Anthony John Warner in his Capacity as Trustee in Bankruptcy of the Estate of Brian McMillan v McMillan [2022] HCATrans 170 (14 October 2022)

Last Updated: 26 October 2022

[2022] HCATrans 170

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S39 of 2022

B e t w e e n -

ANTHONY JOHN WARNER IN HIS CAPACITY AS TRUSTEE IN BANKRUPTCY OF THE ESTATE OF BRIAN McMILLAN

Applicant

and

KARIN ELISABETH McMILLAN

Respondent

Application for special leave to appeal

GAGELER J
EDELMAN J
GLEESON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA AND BY VIDEO CONNECTION

ON FRIDAY, 14 OCTOBER 2022, AT 9.30 AM

Copyright in the High Court of Australia
GAGELER J: In accordance with the protocol for remote hearings, I will announce the appearances of the parties.

MR J.T. GLEESON, SC appears with MR D.J.A. MACKAY for the applicant. (instructed by Diamond Conway)

MR B.W. WALKER, SC appears with MR J.R. WILLIS for the respondent. (instructed by Somerset Ryckmans)

GAGELER J: Yes, Mr Gleeson.

MR GLEESON: Thank you, your Honours. We submit that in this matter special leave should be granted, because the principles laid by down by this Court in Cummins in 2005 have been departed from both procedurally and substantively, that is ground 1, and because questions which Cummins did not need to ultimately resolve squarely arise in this case, that is grounds 2 and 3. Could I ask your Honours to go directly, please, to page 124 of the application book. The case which the trustee advanced and proved at trial was as good or better than the case proven in Cummins. There was a transfer of the husband’s half interest in the property:

(a) The transfer was voluntary and for nominal consideration;

(b) The transfer was to a close family member –

Importantly, the husband had a liability contingently under a guarantee for $5 million in respect to business debts, very little needed to go wrong for those debts to blow out, there was a failure to call the critical witness, the accountant, and perhaps, in addition to those five facts, your Honours would know from pages 46 to 47 of the book, the business was in an uncertain and variable condition, indeed, “financial turmoil” was the way the husband put it.

That case established a compelling inference under section 121 of the Bankruptcy Act. Critically, the wife – the respondent – chose to defend that case by one and one only means, and that means was to call the husband to seek to prove a Williams v Lloyd love and provision defence. Your Honours, that evidence of the husband is found at page 29, which was that he did the transfer – this is paragraph 62 – just because he was asked to by the wife, and at 63, when he was pressed on this evidence, he said:

It took me a whole of a moment to answer yes. Whatever she asked, I said yes. It was done out of love. It was done out of her request.

No thinking, no consideration. That was the battleground at trial – the only battleground. The primary judge, after the most careful consideration, rejected that case based on credit findings. That is pages 51 to 52 of the book. The sole issue on appeal as to an alternative possible inference was that very same inference of love which your Honours see in the notice of appeal, page 60, paragraph 3.

MR EDELMAN: But, Mr Gleeson, you do not complain about any denial of procedural fairness in relation to the inferences that the Full Court drew, do you?

MR GLEESON: We say two things went wrong, your Honour. Once the Full Court correctly upheld the credit findings, the only case that was made at trial in response to us was gone – that is love and provision. That is gone.

So, the question then was, was it, in any sense, open – this is the first question – in any sense, open to the Full Court to contemplate an alternative explanation which was inconsistent with that which was the sole defence at trial; had never been explored at trial. So that is one aspect of the complaint that the Full Court really, at that point, should simply have dismissed the appeal. The further aspect to it is, if your Honours ‑ ‑ ‑

EDELMAN J: But, presumably, that matter was argued in the Full Court, in any event, as to what inferences should have been drawn, because there is no complaint that the Full Court denied natural justice in drawing the inference that it did.

MR GLEESON: I think I should clarify my answer. Yes, it is not a complaint as to what happened in the procedure in the Full Court. This was raised in reply by a party and it was argued. The substantive complaint was, with the case made out as it was by the trustee based on the material I have identified, could it ever have been appropriate to say that there is an equally alternative compelling inference supposedly based upon a letter given – received a year earlier – which, it is suggested, the husband somehow was quite consciously and deliberately following a piece of business planning advice. That, we submit, could never have negated the case made – particularly when one considers that the husband had never deposed to such evidence and the witness that was critical – the accountant – was never called.

