main points against us so that your Honours are in a position to weigh them against those that we set out in paragraph 23, the main points against us appear to be liability to the Tax Office, Harris’ file notes and the non-payment of consideration, or, if you like, the voluntary nature of the transaction.

As to the liability to the Tax Office, on the evidence, nothing had changed with respect to that kind of liability for many years before and for many years after and immediately before these transactions and thereafter the bankrupt purchased property in his own name. We know about the shares and the real estate that he purchased with his wife and a third party. We know about the shares that he purchased in his own name and then thereafter we have some clues on the Trustee’s evidence that we have set out in footnote 12 as to the assets that he purchased afterwards.

So we see nothing that changed in the relevant years that might give rise to a view that the liability to the Tax Office became alive in his mind. Then one goes to the file notes of the solicitor and your Honour Justice Gummow mentioned yesterday that it could be said that bankruptcy was on a lot of people’s mind. It was certainly on Mr Harris’ mind but that must be a neutral factor because all of the judges in this case accepted that Harris knew nothing about the bankrupt’s tax affairs.

Can I give your Honours the page references? Justice Sackville finds that at 1677, line 47. The majority deal with it at 1763 and Justice Tamberlin dealt with it at 1799, line 42. Of course, your Honours saw yesterday Mr Harris’ file note where he, in considering the transfer of the shares to a trustee company, considered a lease-back arrangement for tax deduction purposes which was laughable in the true context of his client’s affairs. He was obviously ignorant of it.

The file notes do not help us with respect to the bankrupt’s purpose being an improper one within section 121. We then come to the voluntary nature of the transaction and we know that it was always intended to be voluntary in the sense that it was intended to be a gift. Those were the instructions that the bankrupt gave Mr Harris and that Mr Harris then adopted the structure for reasons that you are aware of.

So whether he was seeking to place those assets out of the reach of potential judgment creditors down the track who might have sued him for negligence or the Commissioner of Taxation, one cannot tell from the form of the transaction. Of course it is a wholly inappropriate form but it would be explicable as the form in either event. So, in our submission, if that is all there is, one is not more probable than the other.

Could I deal with the second point that I need to address this morning and that is the identification of who is a creditor. May I deal with that in this way. Could I take your Honours to the decision of the Queensland Court of Appeal in R v Dunwoody [2004] QCA 413; (2004) 212 ALR 103. This was a criminal charge under 266 of the Bankruptcy Act which speaks of defrauding creditors and at paragraphs [106] to [107] of the report, Justice McPherson summarised the course of authority that relates to the meaning of the word “creditor” in sections like that. Could I invite your Honours to read paragraphs [106] and [107].

So the kind of litigation creditor that the cases have included have been ones who are, if I could put it in this way, in view, either about to commence or having commenced an action, not possible future litigants who may or may not arise with respect to acts of negligence that may never happen or might happen at some very distant point. One can add to Dunwoody the decision in Mackay v Douglas (1872) LR 14 Eq 106 which extends the scope of the section – I am not sure that it would be correct to say it extends the scope of the term “creditor” but it extends the scope of - - -

GUMMOW J: That was considered in Barton, was it not?

MR SOFRONOFF: It was, your Honour.

GUMMOW J: What did they say about it in Barton?

MR SOFRONOFF: I do not remember, your Honour, but I will get it out.

GUMMOW J: We look to our cases first, surely.

MR SOFRONOFF: Barton, your Honour, was principally concerned with remaining out of the jurisdiction to defraud or defeat creditors.

GUMMOW J: It is [1974] HCA 43; 131 CLR 370.

MR SOFRONOFF: It is dealt with, your Honours, in Justice Stephens’ reasons at 374 with approval and his Honour summarises the effect as your Honours can see in the middle of the page. That was not Mr Cummins’ position. He was not concerned with trade creditors of the kind referred to in Mackay v Douglas. He was concerned with the theoretical possibility that in the course of his practice he might be negligent and be sued and, in our submission, it would be making new law to - - -

GUMMOW J: So?

MR SOFRONOFF: Well, the court ought not make new law.

GLEESON CJ: Unless it is necessary to do so - - -

MR SOFRONOFF: I do not want to go there, your Honour.

