Appellants v Respondent

2 In March 2009, 640 entered into a joint venture deed ('JVD') with Jabbour 640 Pty Ltd ('Jabbour') for the development of the Property. Elan Apartments Pty Ltd ('Elan') a special purpose vehicle was appointed as the development manager or nominee.

3 On 3 December 2009, Elan entered into a building contract with Maxcon Pty Ltd ('Maxcon') for the construction of 54 residential apartments on the Property ('the Development') for a contract price of $14,750,000 excluding GST.

4 In addition to the contract price, Elan subsequently agreed to pay Maxcon a further $516,000 ('the additional amount') for 'construction services'. The amount comprised a 'Construction Contingency' amount of $210,000 and a 'Value Engineering Budget' amount of $306,000 plus GST. Initially this was to be paid by way of variations, but later it was agreed to be paid at the end of the Development.

5 Practical completion of the Development was certified on 7 November 2011.

6 On 6 February 2012 Maxcon issued a formal invoice for $51,600, being the GST on the additional amount.

7 At the end of May 2012 Mr Anthony Elzain ('Elzain'), a director of Maxcon was told that the retention money, required to be set aside and held under the building contract had been used to discharge a mortgage to Westpac. He was also told about the non-remittal of over $1m in GST to the ATO and the failure to file BAS. In evidence Elzain said that he regarded the use of the retention money as theft and that this gave rise to Maxcon's request for security.

8 On 8 June 2012, Mr Richard John Joseph O'Bryan ('O'Bryan'), a director of 640 and Elan executed for and on behalf of 640 and Elan[1] a Deed of Acknowledgment ('Deed of Acknowledgment') pursuant to which:

(i) 640 charged all its land with payment of amounts due by Elan to Maxcon including:

(a) unpaid retention monies due under the building contract; and

(b) $51,600 GST on the additional amount payable; and

(ii) 640 agreed, at Maxcon's request, to provide a mortgage in registrable form.

9 On 12 June 2012, Maxcon lodged a caveat ('the caveat') on title to various apartments claiming an interest as chargee pursuant to the Deed of Acknowledgment.

10 On 12 June 2012, Maxcon's solicitor executed a mortgage ('Mortgage') over the said titles pursuant to a power of attorney. The Mortgage was never registered. The learned trial judge, correctly in my view, regarded the Deed of Acknowledgment, the Mortgage and the forbearance to sue all as part of one transaction ('the Transaction'). There is no challenge to this finding.

11 Peter Vrsecky ('Vrescky') and Glenn Jeffrey Franklin ('Franklin') were appointed as administrators of 640 on 12 November 2012 and 640 was subsequently wound up pursuant to a resolution of creditors on 18 February 2013. Vrsecky and Franklin were appointed joint and several liquidators ('the liquidators').

12 Following the commencement of an application by the liquidators claiming that the Transaction was an Uncommercial Transaction pursuant to s 588FB of the Corporations Act 2001 (Cth) ('the Act'), and liable to be set aside,[2] the caveat was removed. The last unit in the Development, unit 4, was sold and approximately $351,000 of the net proceeds was paid into an interest bearing trust account in the names of the solicitors for the parties, on account of Maxcon's claim under the Mortgage (including about $100,000 for costs alleged to be payable under the Mortgage).

13 The application by the liquidators came on for hearing before Efthim AsJ on 17 and 18 March 2014. On 12 September 2014 his Honour published reasons for dismissing the liquidators' claim.[3]

14 By Notice of Appeal filed 1 October 2014, the liquidators appeal against the orders made by Efthim AsJ on 26 September 2014.

15 At trial, the liquidators claimed that the Transaction was an Uncommercial Transaction of 640 within the meaning of s 588FB of the Act. The liquidators submitted that by entering into the Deed of Acknowledgment and Mortgage 640 had suffered detriment in the nature of a liability to pay Elan's debt relating to the outstanding retention monies and the $51,600 GST on the additional amount, and further encumbered its Property with payment of those amounts, without any corresponding benefit. Maxcon, on the other hand, derived the benefit of acquiring security over the Property to secure the payment of Elan's debt, and suffered no detriment.

16 In the alternative the liquidators claimed that the Transaction was an insolvent transaction of 640 within the meaning of s 588FC of the Act, or a voidable transaction within the meaning of s 588FE of the Act.

17 If, contrary to the liquidators' primary contention, 640 was somehow indebted to Maxcon at the time of the execution of the Deed of Acknowledgment and Mortgage, then the liquidators claimed that the Transaction was an unfair preference within the meaning of s 588FA of the Act.

18 At trial, Maxcon did not press for a finding that 640 was solvent at the time of the Transaction but did contend that the Transaction was not an Uncommercial Transaction. It relied in particular on clause 8 of the JVD, claiming that Elan was entitled to be indemnified out of the gross sales receipts from the sale of the units and all other revenue receipts in connection with the Development ('Gross Sales Receipts'[4]) for its debt to Maxcon. Accordingly, it submitted that neither 640 nor Jabbour was entitled to any of the money in the account into which the Gross Sales Receipts were deposited ('Joint Venture Account') until Elan's debt to Maxcon had been paid.

19 Maxcon further relied on the statutory defence contained in s 588FG(2) of the Act, claiming that Maxcon took the benefit of the transactions in good faith and in the absence of any reason to suspect 640's insolvency.

20 Efthim AsJ held that, had the Transaction not been entered into, Elan would have incurred considerable legal fees in defending the subsequent litigation.[5] His Honour held that the forbearance and avoidance of those legal costs, which would have been paid out of the Joint Venture Account as 'Development Expenses', increased the net profit to 640 and was therefore a benefit to 640.[6]

21 His Honour further held that, had the Transaction not occurred, Elan would most likely have applied the Gross Sales Receipts in payment of its debt to Maxcon. Therefore, in his Honour's opinion, there was no detriment to 640 of any real substance.[7]

22 His Honour also held that the Transaction which resulted in Maxcon being provided with a substitute security (for the retention monies) was the sort of transaction that reasonable businessmen would enter into in the circumstances.[8]

23 Having regard to these matters, his Honour held that the Transaction was not an Uncommercial Transaction.[9]

24 Having determined that the Transaction was not an Uncommercial Transaction, his Honour decided that it was not necessary to consider the solvency of 640. However, he noted that Maxcon conceded that the case for insolvency had been made out.[10]

25 As to the defence under s 588FG(2), whilst he did not need to address the matter (having held that the Transaction was not an Uncommercial Transaction), his Honour nonetheless held that Maxcon had acted in good faith,[11] although it did have reason to suspect 640's insolvency at the time of the Transaction.[12]

26 His Honour held there was no unfair preference because there was no debtor/creditor relationship between 640 and Maxcon at the time of the Transaction.[13]

27 It is necessary to set out the main terms of the JVD in order to properly understand the arguments submitted by the parties.

