[2]

The evidence before the primary judge comprised principally:

CEG Direct Securities Pty Ltd v Cooper as liquidator of Runtong Investment... [2025] FCAFC 47 | Case summary | Zoe

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CEG Direct Securities Pty Ltd v Cooper as liquidator of Runtong Investment and Development Pty Ltd

[2025] FCAFC 47

Federal Court of Australia (Full Court)|2025-04-09|Before: McEvoy JJ

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Source facts

Court

Federal Court of Australia (Full Court)

Decision date

2025-04-09

Before

McEvoy JJ

Source

Original judgment source is linked above.

Judgment (232 paragraphs)

[1]

For the reasons developed below, we have concluded that the appeal must be allowed. While the challenge to the primary judge's conclusion that the Runtong Mortgage met the criteria in s 588FDA(1)(b) must fail, we are persuaded that the primary judge erred in concluding that s 588FDA(1)(c) was satisfied. As the requirements of s 588FDA(1) are cumulative, it follows that the Runtong Mortgage is not properly characterised as an unreasonable director-related transaction within the meaning of s 588FDA of the Act and is not a voidable transaction on that basis. In these circumstances, it is unnecessary to consider grounds four and five, which challenge the primary judge's approach to the issue of compensation.
We have had the benefit of receiving a draft of Goodman J's reasons. Our reasons for concluding that the appeal must be allowed are different to those of Goodman J. The principal area in which we diverge is in relation to whether the evidence led by the liquidator was sufficient to shift the evidentiary burden of proving the negative condition in s 588FDA(1)(c) to CEG. In our assessment of the evidence, it was. Justice Goodman concludes that the quality of the evidence was such that the evidential burden did not shift. Notwithstanding that we have concluded that the liquidator's evidence was sufficient in the present context to shift the evidentiary burden, we have concluded that on the basis of our review of the whole of the evidence, including that led by CEG and the inferences that should be drawn from that evidence, the liquidator did not discharge the legal onus to establish the negative condition in s 588FDA(1)(c). We thus arrive at the same dispositive conclusion as Goodman J, but by a different path. By virtue of the different conclusions we and Goodman J have each reached in relation to the shift in the evidential burden, it has been necessary for us, like Goodman J, to set out in some detail our findings based on the evidence to expose why we have concluded as we have in relation to the commercial explanation as to why, objectively assessed, Runtong did not act unreasonably in entering into the Runtong Mortgage. That results in some minor repetition between our respective sets of reasons in relation to some findings of fact but is necessary in order that the two distinct analyses of the evidence are each independently comprehensible.

[4]

The parties also provided a statement of agreed facts and issues.
The facts recorded below are principally unchallenged findings of fact made by the primary judge, many of which were agreed between the parties and formed part of the statement of agreed facts and issues or are drawn from the business records of the NAB or CEG that were in evidence before the primary judge. The outcome of this appeal does not depend on this Court assessing any contentious oral evidence. The evidence below was on affidavit. Ms Karam, a chartered accountant and forensic accounting specialist, was cross-examined: PJ[81]. None of the directors of Datong, Futong and Runtong gave evidence: PJ[95].
On 22 June 2010, Datong was registered: PJ[19(3)]. The directors were Jin Liang (22 June 2010 to 10 November 2019), Yong Liu (22 June 2010 to 10 November 2019), Ping Huang (22 June 2010 to 8 February 2018) and Wei Xiao (22 June 2010 to 1 September 2014).
On 17 February 2011, Futong was registered: PJ[19(4)]. Over time, the directors were as follows: Jin Liang (17 February 2011 to 18 June 2012, and then 4 March 2013 to 2 May 2021), Ping Huang (17 February 2011 to 18 June 2012 and then 12 March 2013 to 2 May 2021), Shaohua Liu (4 March 2013 to 8 December 2017), Hong Liu (1 March 2011 to 20 March 2013), Gang Sun (18 June 2012 to 13 March 2013), Yueming Liu (18 June 2012 to 4 March 2013), Gangda Song (18 June 2012 to 4 March 2013), Yiyong Jiang (17 February 2011 to 18 June 2012), Yong Liu (17 February 2011 to 18 June 2012) and Wei Xiao (17 February 2011 to 18 June 2012).
On 5 June 2012, Runtong was registered: PJ[19(2)]. The directors as at 12 December 2014, when the Runtong Mortgage was granted, were Jin Liang, Yong Liu (both of whom were appointed on 5 June 2012 and continued as directors at the date of the liquidator's appointment), Chenhao Liang (1 September 2014 to 13 February 2018), Ping Huang (1 October 2014 to 8 February 2018) Shaohua Liu (5 June 2012 to 8 December 2017) and Wei Xiao (5 June 2012 to 1 September 2014). As mentioned, the relevant directors for the purpose of this appeal are Mr Liang and Mr Huang, who were both directors at the date the Runtong Mortgage was granted.
On 19 June 2012, Ms Karin Stone of the NAB created a credit submission in respect of the NAB Datong Aggregation Group (the NAB Credit Submission). As mentioned, that credit submission appears to be the third credit submission prepared by the NAB in respect of finance for the NAB Datong Aggregation Group. The submission was made in support of a request for finance in connection with the proposed purchase of the Runtong Property. Under the heading "Approval Request", Ms Stone recorded (as written):