GLEESON CJ: What would have been the position – and I am not suggesting for a moment the evidence in the present case supports this, but what would have been the position if the evidence showed that Mr Cummins decided to make a voluntary transfer of his share in his house to his wife because he was planning to expand his betting activities and he thought it would be wise for a person who engaged in extensive betting activities not to have his house in his own name.

MR SOFRONOFF: That would fall within Mackay v Douglas.

GLEESON CJ: And would not be caught by section 121. It would be caught? Is it your submission that that would or would not be caught by section 121?

MR SOFRONOFF: It is my submission that it would be caught by 121 because Mackay v Douglas has been read as a case that means that one – the term “creditors” in Acts like the Statute of Elizabeth includes people who are envisaged as about to become creditors.

GLEESON CJ: What is the difference between a barrister who says, “I plan to expand my gambling activities and so I’ll transfer my share in our house to my wife” and a barrister who says, “I’ve just read that case of Giannarelli v Wraith and I plan to transfer my share in my house to my wife”?

MR SOFRONOFF: In the former, he will certainly have – assuming he is betting on credit, or getting credit to bet with - - -

GLEESON CJ: Yes, the problem does not arise otherwise.

MR SOFRONOFF: No, that is right. In the former, he will certainly have a creditor. He contemplates certainly having a creditor, and he wishes to put his property beyond the reach of the creditor he knows he will certainly have, even though he might not know who that is going to be. In the latter, he does not know he is ever going to have a creditor and, in our submission, that is a big difference.

As Mr Ashhurst points out, in fact he plans never to have such a creditor. He would operate in his practice never to have such a creditor. In our submission, that is a big difference in contemplating whether, in the latter case, potential possible future litigants could be regarded as creditors for the purposes of section 121.

Could I move onto the resulting trust point, your Honours. The Full Court deals with it at page 1772, paragraph 147 and following, but for my purposes it is only necessary to look from paragraph 149. Their Honours accepted that the marriage and the fact that the property became the matrimonial home – their Honours accepted that that was material.

Could I say this about the matrimonial home, your Honours. There is evidence that they purchased the land jointly. There is no evidence that they purchased the land with the intention of making it their matrimonial home or building a matrimonial home. The evidence was that a year later a mortgage was taken out, a condition of which required them to spend a particular sum of money building a house on it. The mortgage, your Honours, is at volume 1, page 235. Could I take your Honours to that. At volume 1, page 235 there is a mortgage which is in consideration of the sum of $8,000 repayable by monthly instalments of $100.

GUMMOW J: Mr Coles took us to covenant 41.

MR SOFRONOFF: And I was going to take your Honours there. There is a promise in covenant 41 to spend less than $33,500 on it so the point for present purposes is that the date of this mortgage, your Honours will see at page 239, is a year after the acquisition of the land on which the house was going to be built. So one can make what one can out of the fact that they bought the land jointly and a year later entered into a mortgage which obliged them to build a house and, indeed, that they did build a house, but one cannot put too great a stock into it as Justice Sackville did and, indeed, as their Honours in the Full Court conceded as well, because these were people who had just before, with respect to the Ferdinand Street property, gone into a purchase with a third party.

So it does not follow – one would not as in an ordinary case immediately assume that they were buying any particular property purely for personal purposes as opposed to business purposes. In the result that is what they did but at the time they bought it there is no evidence what was in their minds. Nevertheless, the more important points are the third and fourth points that moved his Honour Justice Sackville to his conclusion and their Honours deal with that beginning at paragraph 149. At that paragraph their Honours reached the conclusion that the previous acquisition of properties was a neutral factor. In our submission, that is correct because really to look at that as bearing upon this issue is almost as though one were using that as similar fact evidence, but one does not know anything about the terms and intention under which the parties bought those previous properties.

Certainly one does not know whether any of those were purchased by unequal contributions and according to what common intention. All one knows is that they were purchased jointly. So, in our submission, one cannot infer from those acquisitions, the nature of this acquisition. To do so, in our submission, would involve question begging and their Honours in a different way come to the same conclusion and we respectfully adopt their reasoning in that respect.