28 The significant features of the JVD are as follows:

(a) Jabbour and 640 formed a contractual joint venture for the purpose of developing the Property.[14]

(b) 640 contributed the Property to the joint venture but nothing in the JVD was intended to grant to Jabbour or Elan, or to create in Jabbour or in Elan, a proprietary interest in the Property, and neither Jabbour nor Elan shall be deemed seized of such an interest, or claim such an interest.[15]

(c) Jabbour and 640 formed Elan for the purpose of representing them in the joint venture.[16]

(d) Elan was to act as the agent of Jabbour and 640 for the purposes of the JVD.[17] Elan was to participate in the Development as the agent and for the benefit of Jabbour and 640 in equal shares.[18]

(e) Elan, as a special purpose vehicle for the Development, was controlled by Jabbour and 640. But Jabbour, 640 and Elan agreed that 640 was, as agent of Elan, to have the primary conduct and management of the Development in all respects, but subject to the JVD.[19]

(i) borrow the Development Finance in its own name as borrower.[20] The Development Finance was to be borrowed without recourse to Jabbour and 640, leaving Elan personally liable for its repayment but with 640 providing a mortgage over the Property;[21]

(ii) enter into the contracts with lenders of Development Finance (as is referred to, for example, in clause 8.2(b)(ii) of the Builders Side Deed dated 20 August 2010);

(iii) engage the 'Builder' to construct the 'Development';[22] and

(iv) enter into the Building Contract and side agreement with Maxcon.

(g) Elan was, as agent, entitled to be indemnified by Jabbour and 640 for the liabilities incurred by it, including Development Expenses. The Development Expenses included the Development Finance and Elan's liability under the Building Contract with Maxcon.[23]

(h) Elan was to open a bank account in its name with the Commonwealth Bank ('Joint Venture Account') which was operable only by the signature(s) of Roland Jabbour (representing Jabbour) and Michael Emery (representing 640).[24]

(i) 640 was required to bank the Gross Sales Receipts into the Joint Venture Account.[25]

(j) The beneficial owner of the Gross Sales Receipts deposited in the Joint Venture Account from time to time shall be 640 and Jabbour as tenants in common in equal shares.[26]

(k) 'Gross Sales Receipts' means the gross sales receipts from the sale of the Units and all other revenue receipts in connection with the Development.[27]

(l) Elan was required to apply the Gross Sales Receipts in the following priority, namely to:

(i) pay monies owed to the Development Financier;

(ii) pay the unpaid Development Expenses, and all other Development Expenses as and when they were incurred;

(iv) reimburse any Prior Commitments (by 640) to 640 and to the extent they have not been recovered by 640 pursuant to subclause 6.4 of the JVD; and

(v) disburse the balance to Jabbour and 640 in accordance with clause 8.2.[28]

(m) Subject to the prior payments and reimbursements referred to in subclause 8.2 being made, the Net Profit shall be disbursed by Elan from the Joint Venture Account as and when 640 and Jabbour shall, through their representatives on the board of Elan, cause Elan to make a decision to do so, and shall be disbursed by Elan in the following priority, namely to;

(iii) Jabbour and 640, the residue of the Net Profit, share and share alike.[29]

29 The manner in which the joint venture operated in practice reflected the JVD, in that:

(a) Elan had no income of its own; it did not charge a fee for its services as agent for the joint venture. This is consistent with clause 7.1 of the JVD whereby 640 was authorised to act as Elan's agent.

(b) Through Elan's participation in the Development as Borrower of the Development Finance for which it was personally liable, and as Maxcon's client under the Building Contract, for which Elan was the party legally liable to be sued as nominee for 640 and Jabbour in equal shares, 640 and Jabbour obtained the benefit of the Development funded by the Development Finance and constructed by Maxcon. The total value of the completed apartments was $30.7 million.[30]

(i) 640 remained on title as the registered proprietor of the Property; and

(ii) the apartments were substantially pre-sold.

(1) The learned Associate Judge erred in paragraphs 22 and 23 of his reasons for judgment in finding, in the absence of evidence to support such a finding, that a forbearance from suing Elan would mean that legal costs would not be expended and that the first appellant thereby derived a benefit from the Transaction given to the respondent.

(2) The learned Associate Judge erred in paragraphs 30-32 of his reasons for judgment in finding that, because the respondent would have been paid out of the proceeds of Unit 4, the giving of the Mortgage to secure payment of the amount owed by Elan to Maxcon was not a detriment to 640 'of any real substance', in that his Honour failed to take into consideration the effect of the transaction on the interests of the unsecured creditors of the first appellant.

(3) The learned Associate Judge erred, when considering the question of whether the Transaction was an Uncommercial Transaction, by failing to take into consideration the benefit acquired by the respondent by reason of the Transaction and its proportionality to the benefit (if any) acquired by the first appellant.

(4) The learned Associate Judge erred in paragraphs 36-37 of the Judgment by taking into consideration an irrelevant consideration, namely the reasonableness of the transaction from the point of view of the respondent.

(5) Having made the errors referred to above, the learned Associate Judge erred in finding that the Transaction was not an Uncommercial Transaction, an Insolvent Transaction and a Voidable Transaction within the meaning of Part 5.7B of the Act.

(6) The learned Associate Judge erred in paragraphs 42-43 of his reasons for judgment in that he applied the wrong test for determining whether the respondent had acted in good faith for the purposes of s 588FG(2)(a) of the Act.

31 Maxcon has filed a Notice of Contention which will be referred to later where relevant.

E The law relating to Uncommercial Transactions

32 Section 588FB provides:

(1) A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to:

(a) the benefits (if any) to the company of entering into the transaction; and

(b) the detriment to the company of entering into the transaction; and

(c) the respective benefits to other parties to the transaction of entering into it; and

(d) any other relevant matter.

(2) A transaction may be an uncommercial transaction of a company because of subsection (1):

(a) whether or not a creditor of the company is a party to the transaction; and

(b) even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.

33 The relevant principles are not in dispute. A short summary is set out below. It is clear that each case must be considered on its own facts and circumstances. The parties differ on the application of the facts to the relevant law and the liquidators submit that, in such application, the learned trial judge fell into error.

