Did the evidence support the finding of a 'sham'?
115 The Anscor parties submit, in effect, that the finding of the primary judge that the transactions surrounding the creation of the superannuation fund were shams was not open on the evidence. I disagree.
116 Central to the question whether there was a sham was, as his Honour pointed out, the intention of those involved: Snook v London & West Riding Investments Ltd [1967] 2 QB 786 at 802 per Diplock J; Sharrment Pty Ltd v Official Trustee in Bankruptcy (1998) 18 FCR 449 at 453-458 per Lockhart J, 467-469 per Beaumont J (Foster J agreed with both Lockhart J and Beaumont J); Baker at 13-17; Richard Walter Pty Ltd v Commissioner of Taxation (1996) 67 FCR 243 ('Richard Walter') at 245 per Lockhart J, 257-258 per Hill J. It is true that Mr McAuley, the settlor and architect of the arrangements, gave evidence to the effect that his intention was to establish a fund to provide benefits to the Corbetts and for the employees of Anscor. However, his Honour rejected this evidence, as it applied, both at the time the trust was purportedly established on 30 June 1997 and subsequently. He did so because of the surrounding circumstances. It was open to his Honour to take that course, particularly having regard to the fact that none of the other persons involved in the formation of the purported trust (Francken, Klooger and Mrs Corbett) gave evidence about it.
117 What were the circumstances on which his Honour relied? I will not attempt to recount all of them: his Honour's detailed and careful discussion of the transactions with PIAM extend over 33 paragraphs of his reasons ([142] - [174]). The following are perhaps the more significant:
(a) By June 1997 the Corbetts, and their accountant, Mr McAuley, had concerns about how long the Wattle Scheme would continue to operate, and, therefore, how long Anscor would continue to receive its steam (river!) of income from Dexter (Mrs Corbett acknowledged that when Dexter's scheme did collapse, Anscor's business came to an end.) Mr McAuley conceded that, given the ASIC investigation, it was 'sort of on the cards' that Dexter would not be able to continue to trade.
(b) The idea of establishing the fund was that of Mr McAuley. The decision to establish it was taken at a meeting attended by the Corbetts, Klooger and McAuley held on 30 June 1997. Minutes of the meeting recorded that it was desired to safeguard against the possibility of 'the death or incapacitation' of Dexter, Anscor's only source of income. His Honour found, however, that the minutes misrepresented the position, and that the concern which actually prompted the establishment of the fund was that Dexter might not long continue to operate the Wattle scheme. In cross-examination, Mr Auley conceded that it was an expected 'levelling off' of Dexter's business activities that caused him to suggest the arrangements that were entered into.
(c) By lending virtually the entire $2,805,000 immediately back to Anscor, PIAM acted inconsistently with its duty as trustee of the fund, because it put it out of its power to meet the entitlement of the beneficiary who might die or resign within the first 12 months of the operation of the fund (the loan back by PIAM to Anscor of $2,800,000 was repayable on 30 days' notice, not to be given before 30 June 1998). In cross-examination, Mr McAuley suggested that PIAM might have been able to borrow on the security of the Mortgage Debenture given to it by Anscor to secure the 'loan' of $2,805,000.
(d) Mr McAuley agreed that the documents he supplied to PIAM on 26 June 1997 would not have enabled it to assess Anscor's capacity to repay the loan of $2,800,000.
(e) Between the receipt by PIAM from Anscor of $2,805,000 on 30 June 1997 and $1,155,000 on 26 March 1998, PIAM showed no interest in performing its duties as trustee. It left the interest payments made by Anscor in the non-interest bearing account of its attorney, Klooger, at the Bank of Queensland in Brisbane (by earlier 1998, the interest amounted to more than $180,000).
(f) PIAM disbursed the money it received from Anscor on various overheads, costs and expenses of Anscor, including its legal costs; on the Croftby Downs Farm, including normal overhead and operating expenses, as well as an olive grove plantation; and on various unsuccessful smaller investments. In some of the instances, PIAM paid the amounts to the Corbetts who spent them for the purposes mentioned. PIAM did not insist on the preparation of loan agreements or on security for these disbursements to, or at the direction of, the Corbetts, and did not require payment of interest on the amounts of them. PIAM's conduct showed that it treated the so-called trust moneys as moneys minded by it, to be paid out as and when requested by the Corbetts, without regard to its obligation to protect the interests of the four staff members of Anscor who were nominated on 30 June 1997 to be, with the Corbetts, members of the fund.
(g) The interest paid by Anscor on the amount of $2,800,000 is some evidence that the $2,800,000 was indeed lent, however, PIAM paid, inter alia, those amounts of interest out to the Corbetts. Accordingly, the payments said to be by way of interest did not suffice to persuade his Honour that there was a genuine loan-back by PIAM to Anscor.