Then in paragraph 151 they deal with the issue that his Honour concluded that Mrs Cummins must have understood the significance of a joint tenancy. Perhaps even Mr Cummins did not understand the significance of a joint tenancy but there is no reason to suppose that Mrs Cummins understood the significance of a joint tenancy or that it was ever explained to her.

Then they deal with that at paragraph 153, that there was no evidence to that effect. In paragraph 153 their Honours observe that:

The bankrupt’s original instructions were that the transaction was to be by way of gift.

Could I give your Honours the references to that. That is volume 1, page 413. That is the letter from Harris. At 446 is a letter of his that deals with stamp duty as a reason why the transaction was structured the way it was. So none of these indicia of this transaction emanated from her and, in our submission, one cannot look at it as a way of fixing her with an admission by conduct about the extent of her property.

Then finally and, in our submission, extremely significantly for this case, at paragraph 157 their Honours observe:

that the parties went to such trouble i.e. to establish two separate fully-drawn accounts as the source of funds –

one of them that of Mrs Cummins alone. Your Honour Justice Hayne yesterday observed during the course of my learned friend’s submissions that they did not keep records and that might indicate that they were not concerned with maintaining records to establish ownership.

Mrs Cummins maintained records. Mrs Cummins kept the original receipt - that is at page 214 – and kept the original bank statements, and they are at pages 173 and following. The original receipt was issued to her for $13,000-odd which came from the account she had established for that purpose. So, in our submission, how does one explain in 1971 a wife opening an account in her own name to fund 50 per cent of the purchase of the property and going halves with her husband with respect to the other 50 per cent unless she and he both had the intention that she would beneficially be the owner of that proportion?

What is there against it? In our submission, nothing. If one looks at her tax returns, one can see at that stage one cannot describe her as a wealthy woman but one can see from those tax returns that she has already begun trading in shares, sometimes buying them, it is said, for long-term investment purposes, sometimes buying them for profit making on resale and declaring the profit – indeed, profiting from it, not declaring losses. By 1973 or 1974 she has bought another piece of property at Gosford and thereafter a property at Mermaid Beach and so on.

So I do not want to make a great deal out of what she does afterwards but in 1970 when she and he bought this property, it is a highly significant fact, in our submission, that there were two loans, husband and
wife sharing one liability 50 per cent, and she taking on a quite separate liability which he did not support on the evidence in any way at all. So, in our submission, the Full Court was correct in its conclusion of the proportions in which Mr and Mrs Cummins beneficially owned the property.

Could I deal briefly with the issue relating to the moneys paid to improve the land. There is no evidence in the case of any terms that were agreed between the two that would affect – that could have affected the basis upon which they had acquired the land. If they had acquired the land upon the basis we advocate there is no evidence in the case to suggest that assuming an equal contribution to the improvement of the land that equal contribution was intended to give Mr Cummins a further interest in the land or to signify that they had originally agreed to a 50/50 interest in the land.

It is significant that the obligation to build the house only – on the evidence – arose a year later from the terms of the mortgage that your Honours have seen. Finally, on that, it has been no part of the case against us until it arose in this Court that that was a point to be taken into account as a matter of fact. The case was conducted on the footing that the respective interests of the parties were to be determined by the events and payments that they made in order to acquire the land.

Those are my submissions, your Honours, and I need to inform your Honour Justice Gummow that the case ACCC v Amcor is reported at 169 ALR 341.

GLEESON CJ: Thank you, Mr Sofronoff. Yes, Mr Coles.

MR COLES: If your Honour pleases. In relation to the last point concerning the purpose of the acquisition of the Hunters Hill property can I just remind your Honours that at page 1711 of volume 4 the primary judge on the facts he described made a finding at the top of the page. At paragraph 68:

I infer that the parties intended, at the time they acquired the Hunters Hill Property, that it should become the matrimonial home.

That finding, your Honour, was not the subject of any challenge at all when the proceedings were appealed to the Full Court and, accordingly, the Full Court was left to deal with the case before them on the assumption that finding was correct and, in our respectful submission, your Honours should not accede to an invitation to disturb this.