34 In Capital Finance Australia Ltd v Tolcher,[31] Gordon J summarized the relevant principles as follows:

In seeking to address the third of the requirements [of s 588FB][32] the principles to be applied may be summarised as follows:

(1) as the express words of s 588FB make clear, it is an objective standard to determine if a transaction is uncommercial: see also Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran (2005) 219 ALR 555; 54 ACSR 410; [2005] NSWCA 243 at [156] and Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363 at 366-7;

(2) four criteria are to be considered - the benefits enjoyed by the company (s 588FB(1)(a)), the detriment to the company (s 588FB(1)(b)), the respective benefits others received (s 588FB(1)(c)) and any other relevant matters (s 588FB(1)(d));

(3) The objective criteria are not considered in some vacuum but by reference to "the company's circumstances" which must include the state of knowledge of those who were the directing mind of the company, such as its controlling director or directors: (Tosich Construction at 367); and

(4) for a transaction to be "uncommercial" it must result in "the recipient receiving a gift or obtaining a bargain of such magnitude that it [cannot] be explained by normal commercial practice" or where "the consideration ... lacks a 'commercial quality'": see Peter Pan Management Pty Ltd v Capital Finance Corp (Aust) Pty Ltd (2001) 19 ACLC 1392 ; [2001] VSC 227 at [43]; Lewis v Cook (2000) 18 ACLC 490 ; [2000] NSWSC 191 at [45]-[46] and Demondrille Nominees Pty Ltd v Shirlaw [1997] FCA 1220; (1997) 25 ACSR 535 at 548 and the explanatory memorandum, Corporate Law Reform Bill 1992, para [1044].[33]

35 Whilst transactions at an undervalue may be a focus of s 588FB,[34] transactions caught by s 588FB are not limited to such transactions. The statutory description of Uncommercial Transactions directs primary attention to a balancing of benefit and detriment. In Lewis (as liquidator of Doran Constructions Pty Ltd (in liq) & Anor v Doran & Ors,[35] Giles JA said:

Transactions at an undervalue were no doubt the primary target of the provisions, but the description of an uncommercial transaction in s 588FB(1) was not limited to such transactions. The description directed primary attention to a balancing of benefit and detriment, only in the broadest sense involving undervalue. A transaction could conceivably be one a reasonable person in the company's circumstances would not have entered into although for full value; or it could be one a reasonable person in the company's circumstances would have entered into although at an undervalue, for example a forced sale to overcome temporary illiquidity. For s 588FB(1), in addition to regard to benefits and detriments to the company, regard was to be had to the benefits to the other parties to the transaction. It appears to have been contemplated that a transaction detrimental to the company but beneficial to other parties to the transaction might not unreasonably be entered into. If, for example, there were no creditors and no prospect of creditors, it may be that the controller of the company could reasonably sacrifice its interests to the interests of other parties to the transaction.[36]

36 In Campbell Street Theatre Pty Ltd v Commercial Mortgage Trade Pty Ltd,[37] Black J said:

A transaction is an uncommercial transaction if it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to the benefit or detriment to the company in entering the transaction, the benefit to other parties to the transaction and any other relevant matter: Corporations Act s 588FB(1). In Demondrille Nominees Pty Ltd v Shirlaw [1997] FCA 1220; (1997) 25 ACSR 535 at 548; [1997] FCA 1220; 15 ACLC 1716, Foster, Lindgren and Madgwick JJ observed that ss 588FB and 588FE of the then Corporations Law sought to balance the interests of the unsecured creditors of a company being wound up and those who would otherwise be the beneficiaries of pre-winding up transactions entered into by the company and their purpose was:

To prevent a depletion of the assets of a company which is being wound up by, relevantly, "transactions at an under-value" entered into within a specified limited time prior to the commencement of the winding up: see explanatory memorandum, para 1014.

Their Honours also observed, by reference to the explanatory memorandum, that a transaction is uncommercial, for the purposes of s 588FB, where there is a bargain "of such magnitude that it could not be explained by normal commercial practice: Demondrille Nominees Pty Ltd v Shirlaw at ACSR 548; see also McDonald v Hanselmann [1998] NSWSC 171; (1998) 28 ACSR 49 at 53.

The purpose of the section includes preventing companies disposing of their assets or other resources through transactions that result in the recipient receiving a gift or obtaining a bargain of such commercial magnitude that it could not be explained by normal commercial practice: Skouloudis Group Pty Ltd (in liq) v Planet Enterprizes Pty Ltd [2002] NSWSC 239; (2002) 41 ACSR 369 at [14]- [15]. In Lewis (as liq of Doran Constructions Pty Ltd (in liq)) v Doran [2005] NSWCA 243; (2005) 219 ALR 555; 54 ACSR 410 at [136], where Giles JA observed that the description of an "uncommercial transaction" in s 588FB(1) is "directed primary attention to a balancing of benefit and detriment, only in the broadest sense involving undervalue. Whether a reasonable person in the company's circumstances would not have entered into the transaction is determined by an objective inquiry, by reference to the factors specified in s 588FB(1): Tosich Construction Pty Ltd (in liq) v Tosich above at FCR 367; Old Kiama Wharf Company (in liq) v Betohuwisa Investments Pty Ltd [2011] NSWSC 823; (2011) 85 ACSR 87 at [35]. The possibility that this section may apply to an agreement under which excessive service fees were paid has been recognised in the academic literature: see A Keay, "Liquidators' Avoidance of Uncommercial Transactions" (1996) 70 ALJ 390 at 393.[38]

37 In considering whether a transaction is for the benefit, or to the detriment, of a company, the interests of the company's unsecured creditors are necessarily relevant. Thus, in Demondrille Nominees Pty Ltd v Shirlaw,[39] the Full Court held in respect of the foregoing by an insolvent company of $120,000 regarding the sale of one of its properties:

... Although there may have been a benefit to Valdivia or to Mr or Mrs Veraar or to both of them in having done so, there was no benefit to [the company] or, indirectly, to its unsecured creditors, in its having done so. ...[40]

38 Further, a transaction which has the effect of reducing the company's debts may nonetheless be an Uncommercial Transaction if it adversely affects the interests of other creditors. In Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd[41] Young JA wrote:

The primary judge held at [222] that Buzzle (as distinct from its creditors) suffered no detriment from the relevant transaction.

With respect this cannot be correct. It is true, as the primary judge stated, that in making the payments Buzzle reduced its debts to the resellers. However, that was not the whole picture. Buzzle had limited resources and to deprive itself of liquidity before it legally had to do so, where it had other pressing creditors and a need to expend moneys on its computer accounting system amounted to a detriment.

"Detriment" in the section is not limited to a detriment that can necessarily be measured in money terms. The word refers to commercial detriment. [42]

39 In Re Ashington Bayswater Pty Ltd (in liq)[43] Black J held that the securing by a company of a previously unsecured debt was an Uncommercial Transaction having regard to the disproportionate benefit received by the company from the transaction.