GLEESON J: Mr Gleeson, the Full Court reached its conclusion on “main purpose” by reference to six factors. Are you saying that having regard to the way that the case was defended, that was impermissible?

MR GLEESON: Yes, yes. Of those six factors, your Honours, on page 109 and following, the error first occurs at paragraph 197: to even contemplate that there was an equally compelling inference available from a letter given a year prior to the event that the husband had engaged in a careful and conscientious process of accepting some business advice provided by a person from Rolls‑Royce. That paragraph simply never had been open to be considered.

GAGELER J: Mr Gleeson, is your complaint here really a procedural complaint, or is it about the availability of the inference in the sense of the ability to meaningfully draw an inference of fact, given the way in which the trial had been conducted?

MR GLEESON: It is the latter, your Honour. It is the latter because when the husband says, I did it without a moment’s thought because my dear wife asked me to, this inference is wholly incompatible with such a case, because this inference requires a case where the husband, quite conscientiously, over a period of time, has received some advice, has interpreted it, has been to his accountant, the accountant is all over the transaction, and has therefore quite deliberately decided – so it is said – to separate business and professional assets in a particular fashion. That inference was simply never available to be drawn in the face of the way the trial was to be conducted.

Your Honours, just to complete that point, that the letter of advice – which is a year earlier – is found at pages 74 to 75, and the response of Mr McMillan which the Full Court relied upon is at page 75, paragraph 29. We would submit that it was simply not open to be drawn as an “equally compelling inference” from that rather innocuous communication that Mr McMillan was being advised, what you should do is transfer your property to your wife for nil consideration.

EDELMAN J: Mr Gleeson, one question that is raised by the phrase “equally compelling inference” is how compelling the inference is that your client sought. One of the matters that the Full Court refers to, which might be said to reduce the compelling nature of the inference of an intention to defeat creditors, is that if a guarantee was left in force by the wife to the CBA and that shortly afterwards the wife gave a . . . . . the Strathfield property and a guarantee that related to a loan for the business. So, if there is an intention to defeat creditors, it is not being pursued in a very effective way.

MR GLEESON: When your Honour puts that to me, could I remind you of paragraph 113 in the Full Court at page 94 where the Full Court said, subject to certain comments below, they affirmed the finding that there was a:

gradual but consistent withdrawal of –

the wife from exposure to the business:

in the period between November 2001 and late 2002.

So, that fairly critical finding – which was part of the basis for the credit rejection of Mr McMillan – has been affirmed even by the Full Court.

So, your Honours, even noting that, I did just want to put in terms of the letter itself at page 75, the message seems to be more – particularly the second paragraph – any financier will want “greater transparency” before they extend very substantial finance to you. They want to know what assets they will get access to in the event of default. That is hardly advice to a person that you should transfer assets in your name away to a spouse for no consideration knowing you are now under millions of dollars of contingent liability.

So, in terms of that being drawn, we would submit one does not get from the letter – and certainly consistent with Cummins, even if an adviser said to you, my advice is, as a piece of prudent estate planning, transfer the assets to the spouse while you can for no consideration, knowing you are facing substantial contingent liabilities. That, consistent with Cummins, would be a main purpose to prevent creditors, and that is why we say substantially the approach of the Full Court would also substantially depart from Cummins.

EDELMAN J: That submission is ultimately not really a question for this Court, though. It is just simply a question of misapplication, on your submission, of established authority.

MR GLEESON: It is a substantial misapplication of established authority which not only creates a substantial injustice to us, but, we would submit, significantly weakens the clarity of the law which Cummins had laid down for all of us – all courts.

Your Honours, can I mention the second and third grounds, given the time. The second ground is the scope of the hazardous or risky venture doctrine as a means of establishing the requisite main purpose. What has emerged here is that there is a substantial difference between the primary judge who has relied upon established Full Court authority in Alvaro and what the Full Court has done. If I could pick that up in the Full Court at pages 105 to 106.

GLEESON J: Mr Gleeson, am I correct to understand that this question does not arise if you are correct on your first submission, which is that the adverse inference should have been drawn just on the basis of rejection of Mrs McMillan’s defence?