Secondly, your Honours, can I go back to then the matter that formed the subject of some considerable discussion particularly between your Honour the Chief Justice and my learned friend. Can I point out or can I add to the references to the evidence, your Honour. If your Honours have volume 1 your Honours will see at page 275 an unsigned document undoubtedly prepared contemporaneously with the implementation of the transaction in August 1987 which Mr Harris prepared, that is to say, the unexecuted forgiveness of the contractual debt.

If your Honours then would look at the letter that was reproduced at page 446 in the same volume, a letter of 18 September 1997 written a little over 10 years later, above line 35 the solicitor records:

I also seem to have come to the conclusion that (i) the subsequent forgiveness or release of a debt arising out of such a transfer was probably not a settlement –

More importantly, at the foot of the page at line 45 he says:

I note that I had prepared a document for signature in 1987 confirming the oral forgiveness of that debt. I think this is now unnecessary as the sale contract required payment of the consideration in 1987.

That rather suggests, your Honour, that there was, as part of the transaction and in Mr Harris’ understanding in the instructions he took in connection with the transaction, an oral forgiveness of the debt.

HAYNE J: Be that as it may, the defendant in the suit below did not positively defend in reliance on 121(4)(a).

MR COLES: No, quite.

HAYNE J: But the consideration that she gave was at least as valuable as market value. No defence to that effect was pleaded.

MR COLES: No, quite. Indeed, there was not, your Honour is correct.

GLEESON CJ: And, indeed, the competing inference for which the respondent contended below was that what Mr Cummins said in his examination before Registrar Tesoriero was correct, and what he said in that examination was that he intended to divest himself of his assets.

MR COLES: Yes. Can I mention, by way of our contribution, your Honour, to the debate that went previously, it is, in our respectful submission, when one is looking at the proper construction of section 121, one is looking at the fact of the transfer and one is looking at the main purpose which is either to prevent or to hinder or delay the availability of the property for subsequent creditors. It seems to us, therefore, that it would not be relevant, for example, that in a case like the present where the oral release of the debt might be unenforceable in the sense that it would be ineffective to actually bring about the legal release of the chose in action, but what does matter is this, that if the parties intended an oral release, even if ineffectual at law, then one thereby derives an inference as to their intention so far as the main purpose is concerned.

GLEESON CJ: Was there a time in these proceedings when your clients were claiming that debt from Mrs Cummins?

MR COLES: Yes, that was one of the pleaded causes of action I think, your Honour.

GLEESON CJ: And did you also have a similar claim against Aymcopic for the debt arising out of the purchase price of the chambers?

MR COLES: Yes, that is right.

GLEESON CJ: What happened to those claims, to those causes of action?

MR COLES: Well, they were statute barred, in effect.

GLEESON CJ: That was the decision, was it?

MR COLES: Yes, that was the decision. For reasons he gave, the primary judge did not permit an argument based on the fact that because the Trustee’s claim in relation to the land could be supported by an unpaid vendor’s lien in relation to which the limitation period might be 12 years, which took it through to 1999, the learned primary judge, for reasons he gave, held that that argument was not available.

GLEESON CJ: Is there a measure of inconsistency between a conclusion that those debts were statute barred and the conventional basis on which the litigation was conducted?

MR COLES: In theory, probably yes, your Honour, but it does not have any practical impact so far as litigation is concerned, in our submission.

HAYNE J: Did she positively allege a limitation defence?

MR COLES: Yes, I think so, your Honour.

GLEESON CJ: And Aymcopic?

MR COLES: And I think Aymcopic too, your Honour. I will have to be more precise about that but I raise these points, your Honour, really because it is our contention that one is not concerned in either respect so far as section 121 is concerned with what the consequences or the effects of the transaction may be if the purpose, which is all the section requires, is made out. In other words, the fact that the transaction may result in, for example, an equal or equivalent benefit economically to the set law or disponer because, for example, resulting trust or vendor’s lien or unpaid balance of purchase moneys or the like, does not itself suffice to negate the inference of intent.

GLEESON CJ: No, but it is capable of being relevant to a factual finding about purpose.