I am conscious that, in Lewis (as liq of Doran Constructions Pty Ltd (in liq)) v Doran [2005] NSWCA 243; (2005) 219 ALR 555; 54 ACSR 410 at [136], Giles JA (with whom Hodgson and McColl JJA agreed) observed that the description of an "uncommercial transaction" in s 588FB(1) directed primary attention to a balancing of benefit and detriment and only in the broadest sense involved undervalue and (at [154]) that a Court should be slow to pronounce upon the commercial justification of particular executive decisions. That observation appears to be directed particularly to the context where no straightforward comparison of the value of an asset and the consideration received can be undertaken. On the other hand, in Capital Finance v Tolcher above at [73], Lindgren J quoted Professor Andrew Keay's observations as to the importance of undervalue in determining whether a transaction is an uncommercial transaction for the purposes of s 588FB in his article "Liquidators' Avoidance of Uncommercial Transactions" (1996) 70 ALJ 390 at 397, as follows:

"While not dealing exclusively with undervalue, undervalue is at the heart of the section [s 588FB], that is, if the company received less than what is reasonable from the transaction the liquidator may attack it. It is likely that in many cases Courts will be pre-occupied with comparing the value of what the company received in exchange for what it gave or vice a versa."

That passage was in turn cited by Nicholas J in Cussen v Sultan above at [19]. In Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2011] NSWCA 109; (2011) 82 ACSR 703 at [82], Young JA also recognised the relevance of the consideration received by the company in a transaction, albeit also observing that an assessment of the adequacy of consideration for the purposes of this section does did not require "exact equivalence" but only a fair equivalence between what is given and what is received.

The matters to which the Court is to have regard in determining whether a transaction is an uncommercial transaction, in the requisite sense that a reasonable person in the company's circumstances would not have entered into the transaction, are specified in sub-paragraphs 588FB(1)(a)-(d) as any benefits to the company of entering into the transaction; the detriment to the company of entering into the transaction; the respective benefits to other parties to the transaction of entering into it; and any other relevant matter. In the present case, Employ 96 received the benefit of obtaining professional services from DVT. On the other hand, it suffered the detriment of obtaining those services at double the usual rate that would be charged by DVT for the provision of those services. For the reasons set out below, in my view, the relevant circumstances were not of such a character that an agreement to pay double rates could be explained by normal commercial practice.[44]

41 The section is specifically aimed at preventing companies disposing of their assets or other resources through transactions which result in the recipient receiving a gift or obtaining a bargain of such commercial magnitude that it could not be explained by normal commercial practice.[45] It, and other provisions of Part 5.7B, 'are clearly the current attempt by the legislature to balance the interests of the unsecured creditors of a company being wound up and those who would otherwise be the beneficiaries of pre-winding up transactions entered into by the company'.[46] It has also been said that the purpose or object of the provisions is 'to prevent a depletion of the assets of a company which is being wound up by, relevantly, "transactions at an under-value" entered into within a specified limited time prior to the commencement of the winding up'.[47]

42 In many cases transactions which result in a company in liquidation incurring liabilities which it did not previously have and which gave no countervailing benefit to the company were considered Uncommercial Transactions within the meaning of s 588FB of the Act.

43 The Court must consider each of the matters in s 588FB(1) and, having regard to them, reach a conclusion as to whether a reasonable person in the company's circumstances would not have entered into the transaction. The company's circumstances include the state of knowledge of its guiding minds.[48] But the test is not so high as to require that the transaction be so unreasonable that no reasonable person would enter into it.[49]

...the Court will look at the totality of the business relationship between the parties, and to what the parties under their relationship intended to effect, and how their intention was effected, in part or in whole, by the impugned transaction.[51]

45 If it be necessary to conduct an assessment of the value exchanged in the bargain, in comparing the value given by the company against the value received, the court does not require exact equivalence but only a fair equivalence.[52]

The statutory defence in s 588FG(2)

46 Subsection 588FG(2) provides:

(2) A court is not to make under section 588FF an order materially prejudicing a right or interest of a person if the transaction is not an unfair loan to the company, or an unreasonable director-related transaction of the company, and it is proved that:

(a) the person became a party to the transaction in good faith; and

(b) at the time when the person became such a party:

(i) the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and

(ii) a reasonable person in the person's circumstances would have had no such grounds for so suspecting; and

(c) the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction.

47 The liquidators submitted that the Transaction did not benefit 640 and that the finding by the trial judge was erroneous. The trial judge held that the benefit comprised the avoidance of any costs associated with Maxcon's forbearance from proceeding against Elan. These costs would be considered 'Development Expenses' under clause 8 of the JVD and would reduce 640's profit accordingly. The learned trial judge held, correctly in my view, that Maxcon would have taken legal action in respect of the retention monies.

48 The gravamen of the liquidators' submission was that there was no evidence to support any of the findings; that is, that Elan denied the claim, that Elan would have defended the claim and that any - and if so to what extent - costs would have been incurred. Accordingly, it was submitted that the trial judge fell into error by finding, without a sufficient evidential foundation, that the avoidance of costs and consequent diminished profit constituted a benefit to 640.

49 Maxcon submitted that in the circumstances, namely using the retention monies to repay a loan in respect of the Development and the angry reaction of Maxcon, both 640 and Elan were exposed to a claim. In short, it was submitted that avoiding potential and, on the evidence, likely litigation and associated costs of whatever magnitude was not an insignificant benefit and it mattered not whether the proceedings were defended or undefended. It was submitted that it was obvious that some costs would have been incurred and they would not be de minimis.

50 Further, Maxcon submitted that on a proper construction of the Deed of Acknowledgement the forbearance to sue covered both Elan and 640 but that if this was not the case, in any event the reality was that Maxcon did not take legal action against 640 because of the Transaction.[53]

51 The liquidators submitted in reply that these points were raised only in the Notice of Contention and were not pleaded and that in any event in his evidence, Elzain effectively regarded Elan and 640 as the same. However, they were not the same and it was submitted that the building contract was with Elan and not 640 and that there was no claim, or basis of a claim articulated as against 640.

52 The liquidators submitted further that the Deed of Acknowledgement was clear and that the forbearance related only to '... taking any action to recover the balance of the contract price ...'.[54]

53 Finally, it was submitted that the finding of the trial judge, while erroneous, was correctly restricted to the pleaded case and the avoidance of litigation and legal costs relating to any claim against Elan. However, it was submitted that ultimately it did not matter because 640 was in effect determined to assist Maxcon and was content to enter into the Transaction to encumber the Property voluntarily, without any threat of litigation. In the circumstances there was no avoidance of litigation and it was sensible and reasonable to infer there would not be any litigation.