[13]

On 4 July 2012, the NAB offered Runtong a loan with a limit of $1.54 million. On 5 July 2012, Runtong accepted the NAB's offer.
The commencement date of the NAB loan was 3 July 2012. The last date for drawdown was 3 October 2012 and the expiry date was 31 July 2013.
The loan was secured by the following security arrangements: a security interest and charge over all present and future rights, property and undertaking of Runtong; a registered mortgage over the Runtong Property; a term deposit letter of set off; and director guarantees and indemnities for $1,540,000 from the then directors of Runtong, being Shaohua Liu, Mr Liang, Yong Liu and Mr Xiao.
On or about 8 October 2012, Runtong was registered as the proprietor of the Runtong Property, having completed the purchase from the Council: PJ[4], PJ[19(6)]. The contract for the sale of the Runtong Property contemplated the development of the Runtong Property by the construction of a building of at least 10 levels, with underground carparking and ground floor retail outlets. Importantly, the Council had an option to repurchase the property if construction did not commence within 18 months and did not complete within 36 months of the date of commencement. As mentioned, contemporaneously with its acquisition of the Runtong Property, Runtong granted a mortgage over the Runtong Property to the NAB: PJ[4], PJ[19(7)].
The Runtong Property was subject to a caveat registered by the Council. The caveat served, amongst other things, to protect the Council's contractual entitlement to repurchase the Runtong Property if Runtong did not commence construction within 18 months of 8 October 2012 (being 8 April 2014) and complete the development within 36 months of commencing the development: PJ[118(4)].
On 24 April 2013, SMEC (an engineering firm) prepared a Preliminary Environmental Site Assessment for the Runtong Property.
On 23 September 2013, Ms Stone and/or Mr Gu of the NAB prepared an "Annual review and renewal" for the NAB Datong Aggregation Group. The facilities up for renewal included the NAB Facility that Runtong had used to complete the purchase of the Runtong Property. Under the subheading "Purpose", the NAB officer recorded that (as written):

[18]

Facilities will continue on interest only basis for a further 12 months. Term deposit funds have been provided to cover 12 months interest at affordability of 11.10% on both facilities in the event that applicants fail to meet interest repayments. Actual interest rate on facility is in the vicinity of 6.5%. These funds are not to be utilised to assist with servicing. Because of the nature of this group classified as property developer, it's been the case of relying on TD with interest cover to fund for development site in the past with a strong Secondary exit.

Servicing indicates deficit due to properties being partially vacant, on the ground car park only generates a small amount of income, land is due to be developed in the next 12 months.

Applicants are reliant on overseas income to service interest portion of this debt along with property outgoings which not evidenced as Runtong is part of Australian Datong Group who is one of the top 3 property developers in Kunming, Yunnan Province, China. This group holds a significant amount of cash deposit with NAB which has been used to service the debt, and backed up by its mother company in China, Funds transfer in is on regular basis as this group has been heavily encouraged and protected by State Government SA as known as one of the major investors from mainland China.

There is no change to Group's financial position over the last 12 months.

All facilities have been serviced in a satisfactory manner over the past 12 months.