MR COLES: What we would say is it is capable of affecting purpose but if one finds that the parties had a purpose, albeit ineffectively or ineffectually put in place, such as the release or forgiveness of a debt, then one does not deny the inference of purpose merely because the legal means adopted in the transaction were themselves legally ineffectual. In other words, they would still have the relevant purpose if they intended the consequence, whether the mechanism put in place to achieve it worked out or not.

GLEESON CJ: There is, however, is there not, an inconsistency between treating the 1987 transfer, and Mrs Cummins’ undertaking to pay half the value of the house, as an admission by her for purposes of the resulting trust argument that he owned a half interest in the house on the one hand and on the other hand the conventional basis on which the case was conducted?

MR COLES: There is a tension, I suppose, your Honour, but the point is really the admission is capable of a stand alone effect simply as an admission pure and simple from the facts of the content of the transfer and the content of contract, without affecting the common acceptance of the parties that the transaction was in fact a voluntary one. In other words, if you are documenting a voluntary transaction you could document it in the way she might have documented it if her resulting trust claim had been with good foundation, that is to say, you could - - -

GLEESON CJ: I do not follow that. If you picked up the instrument of transfer and looked at it you might say that is an admission by her that he had a half interest in the house, but if somebody taps you on the shoulder and then said I think you should also know that it was the common intention of the parties that she would never pay that amount of money, you might retrace your steps, might you not?

MR COLES: If you are intending to document a transaction which you intend to be voluntary it would be immaterial to the participants in the voluntary transaction how the consideration was described, but if they choose a mechanism for describing it, which is at least consistent with the legal title – the beneficial interest being valued at the same equivalent as the legal interest, then that is an admission, in our submission. I mean, there are many ways you can document a voluntary transaction and if you adopt as one of the techniques for doing so, the technique that was adopted here – and, of course, you pay the corresponding higher level of stamp duty as a result, then the value of the admission is not destroyed by the underlying intention that it should be a voluntary transaction. You have chosen a mechanism for documenting a transaction which contains an admission albeit that you are documenting a voluntary transaction.

HEYDON J: I do not see how there can have been a limitation plea in lieu of the fact that as to the Hunters Hill house Mrs Cummins said that the contract was executed on the understanding that the price was not payable and as to the shares on the understanding that Aymcopic was not obliged to pay the $360,000, if you say that, unless you plead the alternative and I cannot find any trace of that.

MR COLES: No, I think that that accords with our – yes, the plea of the Limitation Act, I am reminded, on the pleadings one of the alternative claims by the Trustee was that the act of the bankrupt in not enforcing his entitlement to be paid the purchase moneys constituted a release which was capable of amounting to a disposition of property itself or a transfer of property.

GLEESON CJ: When did that act occur?

MR COLES: On that basis, your Honour, that would have occurred six or 12 years later as the case may be.

GLEESON CJ: Which?

MR COLES: We said 12 because of the vendor’s lien and security at that point under the Limitation Act. Your Honours will recollect that - - -

GLEESON CJ: How did that apply to Aymcopic?

MR COLES: It did not, your Honour.

GLEESON CJ: So that would have been six years?

MR COLES: Yes. It would have been six. It only applies to the land because by definition an unpaid vendor’s lien is equated with a mortgage security.

GLEESON CJ: At all events the case was never decided on that basis.

MR COLES: No, that is quite right, but we would wish to say one other thing about the inference of main purpose from a voluntary transaction which results in an economically equivalent advantage to the settlor and that is this, that the section is of course engaged not merely where the transaction has the effect of preventing the property being divisible amongst creditors but the other subsection, of course, refers to hindering or delaying, necessarily a lesser type of process and, in our respectful submission, even if for full valuable consideration a person transfers property to another, quite apart from the considerations that have been referred to in connection with subsections 4 and 5, if you have a transfer of the – the transferor transfers his or her property to another then upon that person’s bankruptcy section 58, of course, will operate to vest the bankrupt’s property in the trustee but of course it will not attach to the property immediately, which has been transferred to another. So necessarily neither section 58 will vest nor will section 116 make the transferred property divisible amongst the creditors of the bankrupt with the consequence that there must be delay or hindering, hindering or delaying, in the process of recapture of the property.