MR GLEESON: That is correct, your Honour. Of course, if it is correct, the reason it is important is that it destroys the fifth of the Full Court’s six reasons. That is the reason at paragraph 205. And the third of our points – my answer to your Honour would be the same, but the third of my points, if correct, destroys paragraph 206.

So, the logic of our appeal, if we were permitted to bring it, is the Full Court gave six reasons; the first reason has the problem we have discussed, that is paragraphs 197 to 201; nothing in the second, third or fourth reasons travels any distance; the fifth reason has the independent problem of the hazardous venture doctrine; and the sixth reason has the independent problem of placing reliance upon the time delay between the transfer and the bankruptcy as somehow defeating what is an inquiry into main purpose at the date of the transfer.

Your Honours, the additional submission I wanted to put on those second and third grounds was as to the second ground. When the Full Court dealt with it, at pages 105 to 106, between paragraphs 174 to 178 – particularly 178 – they seem to have limited that doctrine to a case where you are entering into a business activity which is properly described as “reckless”. We submit that is not the outer limit of the doctrine. What the doctrine is about is, if you enter into a new business or an expanded business which carries with it a qualitatively different and increased range of risks, and if at that point you transfer your property away for no consideration, the clear inference is you are doing it because if the business goes well, you will profit; if it goes badly, your creditors will suffer.

This is the question, I say, that did not have to be reached in Cummins because one of the questions raised in Cummins was whether the apprehension of professional negligence liabilities for barristers at the time, given the law was changing, could be seen as being a significant increase in the risk profile and, therefore, allow inferences to be drawn. The Court did not need to reach that question.

Your Honours, as to the third question, the time delay between the transaction and the ultimate bankruptcy is not a material consideration. In Mr Cummins’ case, it was 13 years. In this case, it was 16 years. But, in any event, as we have indicated in our reply, your Honours – and this is my last point – on page 151, the critical question is whether there was a real foreseeable possibility in the middle of 2002 that his business fortunes may
leave him with insufficient assets to pay creditors. The answer to that question could only be yes. And it is confirmed, if one looks into the future at all, by the fact that a couple of years later, the husband was found by the New South Wales Court of Appeal – and this was accepted by him in evidence – to have engaged in insolvent trading in respect to this very business and, as we note at the end of page 151, the receiver that was appointed but five years later was appointed by VW Finance; the very creditor that had the benefit of the guarantee in 2002.

So, your Honours, bringing those matters together, we submit the case for error in those six reasons of the Full Court is compelling and there are important issues of principle which lie behind each of the three errors. May it please the Court.

GAGELER J: Thank you, Mr Gleeson. Mr Walker.

MR WALKER: Your Honours, first, it is clear that this is not an application that seeks to expose any opportunity for this Court to alter well‑established principles concerning the scope and duties upon appellant review of factual findings, including factual findings which conclude, in an overall characterisation required by a statute.

GAGELER J: It seems to be presented as what Justice McHugh would have called a visitation case.

MR WALKER: Quite so. So, the first question that arises – that is, characterisation for the purposes of that matter, if you like – is whether there is any such egregious possibility of error able to be detected at the point of a special leave application which would justify this Court taking the case on.

In approaching that matter, we would start by observing that the characterisation question at issue between the parties – and I stress between the parties – concern the finding of Mr McMillan’s main purpose. It is neither the law, nor the way in which issue was joined in this case. But, if Mr McMillan’s evidence was rejected – either in whole or in part – that meant the trustee’s case was done and, more to the point, that either the trial or, on review, the Full Court was dispensed from reaching the conclusion that what the trustee asserted averred, if you like, that was the main purpose. It still required the actual persuasion as a matter of factual characterisation on the basis of the evidence, as understood, ultimately, by the Full Court, before there could be a conclusion in favour of the trustee’s case.

GAGELER J: Mr Walker, it is very odd that he comes along and he says that he just had one purpose. That purpose is rejected and another purpose – which, no doubt, you will deal with – that is said to be just inconsistent with the one purpose he asserted is found.

MR WALKER: Well, it is only odd, your Honour, if one sees the subjective statements of a witness about events a long time ago as being, as it were, statements that ought to be judged not just as to their credibility, but as to their significance upon being rejected by reference to the statutory test, which is the issue between the parties.