Secondary Exit

Banker is aware of commercial property at Corner of Flinders St and Pulteney St is currently used as Group's head office, with an on the ground car park leased to Park Fast. Development plan for this property was DA approved in the past to build the tallest building in Adelaide CBD, due to limit height has been changed hence group is now working on revised development plan for this site, and working towards to DA submission which will happen after Waymouth Street DA gets approved (Runtong Investment Pty Ltd). This is not related to this renewal submission as it is due April 2014. Banker will be updated with Datong Group's decision in early 2014 about time frame and planning decision of Flinders St and Pulteney St Corner property. The intention is to build the tallest mixed use commercial property with Hotels, Offices and Retails.

[50]

SCHEDULE

Borrower means [Datong] and [Futong]

Lender means [CEG]

Owner means [Runtong]

Principal Sum means $15,110,715.07

Property means the [Runtong Property]

THE AGREEMENT

You (the mortgagor) agree with us (the mortgagee) as follows:

The Memorandum of Standard Terms and Conditions of Mortgage filed in the Lands Titles Office as No. 8367687 (the Memorandum) is incorporated in this mortgage. You acknowledge that you received, read and understood Memorandum before signing this mortgage. A reference to "this mortgage" in the cover sheet, this schedule, the Memorandum or in any annexure to this mortgage is a reference to the mortgage constituted by the cover sheet, this schedule, the Memorandum and each of those annexures.

2. You acknowledge that this mortgage is collateral to the following agreement:

(a) Loan agreement in respect of a loan advance of $5,000,000.00 between [Datong] and [Futong] and the Mortgagee on or about the date of this mortgage and any variation of that loan agreement.

You acknowledge giving this mortgage and incurring obligations and giving rights under it for valuable consideration received from us.

You acknowledge that, as at the date of this mortgage, we have agreed to lend $15,110,715.07 to you or at your request. This amount, together with any further advances and other amounts more fully described in the Memorandum, is called the Mortgage Moneys.

You acknowledge indebtedness to us for the Mortgage Moneys and agree to pay to us the Mortgage Moneys, together with interest and all other money due to us at the times agreed with us, or failing agreement on demand. You agree that the covenants set out in the Loan Agreement(s) in respect of the Mortgage Moneys, are deemed to be covenants included in this mortgage.

If the wordings in the Memorandum are inconsistent with this Schedule, the terms of this Schedule prevail.

For the consideration expressed herein and for the better securing to the Mortgagee the payment of the monies hereby secured the MORTGAGOR MORTGAGES TO THE MORTGAGEE the estate and interest herein specified in the land above described, subject to the encumbrances and other interests set out above and to be held by the mortgagee in the mode specified herein and COVENANTS WITH THE MORTGAGEE in accordance with the terms and conditions expressed in memorandum No. 8367687 subject to such exclusions and amendments specified herein.

(bold and italics in original, underlining emphasis added)

[79]