GLEESON CJ: We dealt with a similar problem to this in relation to a South Australian case that we decided within the last year or so, I think, in relation to Corporations Law.

HAYNE J: Carabelas.

GLEESON CJ: Carabelas.

MR COLES: Yes. I think the last matter I wish to refer to your Honours is that, in our respectful submission, if one is looking to see whether there are inferences available at all and, if so, whether they are of equal degree so that a selection between them would be but a matter of conjecture, one has to carefully weigh what it is that is said to be the alternative or competing inference as to the bankrupt’s main purpose and we maintain, and I will not repeat what is in our submissions, but apart from the fact perhaps that the bankrupt was carrying on a particular profession and apart perhaps from the fact of which there was no evidence he was aware that there was the Giannarelli litigation there is, in our respectful submission, no real evidence that the bankrupt was concerned about being sued by current or future clients.

Our learned friends seem to take something pleaded in the statement of claim as if it were an admission of fact or an agreed fact in the proceedings. It is not. We have pointed out by reference to authorities of this Court including, I think, Laws v Australian Broadcasting Corporation that a statement in a pleading is not an admission of a fact.

There is no evidence, in our respectful submission, of the fact asserted in the statement of claim so far as what – indeed, the transcript of Mr Cummins’ public examination was not in evidence. There was no evidence of what he said at his public examination. The pleaders endeavour to particularise a matter of intent by reference to the transcript of that examination is but a plea, it is not a statement of fact, nor was it evidence in the proceedings, in our respectful submission. So one just does not have any evidence at all that connects the bankrupt meaningfully with the cast of mind that might have been informed by the Giannarelli litigation.

That is of course before one comes to the inconvenient time scheme which the tracking of that litigation indicates. In other words, he had instructed his solicitor Mr Harris sometime before the relevant risks – the relevant risk being said to be the grant by this Court of special leave in the Giannarelli litigation, but before this Court granted leave in Giannarelli and when the condition of law was as described by the Full Court of the Supreme Court of Victoria, that is to say, the barristers won, the bankrupt had instructed his solicitor so it is harder, in our respectful submission, to regard that litigation as influential, if indeed there were any other evidence that the bankrupt had it in his mind at all.

Then, finally we would say, your Honour, there is no proper basis for supposing that there was any evidence which the bankrupt had available which might have been of use to the Trustee to justify the Trustee or to require the Trustee without explanation to call the bankrupt and self-evidently it could not be supposed that transactions which the bankrupt had carefully put in place some 13 or so years before his bankruptcy, some 13 or 14 years before trial, would be the subject of evidence by the bankrupt directed to unravelling those very transactions. That is not an expectation one would reasonably entertain, in our respectful submission.

GLEESON CJ: What do you say about Mr Sofronoff’s argument that for a barrister to divest himself of his assets because he planned to engage extensively in punting on racehorses would be different from a barrister divesting himself of his assets because he was concerned about a change in the law relating to barristers’ liability for negligence?

MR COLES: We say the distinction is but one of fact. In other words, it is not attended by disparate legal consequences. If the intent is there and the intent extends to present or future creditors upon whatever causes of
action, whether they be gambling debts or liability for negligence, we would say it would be hard on the text of the section to relevantly draw a distinction. As I put to your Honours yesterday, these things are seldom thrown up for decision with that level of limitation of fact and one would be looking at all of the facts of which no doubt those rather keys facts would form but a part. In our respectful submission, uninformed by any other facts at all, one would not, by reason of the distinction in the two factual situations, necessarily come to any disparate legal conclusion.

One may accept, your Honour, it may be as a matter of burden of persuasion at the end of the day, perhaps easier in one case than in the other, but one would not be able to say that the factual examples provided themselves fall on one or other side of one particularly bright line. It does not follow, in our respectful submission, that that would be so. Unless there are any other matters, your Honour, those are our submissions. If your Honours please.

GLEESON CJ: Thank you, Mr Coles. We will reserve our decision in this matter and we will adjourn for a short time to reconstitute.

MR SOFRONOFF: Excuse me, your Honour, does the Court wish a note in relation to the limitations statute?

GLEESON CJ: Yes, please.

AT 11.40 AM THE MATTER WAS ADJOURNED