If a witness misunderstands matters, misremembers matters, or even gives evidence which is insincere – and the last is not really this case – it can hardly be that that dispenses the moving party, upon whom an onus remains throughout, from making good by the evidence that is properly available for that characterisation question to be answered to make good what they have to succeed in doing. And that requires an actual persuasion as a so‑called main purpose, an evaluative exercise which nonetheless remains completely factual. There is no legal misdirection alleged to inform the prospective appeal concerning the test in section 121.

So, at application book 110, paragraph 199, their Honours squarely confronted the position, which is far from unusual or extraordinary, where evidence relied upon . . . . . is rejected but nonetheless the question remains, as it must, whether the moving party has made good what needs to be made good in order to discharge the onus and obtain the relief sought. Paragraph 199 is unremarkable in its recording of the fact that a disposition adverse to Mr McMillan – not a party, adverse to Mr McMillan – as to his evidence nonetheless disposed of the matter adversely to Mrs McMillan because, as it were, Mr McMillan’s evidence was the only live witness called on her side.

EDELMAN J: Mr Walker, it seems from your submissions in response there may be a very live issue as to precisely what the scope of Mr McMillan’s evidence was in any event. I note at paragraph 20 of your submissions, you extract evidence that he gave during cross‑examination which you say that the Full Court was referring to at paragraph 198 which, as I understand your submission, that evidence is consistent with the inference that was drawn by the Full Court.

MR WALKER: Yes, what we have noted in paragraph 20 was obviously plainly intended forensically quite oppositely by the questioner. But it happens that the proposition put is on all fours with – almost uncannily so – the quite plain admonition expressed previously by the proposed business counter‑party in the new dealership. So that, in our submission, gives quite a significant impetus to the reasoning which culminates, as my friend has pointed out, in the six points on pages 109 to 111 of the application book in the Full Court and, in particular, the combination of 204 and 205 which, of course, do not operate alone.

We have drawn to attention that in the upshot of what is proposed for a prospective appeal, it is not really the case that all six of those are said to be demolished. I do not want to get into scholastic exercises about whether some, one or more of the unchallenged six would be enough to prevent an appeal succeeding. My point rather today is this: on any view, this is a case which will be inviting this Court to be making for itself an overall factual characterisation conclusion based upon evidence where it cannot seriously be said that if Mr McMillan’s evidence is not preferred, that is the end of the question.

Issue was never joined on the basis that the absence of one or more of the accountants, or Mrs McMillan, or – if that had been the case – Mr McMillan, meant that one could not argue for a respondent against that which the trustee sought based upon the circumstances, including the objective evidence. That, in our respectful submission, is of course precisely a Warren v Coombes appellate exercise for an intermediate appellate court, presenting no necessity for its repetition – its re‑doing – in this Court.

From time to time, that becomes necessary as a pendant in order to complete this Court’s task under its Act when it does take such a case. But in our submission, this Court would not take such a case simply in order to do that exercise; there must be some anterior and more important reason to take the case. Traditionally, that has been supplied by a departure in the court below from the limitations or, for that matter, from the amplitude of the task which an intermediate appellate court has in an appeal by way of re‑hearing.

The appeal by way of re‑hearing in this Court is but the mirror reflection in the course of a true appeal raised by the necessity to consider what should have happened in the court below, which, of course, was disposing of an appeal by way of re‑hearing. That can never be a good reason, in our submission, for a grant of special leave in the absence of some truly compelling visitation question.

This was an evaluative exercise, where it can hardly be said that the interests of justice intuitively or otherwise speak so loudly in favour of one party and against the other as to excite this Court’s concern that a substantive injustice has been committed in a particular case. When one takes into account – as the Full Court properly did, surely, without controversy, as a matter of principle – the long lapse of time, when one takes into account that immediately after the transfer, and as a matter of the commercial setting, the property which had become our client’s property remained fully exposed through guarantee and mortgage to the business enterprise, which, in retrospect, is now called hazardous and speculative – and that is controversial. When one takes those two things into account in particular, it can hardly be said that it was so unlikely as to excite – without going into the factual detail – this Court’s need to intervene so as to justify a grant of special leave.

Your Honours, the attempt to suggest that there is some question of principle or doctrine involved in relation to what the cases have dubbed “hazardous” and “speculative” ventures of the way in which they might – quite obviously, as a matter of common sense – inform the overall inferential process of characterising according to the current statutory stipulation that the intention actuating a transfer ought to be rejected. There is nothing transcending the particular and highly peculiar circumstances in this case which raises any matter of doctrine which, in our submission, in any event, is surely overstated.