A provision should be construed so that it is consistent with the language and purpose of all the provisions of the statute and its meaning must be determined by reference to the language of the statute viewed as a whole: Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355 at [69] (McHugh, Gummow, Kirby and Hayne JJ). It is well accepted that even words having an apparently clear ordinary or grammatical meaning may be ascribed a different legal meaning after the process of construction is complete. This is because consideration of the context for the provision may point to factors that tend against the ordinary usage of the words of the provision: R v A2 [2019] HCA 35; 269 CLR 507 at [32] (Kiefel CJ and Keane J).
Section 15AA of the Interpretation Act provides that in interpreting a provision of an Act, the interpretation that would best achieve the purpose or object of the Act (whether or not that purpose or object is expressly stated in the Act) is to be preferred to each other interpretation.
Context includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy: Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) [2009] HCA 41; 239 CLR 27 at [47] (Hayne, Heydon, Crennan and Kiefel JJ).
Applying these principles to the construction of s 588FDA, we begin with the text which we consider in the broader statutory context, and then we move to consider purpose.
Section 588FDA(1) defines what constitutes an unreasonable director-related transaction. It sets out three conditions which are necessary and sufficient in order for there to be an unreasonable director-related transaction of the company, in paragraphs (a), (b) and (c): Re Gondon Five Pty Ltd (in liq) [2020] NSWSC 1769 at [12] (Leeming JA sitting at first instance). The interrelation of the non-exhaustive definition of transaction in s 9 and s 588FDA is that a transaction will only be an unreasonable director-related transaction if it satisfies all of the elements in s 588FDA(1)(a)-(c): Crowe-Maxwell v Frost [2016] NSWCA 46; 91 NSWLR 414 at [63] (Beazley P, Macfarlan and Gleeson JJA agreeing).
The conditions in s 588FDA(1)(a) and (b) are threshold requirements whereas s 588FDA(1)(c) requires the court to reach a state of satisfaction based on an evaluation of the reasonableness of the company's entry into the transaction in the whole of the company's circumstances, objectively assessed. The matters in s 588FDA(1)(c)(i)-(iii) are mandatory relevant matters in the evaluative assessment of what is objectively unreasonable. The "any other relevant matter" requirement in s 588FDA(1)(c)(iv) serves to recognise that relevance depends on the facts and circumstances of the particular case. See Crowe-Maxwell at [68] and Weaver v Harburn [2014] WASCA 227; 103 ACSR 416 at [91]- [92] (McLure P).
The component subparagraphs of s 588FDA(1) operate as progressive filters - at least one of the criteria in each of s 588FDA(1)(a)(i)-(iv) and (b)(i)-(iii) must be satisfied before it is necessary for the court to move to the evaluative assessment required by s 588FDA(1)(c). A transaction will only qualify as an unreasonable director-related transaction if each of the three filters, including the final filter, being that the court is satisfied that entry into the transaction was in the company's circumstances objectively unreasonable, are satisfied.
The consequence of a transaction meeting the description of an unreasonable director-related transaction within the meaning of s 588FDA(1) is that the court may, subject to satisfaction of the matters in s 588FE(2A), be empowered to make an order declaring the transaction void at and after the time it was entered into and or an order requiring a person to pay to the company an amount that, in the court's opinion, fairly represents some or all of the benefits that the person has received because of the transaction. Whether the court grants relief in a given case will depend on a range of considerations including in particular the interests of parties and third parties who might have acted in good faith with respect to the transaction: Vasudevan v Becon Construction (Australia) Pty Ltd [2014] VSCA 14; 41 VR 445 at [36] (Nettle JA, Beach JA and McMillan AJA agreeing). In this way, the statutory framework provides what in practice operates as a final check and balance, on the grant of relief under s 588FF of the Act.
As mentioned, there is no issue in this appeal as to satisfaction of s 588FDA(1)(a)(ii).
The controversy raised by ground 1 is directed to the interpretation of the word benefit as used in s 588FDA(1)(b)(iii) relevantly - "the ... disposition ... is, or is to be, made to ... a person ... for the benefit of, a [director]". The nub of CEG's argument on ground 1 is that the word "benefit" should be narrowly construed. We will return to address CEG's submissions in support of ground 1 below. It suffices to presage at this point, that for the reasons which follow we have concluded that in its proper construction, the concept of a disposition for the benefit of a director in s 588FDA(1) is not confined in the narrow way in which CEG contends.
The word "benefit" is defined in s 9 of the Act. The definition is broad - in short, it extends to "any benefit". The example given in the definition of the benefit as being "by way of payment of cash" is used in an illustrative way and does not limit the defined meaning being "any benefit". The final part of the definition - "or otherwise" - makes it plain that the incorporated illustration of "payment by cash" is given on an inclusive, and not an exclusive, basis. The statutory definition is silent on whether the benefit need be direct or whether an indirect benefit will be captured. The natural reading of the phrase "any benefit" in s 9 of the Act extends to both direct and indirect benefits. In ordinary usage, a "benefit" may include anything that is for the "good of a person or thing": Macquarie Dictionary (8th ed, Macquarie Dictionary Publishers, 2020). The phrase "have the benefit of" is defined in the Macquarie Dictionary as "to gain an advantage from". In Vasudevan, Nettle JA described the natural and ordinary meaning of a requirement that something be "for the benefit of" a person as that it be "for the advantage, profit or good" of the person citing the Oxford English Dictionary (at [23]). In our view, the natural and ordinary meaning of, relevantly, a requirement that a disposition be "for the benefit of" a director extends to the circumstance where a director obtains the right to the chance of an advantageous outcome.
In the context of s 588FDA(1)(b), the phrase with which we are concerned appears as part of a compound expression "on behalf of, or for the benefit of, a person." In Vasudevan at [21]-[24], Nettle JA rejected an argument to the effect that the phrase requires that the disposition result in an equitable interest or at least something in the nature of an equity in the disponed property in favour of the director and would therefore exclude mere financial interests and mere contractual rights. The argument proceeded on the basis that "on behalf of" is intended to capture cases in which the director in question derives an equitable interest in the disponed property and that "for the benefit of" is directed at cases in which the director in question derives a mere equity in the disponed property (as where the disposition is in favour of a trustee of a discretionary trust of which the director is an object). In rejecting the argument, Nettle JA observed that although the objects of a discretionary trust may not have an interest as such in the assets of the trust, it is commonplace to refer to assets of that kind as being held on behalf of the objects of the trust: Vasudevan at [22]. His Honour said that there was no reason to suppose that Parliament had not similarly adopted the commonplace usage of the phrase "held on behalf of" to cover such interests. This led to a conclusion that the phrase "for the benefit of" would be rendered otiose if it was confined to transactions resulting in a director obtaining a mere equity in the disponed property. A statutory construction that gives meaning to all the words used in the section is to be preferred to one that assumes redundancy: Project Blue Sky at [71].
There was for a period a debate in the authorities as to whether the phrase "for the benefit of" should be given a narrow interpretation so as to exclude an indirect, or derivative, benefit that the director of the transferor gets as a shareholder of the transferee company. The narrower approach was adopted in, for example, Ziade Investments Pty Ltd (in liq) v Welcome Homes Real Estate Pty Ltd [2006] NSWSC 457; 57 ACSR 693 at [86]- [89] (Gzell J) and Re Great Wall Resources Pty Ltd (in liq) [2013] NSWSC 354 at [46] (Brereton J). A wider construction of the phrase "for the benefit of" which extended to indirect or derivative benefits was embraced in obiter dicta by the Victorian Court of Appeal in Vasudevan at [19] and [26]-[31]. That wider approach has been followed in this Court and in the Supreme Court of New South Wales in a number of single judge decisions: see Pleash (Liquidator), in the matter of SFG Relocations Pty Ltd v Fourie (No 3) [2024] FCA 583 at [64]- [65] (Stewart J) and the authorities cited therein, Stewart J concluding that the wider construction was correct.
The wider approach was similarly favoured, and followed, by Leeming JA (sitting at first instance) in Re Gondon Five. At [16]-[18], Leeming JA said:

[106]

The agreed position adopted by the parties was consistent with the analysis in Ziade Investments at [74]-[78] (Gzell J). The primary judge recorded that the plaintiff did not contend that the Runtong GSA or the Runtong Guarantee "by themselves effected a disposition by Runtong of the [Runtong Property] or any interest therein": PJ[40].
The first substantive contention raised by CEG is as to whether the granting of the Runtong Mortgage on 12 December 2014 was made to CEG for the benefit of a director of Runtong within the meaning of s 588FDA(1)(b)(iii). The primary judge found that the grant of the Runtong Mortgage to CEG was made to CEG for the benefit of the Runtong Directors. In so finding, the primary judge ultimately accepted the liquidator's contentions, which his Honour recorded as being that "the grant of the [Runtong Mortgage] to CEG on 12 December 2014 comprised, for the purposes of s 588FDA(1)(b)(iii) of the Act, a disposition to CEG which was to the benefit of the [Runtong Directors] in that the contingent liability of the [Runtong Directors] under the [Second Guarantee] would be reduced by whatever net sum CEG received from realising its security over the [Runtong Property]": PJ[43], see also PJ[70]-[73]. We interpolate to note that the statutory consideration is framed in terms of whether the disposition was "for the benefit" not "to the benefit" of a director. The primary judge clearly correctly understood that - it was only in reciting CEG's submissions that the primary judge used the expression "to the benefit". To the extent that CEG relies on the primary judge's references to the disposition being "to the benefit" of a director as demonstrating error, we reject those submissions.
CEG submits that the primary judge erred in his conclusions in relation to s 588FDA(1)(b) on both a legal and factual basis.
CEG submits that the primary judge erred in law in construing the phrase "for the benefit of" in s 588FDA(1)(b)(iii) of the Act.
CEG submits that the primary judge's construction of s 588FDA did not promote the purpose or the object of the Act. CEG submits that s 588FDA should properly be construed as an "anti‑avoidance provision, aimed at preventing errant directors from stripping benefits out of companies to their own advantage" relying on the observations made by Nettle JA in Vasudevan at [24]. The highpoint of CEG's submission is as follows (erroneous references to s 588FDA(1)(iv) corrected):