54 In my opinion 640 did self-evidently receive a benefit. Unless it entered into the Transaction it was, to use a general and non-quantitative (and perhaps even non-qualitative) word, exposed. By avoiding any exposure to a direct or derivative claim or any exposure or risk to the diminution in the amount it would receive it has undoubtedly benefited.

55 I do not consider that the benefit is de minimis. Of course, the benefit to 640 is only one factor to be taken into account. The extent to which it has an impact upon the ultimate question is another matter.

56 Accordingly, in my opinion there is no error in the reasoning of the trial judge even on the narrow basis on which the benefit was decided. A claim against Elan would clearly result in a claim (or exposure) against 640. Avoiding this was a benefit. However the point gains more traction from the matters raised in support of paragraphs 1 and 2 of the Notice of Contention.[55] I will allow Maxcon to raise these matters despite the pleading and basis on which the matter was run below. There is no prejudice to the liquidators and indeed none was suggested.

57 Given the circumstances and the inextricable relationship between Elan and 640, 640 was undoubtedly exposed to a direct claim. Indeed it is unthinkable that any such claim would have been limited to Elan. 640 was both agent of Elan and its principal or beneficiary. It was clearly, to use the vernacular, 'in the gun'. Eliminating this exposure or any exposure to a claim is a commercial benefit even though it may be hard to quantify. The matter must be looked at through a commercial lens rather than a technical legalistic lens. Commercially speaking, any benefit to Elan was in the circumstances a benefit to 640. I have no doubt that a reasonable person in the position of 640 would have regarded the Transaction as having some commercial benefit to 640.

58 The liquidators submitted that the Transaction was detrimental to 640 and that the finding of the trial judge was erroneous. The trial judge held that there was no detriment to 640 because even if the Transaction had not been entered into 640 would still be liable since under clause 8 of the JVD, Elan would have in any event used the proceeds of the sale of Unit 4 to pay Maxcon. This would, it was held, when considering the Transaction, not be a detriment 'of any real substance'.[56] One way or another 640 would be liable.

59 It is useful to set out the reasoning of the trial judge in this regard:

In relation to clause 8.1 of the Joint Venture Deed, the plaintiffs submit that there is nothing to suggest that 640 Elizabeth Street held the gross sales receipts before they were banked into the joint venture account, or after on trust for Elan. It does concede, however, that the sales receipts which were put into that account were held on trust for 640 Elizabeth Street and Jabbour. It is clear from the Joint Venture Deed gross receipts were to be banked into the Joint Venture Account. In my view, this implies a form of limited trust.

...

On the evidence before the Court, it is said the most likely outcome, on the balance of probabilities, is that Elan would have applied gross sale receipts to repay Maxcon had the transaction not been entered into and the beneficial interest that 640 Elizabeth Street had in the gross sale receipts would have been limited to whatever was left after payment of priority amounts under clause 8.2 of the joint venture deed.

...

I accept that Maxcon's debt would have been paid out of the proceeds of the sale of Unit 4. The debt owing to Maxcon on 12 July 2012, when the mortgage was granted, was less than $500,000. Unit 4 was sold for $636,000. All existing mortgages had been paid in full prior to 8 June 2012. Maxcon would, therefore, have been paid out as the first ranking mortgagee over this property. Once Maxcon was paid, then 640 Elizabeth Street would not be required to reimburse Elan for debts owing to Maxcon. As a consequence, 640 Elizabeth Street would not need to account to Elan for gross sales receipts. The beneficial interest and credit balance of the joint venture account would be unaffected.[57]

60 The liquidators, however, submitted that the Transaction had an effect on the unsecured creditors of 640. A non-liability[58] it was submitted was elevated to a secured liability to the obvious prejudice of the unsecured creditors of 640. This was the very thing, it was submitted, that the section sought to avoid.

61 Maxcon submitted in a detailed response that there was no detriment to 640 (and its creditors) essentially because the amount owing to Maxcon would, given the operation of the various provisions of the JVD,[59] in the hands of 640 (as agent for Elan) be quarantined or unavailable to unsecured creditors of 640 until all Development Expenses had been paid and the net entitlement of 640 was calculated. Consequently it was submitted - as indeed was held by the trial judge[60] - that the proceeds of sale of Unit 4 were held on trust by 640 and not available (at that stage if it all) for its benefit or for its unsecured creditors.

62 It was submitted that had the Transaction not been entered into 640 would have been obliged to pay the proceeds (the Gross Sales Receipts) into a Joint Venture Account in Elan's name. These proceeds would, it was submitted, have been held by Elan as legal owner on trust for 640 and Jabbour equally, subject to being dealt with in accordance with the JVD. When so dealt with, 640 would not have received any proceeds, whether at the time they were paid into the Joint Venture Account or later. As found by the trial judge (and not challenged on appeal) it was submitted that Maxcon would have been paid out of the proceeds.

63 Finally, it was submitted that in assessing the factual versus counterfactual position the trial judge was correct in concluding that any detriment as a result of the Transaction was of no real substance because the financial position of 640 when properly analysed would in any event be no different.[61]

64 In a reply submission the liquidators contended that 640 (and it alone) was the beneficial owner of the land and pursuant to the JVD (clause 8.1), 640 and Jabbour were entitled to the proceeds of sale as tenants in common in equal shares. The liquidators submitted that requiring payments or Development Expenses in some order of priority did not create a trust but merely an obligation in effect ex contractu. This was supported, it was contended, by the reference of the trial judge to 'a form of limited trust'.[62] Finally, it was submitted that 640 always retained an interest in the Joint Venture Account. The fact that the account in which 640 retained an interest was to be used in a particular way or order in regard to payments did not make all or any of such amount trust funds.

65 In my opinion the Transaction was not, in all of the circumstances, detrimental to 640. I do not consider that the trial judge fell into error.

66 The consequences of the (secured) Transaction and the position had the Transaction not been entered into would, given the various provisions of the JVD, have had substantially the same effect on 640. Its net position would have been the same. It was no worse off.

67 The Gross Sales Receipts were required to be paid into the Joint Venture Account. 640 as the agent of Elan was required to bank all revenue into this account. Beneficial ownership in the Gross Sales Receipts and the Joint Venture Account resided with 640 and Jabbour. Legal ownership remained with Elan and to this extent it may properly be regarded as a trustee of the funds[63] an office or position entirely compatible with it being nominee and agent of the joint venture parties.

68 Although there is an issue relating to the precise form, nature and extent of the trust (and precisely what was argued below and held by the trial judge) I do not regard the issue as definitive.