This is a description which is applied to an extremely common aspect of all business ventures and, given the limitations on the property, in practical terms, all but the most amazingly wealthy individuals need, obviously, to consider the possibility that when the music stops, not everyone will be able to sit down. So, some creditors may miss out. There is no doctrine involved there, the only rule is laid down by the statute. That calls for a characterisation, ultimately, of a state of mind, under the current wording of the statute, where the epithet “main” requires, in particular, evaluative characterisation which can only ever be done on the circumstances of a particular case.

Our friend has not identified any misdirection as to the approach, therefore, either procedurally, as to an appeal by way of re‑hearing or substantively, that is, as to the inference of main purpose, all that has been demonstrated – which is routine for any case that comes to this Court, having succeeded at first instance and failed on intermediate appeal – is that there has been a difference demonstrated by judicial determination of that second and substantive issue.

It is for those reasons, in our submission, that if this Court were to take this case on, this Court would simply become an expanded jury for the determination of purely factual, albeit overall, characterisation questions which will add nothing to an understanding of section 121.

Our final observation is this. It truly is rhetorical overreach to suggest that as a matter of stare decisis, what the Full Court has done in this case threatens to render nugatory the obviously beneficial purpose, in terms of the security of property and commercial morality, of section 121. It does
no such thing. It has not displaced or attenuated to the slightest degree the content of the “main purpose” stipulation. Neither has it, in our submission, altered to any degree the fact that all relevant circumstances before the Court and argued are available for a court, first of all determining at first instance and, second, upon an appeal by way of re-hearing, reviewing, that overall conclusion.

It is for those reasons, in our submission, that this is not a case that presents as even a visitation occasion for this Court to exercise its jurisdiction and a true appeal. May it please the Court.

GAGELER J: Thank you, Mr Walker. Mr Gleeson, do you have anything in reply?

MR GLEESON: Yes, thank you, your Honours. In terms of substantial injustice, Mr Walker has not identified any error in the primary judge’s decision based on the case that was run. The trustee succeeded because of what is at pages 52 to 54; that the only explanation put forward by the wife – I say the wife, not just the husband, because it was the wife as the party’s choice to call the husband to not give evidence herself and not call the accountant. The only explanation was rejected. At that stage, the trustee had properly succeeded in this case.

What happens on appeal is the alternative inference is wholly incompatible with the entire case that was run – was never explored through the evidence – and, in answer to your Honour Justice Edelman, the only passage that Mr Walker’s side has been able to dredge up which this Court would be asked to consider on a full appeal – which is on page 140 – the only passage which Mr Walker concedes was in answer to a question pursuing a different line of inquiry is, we would submit, wholly answered by what we have written at page 148.

To speak about a better separation of personal and business assets cannot be equated with advice that, as the principal of the business, liable under the $5 million guarantee, you should shift the family home to the wife for $1 so it could not be called upon – could not be reached if the guarantee was called upon. So, what never came out of the husband’s mouth in evidence was a belief that it was a proper piece of behaviour in separating assets to transfer them away for nil consideration, completely different to the idea of separation for proper value, which would have been consistent with the statute.

So, if that is the entirety of what Mr Walker says would be asked to be considered on a full appeal as supporting the alternative compelling inference, we would contend that the appeal would remain with very, very
strong prospects of success. We do continue to press grounds 2 and 3 because it is perfectly clear that the Full Court as a matter of principle has relegated the hazardous transaction doctrine to a case of recklessness which, we submit, is an error.

Those are our submissions, your Honours.

GAGELER J: Thank you, Mr Gleeson. We will retire momentarily to consider the course we will take.

AT 10.07 AM SHORT ADJOURNMENT

UPON RESUMING AT 10.09 AM:

GAGELER J: The proposed appeal would turn on the correctness of the Full Court’s application of established authority in the peculiar evidentiary and procedural circumstances of the case. We are not persuaded that it would raise any question suitable for determination by this Court.

The application for special leave to appeal is refused, with costs.

The Court will now adjourn until 10.30 am.

AT 10.10 AM THE MATTER WAS CONCLUDED