[107]

As a matter of statutory construction it could not have been, and was not, the intention of Parliament, in enacting s 588FDA to be so broad such that the 'benefit' referred to in [s 588FDA(1)(b)(iii)] comprised the contingent and (then) uncertain benefit asserted by the Liquidator in the present case (such asserted benefit being denied). The statutory language in that regard suggests Parliament intended any such benefits to be necessarily constrained. In that regard, at least two constraints may be identified from the language of [s 588FDA(1)(b)(iii)] alone. The first such constraint is temporal. The expression 'the disposition ... is made to a person [CEG] ... for the benefit of a director' suggests some degree of contemporaneity between the relevant disposition (or payment) being made to the first person and the corresponding benefit of the relevant director. Parliament for example could not have intended such a benefit to flow to a director years after the relevant transaction. The second constraint suggested by the language is the primacy of the benefit so contemplated. Parliament must have recognised that almost any transaction of a company will necessarily entail more than one beneficiary (used in a broad not equitable sense) - the company itself; directors; shareholders etc. The presence of the preposition ('for') combined with the definite article ('the') suggests that the benefit contemplated by Parliament in this context was the primary benefit of the transaction sought to be impugned. Again, were the position otherwise would lead to absurd results.

It is respectfully submitted that the Primary Judge's literal construction of s 588FDA would lead, and indeed has led, to an absurd result. The Court can depart from such a literal construction and should do so where there is some other interpretation of the provision that would promote the purpose or object of the Act. The interpretation advanced by the appellant above is faithful to the statutory language and to Parliament's intention. Furthermore, the Primary Judge's reliance on the Victorian Court of Appeal's decision in Vasudevan v Becon Constructions (Australia) Pty Ltd [2014] VSCA 14; (2014) 41 VR 445 was misplaced. Vasudevan and similar cases are readily distinguishable from the present case.

(footnotes omitted)

[108]

As will be apparent from what we have said as to the proper construction of s 588FDA, we do not accept CEG's submissions as to the effect of s 588FDA(1)(b)(iii). CEG concedes that the primary judge's approach accords with a literal reading of s 588FDA(1)(b)(iii) of the Act. The gravamen of CEG's argument reduces to its contention that to construe s 588FDA(1)(b)(iii) according to its terms results in absurd outcomes which could not have been intended. That submission is overblown. It is rejected. It is not based on reading the text of s 588FDA(1)(b)(iii) in context and with regard to the objective legislative purpose. It is predicated on ignoring the function served by s 588FDA(1)(c) as the final of the cumulative criteria for the definition, which we have addressed above.
The section is structured to enable the qualitative assessment of the nature of the benefit to be addressed as part of the evaluative assessment required by s 588FDA(1)(c). Section 588FDA(1)(c) directs the court to consider: the benefits (if any) accruing to the company (s 588FDA(1)(c)(i)); the detriment to the company of entering into the transaction (s 588FDA(1)(c)(ii)); the respective benefits to other parties to the transaction of entering into it (s 588FDA(1)(c)(iii)); and any other relevant matter (s 588FDA(1)(c)(iv)). Under the broad rubric in s 588FDA(1)(c)(iv), considerations of the nature of the benefit accruing to the director are to be considered where relevant.
In the present circumstances, we would reframe the rhetorical question posed by Nettle JA, and ask why, having regard to the purposes of the section, should the notion of benefit in its ordinary usage be confined to benefits which are direct and immediate only? Similarly, we do not accept that read in context the notion of benefit should be confined to mean only benefits which are "primary" and exclude all secondary benefits. The section should not be construed as requiring that the benefit be the primary benefit flowing from the impugned transaction; or as requiring an element of contemporaneity beyond the transaction being the cause of the benefit. Properly construed, s 588FDA(1) should not be confined in the way in which CEG contends. The concept of a transaction being made for the benefit of a director is, in its proper construction according to the text, context and purpose, not confined to direct, immediate and primary benefits, to the exclusion of benefits which are indirect, contingent and secondary.
CEG further submits that the primary judge erred at a factual level in finding that the grant of the Runtong Mortgage was for the benefit of the Runtong Directors within the meaning of s 588FDA(1)(b)(iii) of the Act. We understood that this is what is meant by ground 1(c).
CEG submits that the net effect of the Runtong Mortgage was that the contingent liability of the Runtong Directors increased under the Runtong Guarantee. CEG contends that because of this the primary judge was wrong to conclude that the contingent liability of the Runtong Directors under the Runtong Guarantee decreased as a result of the Runtong Mortgage. CEG maintains that the position of the directors, prior to the grant of the mortgage (and the Runtong GSA), was that they were contingently liable for about $9.1 million in principal (together with a contingent liability for costs and interest). CEG says that after the provision of the Runtong Mortgage, the Runtong Directors were contingently liable for an amount of about $15.11 million - the $6 million advance was conditional on the Runtong Mortgage being provided. In addition, the Runtong Directors were contingently liable for interest, default interest and costs. Furthermore, the directors', including the Runtong Directors', liability had increased to about $29 million at the time the security was enforced. CEG submits that their liability had increased because further advances were made and because the loans went into default.
It is well to set out the relevant part of the primary judge's reasons at PJ[68] to [73]:

[109]

[68] CEG contends further that the Directors were liable contingently to CEG under various guarantees provided by them prior to the CEG Direct Mortgage, and that the contingent liability extended to further advances. It contends that the Directors remained liable after the granting of the CEG Direct Mortgage and that since further funds were advanced on the strength of the CEG Direct Mortgage security, as recorded in the Third Loan Agreement, the contingent liability of the Directors thereby increased such that there was no benefit to the Directors.

[69] I do not accept these contentions.

[70] First, notwithstanding Runtong is not named as a Borrower, the Land is included as "additional security" for the advance of a further $6 million to Datong and Futong under the Third Loan Agreement which exposes Runtong to a potential liability for a sum slightly greater than $15 million.

[71] Second, in so doing, the Directors (together with those who were not directors of Runtong but of Datong and Futong) who had provided personal guarantees, reduced their contingent liability by the value of the Land.

[72] Third, it is clear that although CEG took security over the Land and in that sense upon selling the Land as mortgagee in possession, it benefited from that security, nonetheless given the Directors were personally liable under the Guarantee and Indemnity, any reduction in their personal liability occasioned by realisation of any security, as a matter of logic, has to be to their benefit in the sense that it occasioned an indirect benefit and advantaged the Directors financially: Vasudevan at [15], [16], [19] [23] and [26] (Nettle JA); Aviation 3030: at [305] and [306] (Anastassiou J); Pearce: at [380]-[381] (Rangiah J).

[73] The fact that CEG benefited from the CEG Direct Mortgage does not mean that the directors did not also benefit. Accordingly, CEG's contention that the granting of the CEG Direct Mortgage did not confer a benefit to CEG for the benefit of the Directors within the meaning of s 588FDA(1)(b)(iii) of the Act cannot be accepted.

[110]

CEG's submission is premised on construing the phrase "for the benefit" as translating to a "net benefit" to the director. The text of s 588FDA(1)(b)(iii) does not suggest that any balancing of benefits against detriments to assess a net position is required. On CEG's construction, a transaction that is "for the benefit" of a director will not satisfy the condition in s 588FDA(1)(b)(iii) unless the director's net position is in fact improved. The director's net position in respect of contingent liabilities is not a fact that can necessarily be known as at the date of entry into the relevant transaction. That of itself counts against CEG's submission that s 588FDA(1)(b)(iii) requires there to be a net benefit. Construing the word "benefit" in the phrase "for the benefit" as meaning net benefit introduces uncertainty in ascertaining whether the second condition of the definition in s 588FDA(1) is satisfied. It introduces complexity and uncertainty to the second of the threshold requirements which does not accord with the text, context and purpose of the section read as a whole. Considerations of this nature - whether the relevant benefit for the directors is marginal, contingent, direct, indirect or net - forms part of the evaluative assessment in s 588FDA(1)(c)(iv). To superimpose similar requirements into s 588FDA(1)(b)(iii) would introduce an element of redundancy into s 588FDA(1)(c) of the Act. For these reasons, in addition to those we have already given as to the proper construction of the section, we do not accept that the effect of s 588FDA(1)(b)(iii) is as CEG submits.
Having rejected the central premise that informs CEG's submission as the Runtong Directors in fact not benefitting from the Runtong Mortgage, it follows that we reject CEG's contention that the primary judge erred in finding that the Runtong Mortgage was a disposition made for the benefit of the Runtong Directors, and therefore satisfied the condition in s 588FDA(1)(b)(iii).
For these reasons we dismiss ground 1.