69 In any event, assuming there was no trust, one way or another 640 was directly affected by amounts paid by Elan to Maxcon, whether by the requirement to indemnify Elan or by the receipt of less funds, Elan having discharged its permitted and required obligations out of the Gross Sales Receipts. As pointed out, 640's net position would have remained the same. The very amount that it was required to pay because of the Transaction would be reflected in the greater return from Elan, Elan having been relieved of such obligation. Accordingly, the Transaction itself did not cause any detriment to 640.

70 Accordingly, unlike the circumstances in many of the authorities referred to, 640 did not impoverish itself for no, or no adequate, consideration. It did not make a gift and the Transaction was not at undervalue. It either had to pay Elan or, pursuant to the Transaction, Maxcon. Therefore the amount was used to pay creditors but not equally. Does this make it uncommercial? I do not regard payment on behalf of Elan or securing the obligation of Elan (and not all creditors) a detriment to 640 or its creditors in the particular circumstances of this case. I refer to the further matters dealt with under ground 4 below.

71 However, the arrangements do in my opinion evidence a trust.[64] Elan is Trustee of the Joint Venture Account and 640 and Jabbour are beneficiaries. So much is indeed common ground. The holding of funds for another as beneficial owner constitutes a trust relationship. Elan was not free to use the funds in the Joint Venture Account as its own. Neither was 640 to the extent of its beneficial interest. Elan was required to use the funds in the manner determined by the beneficiaries. In effect it is only the net balance of the fund that is or remains held on trust and available for distribution to the beneficiaries. The beneficiaries had specifically authorised the trustee to make necessary payments before distribution and by giving effect to the arrangements the beneficiaries, and in particular 640 (or its creditors), cannot complain.

72 Accordingly, I do not consider that the learned trial judge fell into error. All receipts in the hands of 640 were received as agent of Elan and indeed were subject to a limited trust in the hands of 640 in the first instance and then in the hands of Elan. It follows that there can be no detriment to 640 if the funds were dealt with in accordance with the trustee's obligations.

73 I do not accept that the obligations on the part of Elan were simply contractual and as an agent, and that these obligations fall to be considered as such, and not as those of a trustee. In my opinion it is artificial and inaccurate to regard the trust as comprising and simply being limited to the funds in the Joint Venture Account without having regard to the obligations, liabilities and charges against those very funds. To regard the obligations on the part of Elan to pay the Development Expenses as simply and only contractual, because Elan incurred these obligations as agent or nominee, is unwarranted and incorrect. There is a direct and inextricable relationship between the agreed trust, comprising the funds in the Joint Venture Account held by Elan as trustee, and its obligations - which expressly required, permitted and mandated the use of those very trust funds. Elan is in this regard truly a trustee in a broader sense. As pointed out, this is not inconsistent with Elan's capacity as nominee and agent. In fact it is entirely consistent. I do not accept that 640 and Jabbour could simply, as beneficiaries, call for the funds without deductions, in circumstances where the beneficiaries have specifically agreed and contemplated that Elan would use these funds in a particular way, namely to discharge the Development Expenses. Indeed as the earlier point makes clear, they would have done so in any event.

74 Finally I do not regard the effect of the Transaction on the rights of unsecured creditors of 640 as constituting a detriment to 640 because of the failure to adhere to the pari passu principle. According to the liquidators' all creditors of 640 should participate equally, that is Elan (to the extent that it is entitled to be indemnified in respect of any amount owing to Maxcon or otherwise) and the other unsecured creditors. The logical corollary according to the argument, is that 640's asset comprising its interest in the Joint Venture Account (in accordance with JVD, clause 8.1) must be as available to its unsecured creditors, as it is to Elan, to use to pay other creditors for which Elan is liable but has a right of indemnity against this very interest.

75 The short answer to this argument is that despite retaining part beneficial ownership in the Joint Venture Account, the funds in the account never get back to 640 as an asset free of any burden or encumbrance and therefore available to its unsecured creditors.

76 There is a further and self-evident reason why there is no detriment: the retention fund. There can be no detriment to the unsecured creditors and they cannot complain when trust funds that were improperly taken were effectively replaced. More relevantly, I do not consider that there is any detriment to 640 when it is, by the Transaction, making good trust funds that it had in effect improperly taken.

77 The liquidators submitted that any benefit to other parties required consideration and assessment as to whether such benefit was proportional to the detriment to the company in liquidation, in this case 640.

78 The liquidators submitted that the trial judge did not have regard to the substantial benefit to Maxcon as a result of the Transaction - an unsecured money claim only against Elan (a company with no assets) under the building contract against a secured claim against the proprietor of the Property with no contractual obligations to Maxcon. The liquidators claimed that this far outweighed any benefit to 640 which was in any event disputed.

79 Maxcon submitted that the trial judge dealt with this issue properly even if not expressly. It was submitted that in the circumstances the benefit to Maxcon was not one of real substance because on the evidence, the finding by the trial judge that even without the Transaction it was highly likely that Maxcon would have (for the reasons advanced in relation to ground 2) been paid from the proceeds of the sale of Unit 4, was open and proper.

80 In relation to the benefit to Maxcon the trial judge said:

Maxcon submits that the transaction was explicable by ordinary commercial practice. It submits that the settlement which reached a deal to pay the retention moneys was readily explicable and commercially sensible. Elan was in breach of the building contract by not having constituted or maintained the retention moneys trust fund, and 640 Elizabeth Street benefitted from that breach. The benefit was the discharge of the Westpac mortgage for less than should have been paid. Maxcon wished to be restored as nearly as possible to the position that it should have been in when it asked for a mortgage. It submits that in a practical and commercial sense, providing a substitute security in the circumstances such as egregious breach of contract was the very kind of thing that a reasonable businessmen would do in this situation.

In my view, this is a relevant matter and should be taken into account. 640 Elizabeth Street was obliged to make payments to Elan and such payments should have been made.[65]

81 In my opinion the ground is not made out. There is no error in the reasoning of the trial judge. In the circumstances the benefit to Maxcon was not that great. It would for the reasons given have been paid in any event. Further, the benefit was not, as is discussed in the next ground, so extravagant or out of all proportion so as to render it uncommercial.[66]

82 The liquidators submitted that the Transaction was not commercially sensible from 640's point of view and it was not, as held by the trial judge, explicable by ordinary commercial practice.

83 The liquidators submitted further that the finding by the trial judge that the Transaction provided a form of substantial security (which reasonable businessmen would undertake and accept) for the loss of the retention fund which Elan was required to maintain was to apply an irrelevant and wrong test.