(h) PIAM advertised on its website that it was part of a network of professional firms offering services which included international funds movement and international assets protection from 'the unwanted and untimely claims from government authorities, creditors and others who may have a claim on their assets'. Mr McAuley says he was 'shocked to hear this' in mid June 1998 and immediately contacted Mr Francken to explain his concerns. Although he says that because of its website he did not use PIAM for other clients, 'PIAM has not been removed as trustee … because … it does act clearly as an independent trustee'. The primary judge rejected this description of the role played by PIAM, finding that throughout, PIAM simply acted at the behest of the Corbetts.
(i) His Honour found that the way in which the supposed trust arrangement in fact operated (outlined above) was the way in which it was, prior to its purported establishment on 30 June 1997, intended to operate. His Honour said (at [146]):
'I do not accept that it was ever the intention of McAuley as settlor of this trust or of the Corbetts or of Anscor or PIAM that the Anscor Superannuation Fund would operate as a trust fund for the benefit of Anscor's staff. The evidence showing that PIAM merely minded off-shore, moneys provided by Anscor and disbursed them as the Corbetts directed, evidences that no trust was intended. McAuley was privy to so many of the activities of PIAM and the Corbetts that it can be inferred that this was his intention from the outset.'
118 It is possible to seize upon individual circumstances relied on by his Honour, but he was entitled to regard all the circumstances cumulatively, as he did. And it should not be overlooked since his Honour did not accept that Mr McAuley had the intention he professed to have, that his Honour had the opportunity of observing Mr McAuley during his cross-examination over more than a day.
119 His Honour was entitled to find that the transactions which purported to establish the superannuation fund, and the secured loan, were a sham.
120 The other transactions in question were mortgages given over six properties (owned by Anscor, Mrs Corbett or Croftby Downs Pty Ltd) on 26 March 1998, the day Dexter ceased trading and appointed Mr Clout as his controlling trustee. PIAM was the mortgagee. For reasons given by the primary judge, he concluded at [156]:
'Anscor's investment account, on 20 March 1998, had a credit balance of $1,253,000. The $969,000 paid by Anscor from this account into Klooger's PIAM account on 26 March 1998 was one of a number of drawings from Anscor's investment account which, between 20 March and 27 March, reduced the opening credit balance to a little over $3,000 only. Between 24 March, when the Corbetts were told by Dexter of the impending collapse of the Wattle Scheme, and 27 March, the $1,200,000 of moneys that Anscor had under its control were entirely dissipated, a large part of those moneys being sent off-shore on 26 March 1998 to PIAM. Further, on the morning of 26 March 1998, each of Anscor and the ninth and tenth respondents [Mrs Corbett and Croftby Downs Pty Ltd] held property acquired by each with moneys obtained from Anscor. Some were unencumbered while others were mortgaged to third parties. By the end of that day, each had granted mortgages over their properties to PIAM. Prima facie, these raised a barrier to anyone, and in particular Dexter's trustee in bankruptcy, who might seek to follow the Anscor moneys used by these respondents in acquiring these properties into the properties themselves. The transaction by which this position, at the end of the day on 26 March 1998, was achieved - the substitution of Croftby Downs for Anscor as provider of security to PIAM for the $2,000,000 balance then outstanding of the $2,800,000 loan-back to Anscor made by PIAM on 30 June 1997 with the first and ninth respondents [Anscor and Mrs Corbett] granting PIAM the mortgages over their properties as security collateral to the Croftby Downs mortgage - has, for the reasons given, the hallmark of a subterfuge engaged in to protect Anscor moneys received from Dexter that then remained in the form of various properties held by Anscor and the other Anscor respondents from a claim by Dexter's trustee.'
121 It is unnecessary to repeat the basis upon which the conclusion in the final sentence was reached. It is sufficient to note that the appellants now challenge this conclusion because Mr Corbett said in evidence that as at 26 March 1998, he was not aware of the impending demise of Dexter. He says that consideration was being given to the granting of the mortgages as early as 20 February 1998. Perhaps it was; but that would not be inconsistent with the Corbetts then believing that the writing was on the wall. The Corbetts were aware, before that date, of the ASIC investigation. For the reasons given by the primary judge, the characterisation of the transactions as a subterfuge was open on the evidence.