84 Maxcon submitted that the loss of the retention fund was a matter that the trial judge was entitled to have regard to in assessing the overall reasonableness of the Transaction. Maxcon submitted that the Transaction was explicable by ordinary commercial practice and referred to the following matters which it submitted were accepted by the trial judge:

(a) The circumstances giving rise to the failure to set aside retention monies on trust might have been out of the ordinary, but the settlement reached to deal with that failure was readily explicable and commercially sensible.

(b) From a businessman's perspective, in assessing the commerciality of what was done, the context was as follows.

• Elan was in breach of its building contract with Maxcon in not having constituted or maintained the retention monies trust fund.
• 640 benefitted from that breach. The benefit was in the payout of Westpac and discharge of the Wesptac mortgage for less than should have been paid to Westpac. Maxcon wanted to be restored as nearly as possible to the position that it should have been in, which was that retention monies should have been held in trust for it. It asked for a mortgage.
• In a practical and commercial sense, providing a substitute security in the circumstances of such egregious breach of contract was the very kind of thing that reasonable businessmen would do in this situation. 640 suffered no detriment as a result of the transaction and benefitted from the avoidance of litigation costs. Elan, the party who otherwise would have been entitled to receive the Gross Sales Receipt from Unit 4, agreed to the transaction.[67]

85 In my opinion the ground is not made out. There is no error in the reasoning of the trial judge. The reasonableness of the Transaction is not as such a separate requirement. However, it is in a sense the ultimate question in the determination as to whether the Transaction was an Uncommercial Transaction. If the Transaction was reasonable it will presumably follow that a reasonable person in the position of 640 would have entered into it. For all of the reasons given the Transaction was in the circumstances the very transaction that a reasonable person in the company's circumstances would have entered into. In my view, given the circumstances of 640 and the context in which the Transaction took place as identified, and balancing the interests of all of the relevant parties, the Transaction is perfectly explicable and can readily and easily be explained by normal commercial practice.

86 The Transaction took place effectively during the period 6-12 June 2012, several months prior to the winding up of 640. The Transaction followed a period of reasonably intense negotiation and discussion as evidenced by the correspondence. It is unnecessary to go back and refer to the period before December 2011. The six month period prior to the Transaction is informative.

87 In December 2011 Maxcon complained that it had been waiting for several months for payment of outstanding amounts. After some correspondence, in late December 2011, 640 executed a Deed of Acknowledgment pursuant to which it assumed liabilities to Maxcon and provided a charge in favour of Maxcon. On 10 January 2012 Maxcon lodged a caveat over various titles (including Unit 4) pursuant to the charge.

88 In February 2012 Maxcon was paid $1,378,344.38 by Equity One, a new financier. 640 executed a mortgage in favour of Equity One and the caveat lodged by Maxcon was withdrawn to permit the Equity One funding to take place.

89 In February 2012, Maxcon provided a tax invoice in the sum of $51,600 being GST on the sum of $516,000. Also Maxcon advised that the amount outstanding was $633,033.04. This amount was paid on 13 February 2012.

90 On 22 March 2012, 640, Jabbour and Elan entered into an exit agreement providing for the transfer of six apartments to Jabbour. Between 30 April 2012 and 6 June 2012 these apartments were transferred to Jabbour. The net real sale value was about $3.1m.

91 On 23 May 2012 Maxcon enquired about the whereabouts of the $350,000 retention fund. On 30 May 2012, Maxcon was told about Elan's non-compliance with the obligations and the retention fund. On the same day Maxcon sent draft Deeds of Acknowledgment to 640 and Jabbour.

92 On 1 June 2012 Elzain, having received the information referred to, emailed Emery & O'Bryan stating that he is becoming 'increasingly concerned'. On 4 June 2012 Elzain sent a further email relating to the outstanding GST of $51,600 and interest and threatens to exhaust all means necessary to resolve the debt. After further correspondence the Deed of Acknowledgment and Mortgage were executed.

93 This brief history evidences a number of matters of not insubstantial importance. Maxcon was at all relevant times concerned about payment of all amounts due, even taking security directly from 640 in December 2011. 640 gave this security[68] to address the legitimate concerns of Maxcon although it may not have been under any legal obligation to do so. There is nothing uncommercial about this approach. In fact it was reasonable and commercial in the circumstances. So too a few months later when it was faced with serious concerns raised by Maxcon including what Maxcon regarded as the theft of its funds. 640 acted commercially and in its best interests as a company.

94 The only contention that the Transaction was not commercial was that it had, in retrospect, an effect on other unsecured creditors. However the point loses its force when regard is had to the fact that this is not an unfair preference case. Further, an otherwise commercial and entirely appropriate transaction of a company does not simply become uncommercial because creditors are not treated equally particularly in circumstances where, from the company's point of view, the transaction is reasonable and otherwise desirable and the indebtedness to creditors remains the same. The primary focus, of course, must be the company itself and its position and not, as a primary consideration (although there may be consequences), the indirect position of the unsecured creditors. I do not read anything in Demondrille Nominees and Buzzle Operations as compelling a different analysis or result. Of course, if the trust conclusion is correct the issue does not arise.

95 Further, I do not consider that Maxcon received a bargain or benefit of such a magnitude that it lacked a commercial quality or is not readily explicable by normal commercial practice. From the company's point of view, and those directing its operation it was entirely reasonable. It must be recalled that the appeal does not directly concern issues of unfair preferences.

96 In the final analysis, there was some commercial benefit to 640, there was no real detriment and the benefit or arrangement with Maxcon is perfectly understandable in the circumstances particularly its loss of the retention fund which was required to be held in trust.[69] Maxcon was pressing for a commercial resolution and it got one that everyone was satisfied with. There was no undervalue. In fact there was a fair equivalence or even an exact equivalence. A liability to Elan was replaced by a liability the same liability to Maxcon. 640 did not give up, gift or overpay anything.[70] The Transaction represented a proper balance of the interests of all parties and in my opinion a reasonable person in the position of 640 would have endeavoured to address the position of Maxcon and entered into the Transaction.

97 The liquidators submitted that properly analysed (and by reference to the other grounds) the Transaction was an Uncommercial Transaction within the meaning of s 588FB. Maxcon submitted that the contrary was the position.

98 For the reasons given in relation to the other grounds, and in particular ground 4, I do not accept that the Transaction was an Uncommercial Transaction or that the trial judge was in error in reaching such a conclusion.

99 It follows that it is strictly unnecessary to deal with the issues raised by Maxcon in its defence, namely good faith and no reasonable grounds to suspect insolvency on the part of Maxcon.

100 The issues raised in the defence are mainly factual and require a detailed analysis of the relationship between the parties. To this end chronologies were prepared and not insubstantial arguments made by both parties. Much of this history is not relevant to the matters I have decided. Where relevant I have referred to the necessary discussions or correspondence.