122 The following findings of his Honour support his conclusion of 'sham' in relation to the giving of securities by the Anscor parties on 26 March 1998:
(a) 'On 26 March 1998, Dexter ceased trading and appointed Clout as his controlling trustee under the bankruptcy laws, having told Mr Corbett of his intention to do this two days before. On the same day, 26 March, the Corbetts, McAuley, their accountant since 1996, and their solicitor, Klooger, engaged in a flurry of activity. This, so the Corbetts and McAuley contend, had nothing to do with Dexter's collapse.' (at [153])
(b) 'Anscor's investment account, on 20 March 1998, had a credit balance of $1,253,000. The $969,000 paid by Anscor from this account into Klooger's PIAM account on 26 March 1998 was one of a number of drawings from Anscor's investment account which, between 20 March and 27 March, reduced the opening credit balance to a little over $3,000 only.' (at [156])
(c) 'Between 24 March, when the Corbetts were told by Dexter of the impending collapse of the Wattle scheme, and 27 March, the $1,200,000 of moneys that Anscor had under its control were entirely dissipated, a large part of those moneys being sent off-shore on 26 March 1998 to PIAM.' (at [156])
(d) 'Further, on the morning of 26 March 1998, each of Anscor and the ninth and tenth respondents held property acquired by each with moneys obtained from Anscor. … By the end of that day, each had granted mortgages over their properties to PIAM.' (at [156])
(e) '… The transaction by which this position, at the end of the day on 26 March 1998, was achieved … has, for the reasons given, the hallmark of a subterfuge engaged in to protect Anscor moneys received from Dexter that then remained in the form of various properties held by Anscor and the other Anscor respondents from a claim by Dexter's trustee.' (at [156])
(f) 'That is, PIAM agreed to substitute for Anscor, a debtor which had been paying interest, a company, Croftby Downs, which had no income, which had just purchased its only undertaking, the farm, and which had no demonstrated means of servicing a debt of $2,000,000 at 10% per annum …' (at [157])
(g) 'Croftby Downs has paid no interest at all to PIAM as trustee for the fund. Almost immediately after PIAM agreed to substitute Croftby Downs for Anscor, Croftby Downs went into default and PIAM became entitled to enforce its security over Croftby Downs … PIAM has taken no action at all to protect the fund of which it is said to be trustee …' (at [158])
(h) 'Despite its agreement to substitute Croftby Downs for Anscor on 26 March 1998 and despite taking security from Croftby Downs and the other collateral securities from Mrs Corbett and over Anscor's Queen Street property, PIAM did not release the mortgage debenture over the entirety of Anscor's assets and undertaking.' (at [161])
(i) 'PIAM showed no interest in performing its duties as trustee. It was content to leave the interest payments made by Anscor in the Brisbane bank account held by its attorney Klooger … the Bank of Queensland did not pay any interest on the moneys … PIAM did nothing to make these moneys productive of any benefit for the trust. Though PIAM received into one of its Singapore accounts the $1,155,000 transferred by Klooger on 26 March 1998, it has not treated those moneys as the trust moneys they are supposed to be: instead, as and when the Corbetts called on it for access to those moneys to meet their own personal expenses, including legal costs and the legal costs of the other Anscor respondents in this litigation, PIAM handed the moneys over …' (at [162])
(j) 'There is no suggestion PIAM required loan agreements to be drawn up or security from the Corbetts for these disbursements to them of what are presented by the respondents to be trust moneys. Nor has PIAM required the Corbetts to pay any interest. Instead, its conduct shows it has treated so-called trust moneys as moneys minded by it and to be made available to the Corbetts for whatever purposes they wanted … Immediately the Corbetts called on PIAM to give them unrestricted access to so-called trust moneys, PIAM simply abandoned all responsibility for protecting the interests of Berridge, van der Kolk, Rapley and Cruickshank, the four staff members of Anscor nominated on 30 June 1997 and spoken to at length that day by McAuley about the benefits they were supposed to anticipate from the trust fund.' (at [164])
(k) 'So little interest has PIAM in performing a trustee's duty of protecting the trust assets that, once the Corbetts said they were not prepared to continue to pay for PIAM's representation in this action, it proposed in the most casual of ways that Mr Corbett should represent it.' (at [167])
123 The observations I made at [114] - [116] above in relation to the events relating to the 30 June 1997 transactions are also relevant to those of 26 March 1998. Indeed, once it is accepted that the earlier establishment of the superannuation fund, the loan and the giving of the Mortgage Debenture were a sham, it is difficult to see any basis on which the transactions of 26 March 1998 would not be 'infected'.
124 Although I have concluded earlier that there was not created on 30 June 1997 a genuine indebtedness of Anscor to PIAM, if there was, that debt and the associated Mortgage Debenture given by Anscor to PIAM were to be discharged as a result of the novation agreement made in March 1998 substituting Croftby Downs as debtor. On the hearing of the appeal, senior counsel for the appellants accepted that this was so.