101 Maxcon succeeded on the issue of good faith and this finding is challenged by the liquidators and is ground of appeal six. In view of the clear decision I have reached it is unnecessary to deal with this issue.

102 The liquidators succeeded on the issue of reasonable grounds to suspect insolvency and Maxcon challenges this finding.[71] In view of the clear decision I have reached it is unnecessary to deal with this issue.

103 In the result the appeal must fail. None of the grounds are made out. The appeal will be dismissed.

[1] Maxcon was not a party to the Deed of Acknowledgment. It did however agree not to issue proceedings or take any action to recover the balance of the contract price which was currently due and payable to Maxcon.

[2] Alternative relief was also claimed.

[3] The written reasons ('Judgment') were published but have not been reported.

[4] Definitions of 'Gross Sales Receipts' in JVD clause 1.1.

[14] JVD: Recital C, definition of 'Development' in clause 1, clause 2.

[15] JVD: clause 2.4. This provision deals only with the beneficial ownership of the land. It says nothing about proceeds of the sale of Units.

[18] JVD: clause 2.2(b). Recital F and clause 2.2(b) use the term 'nominee'. The legal status of Elan was agent. The label 'nominee' means 'someone appointed by another to act as their agent' (Macquarie Dictionary).

[19] JVD: clause 7.1. So Elan is the agent of Jabbour (640) and 640, acting for their benefit in equal shares (clause 2.2(b)), and 640 is Elan's agent to conduct the Development.

[20] JVD: definition of 'Development Finance' in clause 1, clauses 6.1, 6.4.

[22] JVD: definition of 'Builder' in clause 1, definition of 'Development' sub-paragraphs (r), (s) and (t), clause 2.2(b).

[23] JVD: definition of 'Development Expenses' in clause 1.

[24] JVD: definition of "Joint Venture Account" in clause 1.

[27] JVD: definition of Gross Sales Receipts in clause 1.

[30] 54 apartments at practical completion valued at $29,864,272 according to the Liquidators' Report (page 5) plus two apartments settled prior to 10 November 2011 for a sale price of $833,979.

[31] [2007] FCAFC 185; (2007) 164 FCR 83; 245 ALR 528 ('Tolcher').

[32] The other two requirements are that the Transaction was entered into during the relation back period and the company was insolvent at the time. These two matters were not in dispute.

[33] Tolcher [2007] FCAFC 185; 164 FCR 83, 109; [2007] FCAFC 185; 245 ALR 528, 554 [129].

[34] Ibid [2007] FCAFC 185; 164 FCR 83, 97; [2007] FCAFC 185; 245 ALR 528, 542 [73] (Lindgren J, dissenting); In the matter of Employ (No 96) Pty Limited (in liquidation) [2013] NSWSC 61 [62] ('Re Employ'). See also Andrew Keay, "Liquidators' Avoidance of Uncommercial Transactions" (1996) 70 Australian Law Journal 390, 397.

[35] [2005] NSWCA 243.

[37] [2012] NSWSC 669 ('Campbell Street Theatre').

[39] [1997] FCA 1220; (1997) 25 ACSR 535 ('Demondrille Nominees').

[41] (2011) NSWLR 47, ('Buzzle Operations') .

[43] [2013] NSWSC 1008, [55].

[45] Explanatory Memorandum, Corporate Law Reform Bill 1992 (Cth) [1034]-[1035]; Skoulidis Group Pty Ltd v Planet Enterprises Pty Ltd [2002] NSWSC 239; (2002) 41 ACSR 369 [14]; Demondrille Nominees 548; Lewis v Doran [2005] NSWCA 243 [135]; Campbell Street Theatre [16].

[47] Ibid; see also Campbell Street Theatre [15]; Re Employ [60].

[48] Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363, 366- 367; Lewis v Doran [157].

[49] Welcome Homes Real Estate Pty Ltd v Ziade Investments Pty Ltd [2007] NSWCA 167 [54] (Hodgson JA , Spigelman CJ and Santow JA agreeing); Cussen v Sultan [2009] NSWSC 1114; (2009) 74 ACSR 496 [22] (Nicholas J); Re Employ (No 96) Pty Ltd [60].

[50] [2009] NSWSC 1114; (2009) 74 ACSR 496.

[51] Ibid [23]; VR Dye and Co v Peninsula Hotels Pty Ltd (in liq) [1999] VSCA 60; [1999] 3 VR 201, 216 [40] (Ormiston J).

[52] Buzzle Operations 67; Re Employ 60 [81]-[82].

[53] The trial judge only referred to the saving of legal costs by virtue of clause 8 of the JVD as the relevant benefit, namely forbearing to sue Elan. The further submissions (forbearing to sue both Elan and 640) arise out of Maxcon's Notice of Contention (paras 1 and 2).

[54] Deed of Acknowledgement, clause g.

[55] See paragraphs [51]-[52] above.

[58] 640 was not the contracting party with the builder Maxcon and had, it was contended, no liability.

[59] Reference was made to clauses 7.1; 8.1; 8.2; 8.2(b); 8.3(b).

[63] Indeed it appears that there was common ground between the parties in this regard.

[64] The principles guiding the inference of an express trust based on the mutual intention of the parties, the relationship between them and the surrounding circumstances are discussed in my reasons in Australian Executor Trustees (SA) Ltd v Korda & Ors [2013] VSC 7 [59]-[69]. See also Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253; Gosper v Sawyer [1985] HCA 19; (1985) 160 CLR 548; Bahr & Anor v Nicolay & Ors (No 2) [1988] HCA 16; (1987-1988) 164 CLR 604; Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107; Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia [1991] FCA 344; (1991) 30 FCR 491; Walker v Corboy (1990) 19 NSWLR 382; Salvo v New Tel Limited [2005] NSWCA 281; Jessup v Queensland Housing Commission [2001] QCA 312; Compass Resources Ltd v Sherman Beech J [2010] WASC 41. See also H A J Ford & W A Lee; assisted by Peter McDermott, Principles of the Law of Trusts, (Thomson Legal and Regulatory trading as Lawbook Co, 3rd ed, 1995 on-line electronic resource) [2035], accessed 19 February 2015.

[66] It follows that I would, so far as it may be relevant, uphold ground 3 of Maxcon's Notice of Contention which deals with proportionality.

[68] 640 had given security from time to time. In December 2009 it permitted the Property to be encumbered in order to support a loan from Maxcon to Elan.

[69] Clause 5.5 of the General Conditions of the building contract.

[70] To the extent that 640 secured its indebtedness by way of an unregistered mortgage, I do not consider in the circumstances (loss of the retention fund, operation of the JVD) that the changes are positive.

[71] Grounds 4-11 of the Notice of Contention.