[111]

By ground 2, CEG contends that the primary judge erred in undertaking the evaluative task mandated by s 588FDA(1)(c) of the Act. CEG submits that on the totality of the evidence the Court should have found that a reasonable person in Runtong's circumstances would in fact have entered into the Runtong Mortgage having regard to the mandatory considerations in s 588FDA(1)(c)(i)-(iv) of the Act.
The appellate standard applicable to the determination of this ground is the correctness standard pursuant to Warren v Coombes [1979] HCA 9; 142 CLR 531 at 551-552, whereby the appellate court determines for itself the correct outcome (while making due allowance for the advantages available to the trial judge); see also the observations of Gageler J (as his Honour then was) in Minister for Immigration and Border Protection v SZVFW [2018] HCA 30; 264 CLR 541 at [41]- [50]. It is not the standard applicable to discretionary decisions pursuant to House v R [1936] HCA 40; 55 CLR 499 at 505, whereby appellate intervention is limited to circumstances where the trial judge acted upon a wrong principle, allowed extraneous or irrelevant matters to affect the decision, mistook the facts, failed to take into account some material consideration, or made a decision that was unreasonable or plainly unjust. To conclude that s 588FDA(1)(c) is satisfied requires an objective evaluation of the relevant considerations, viewed as a whole, leading to a determination of whether the legal conclusion - that a reasonable person in the company's circumstances would not have entered into the transaction - should be drawn. There is only one legally permissible answer as to whether the condition in s 588FDA(1)(c) is satisfied, even though that answer requires a value judgment. In arriving at this conclusion, we have drawn on the analysis of Jackman J (O'Callaghan and McElwaine JJ agreeing) in an analogous statutory setting in Project Sea Dragon Pty Ltd (Subject to a Deed of Company Arrangement) v Canstruct Pty Ltd [2024] FCAFC 141; 305 FCR 465 at [114]- [118].
The primary judge was satisfied that a reasonable person in Runtong's circumstances would not have granted the Runtong Mortgage to CEG: PJ[151]. This being the final of the cumulative conditions required under s 588FDA(1), the primary judge concluded that the Runtong Mortgage was an uncommercial director-related transaction: PJ[154].
Applying the correctness standard of appellate review_,_ it falls to this Court to determine the correct outcome, while making due allowance for the advantages available to the primary judge: Fox v Percy [2003] HCA 22; 214 CLR 118 at [23]. Our task is to conduct a real review of the evidence that was before the primary judge and of the primary judgment to determine whether the primary judge has erred in fact or law: Lee v Lee [2019] HCA 28; 266 CLR 129 at 148-149 [55] (Bell, Gageler, Nettle and Edelman JJ) citing Fox v Percy at 126-127 [25] (Gleeson CJ, Gummow and Kirby JJ) and Robinson Helicopter Co Inc v McDermott [2016] HCA 22; 331 ALR 550 at 558 [43].
As we have presaged above, we have concluded that the correct outcome is that we cannot be satisfied that a reasonable person in Runtong's position would not have granted the Runtong Mortgage based on our consideration of the mandatory considerations in s 588FDA(1)(c)(i)-(iv) against the whole of the evidence that was before the primary judge. In this regard, we note that there was very little in the way of controversial oral evidence in the proceeding below and that the bulk of the evidence involved financing transaction documents and third-party contemporaneous business records. The exception perhaps is in relation to the expert evidence of Ms Karam, who was cross-examined and whose opinion the primary judge rejected: PJ[115]. Notwithstanding that the primary judge rejected Ms Karam's opinion evidence, his Honour's reasons for doing so are exposed in the primary judge's reasons and do not depend on matters in which his Honour enjoyed the advantage of sitting as a trial judge. Indeed, the primary judge records in his reasons a number of concessions made by Ms Karam in her cross-examination that we regard as reinforcing that Ms Karam gave her evidence consistently with her obligations as an expert witness. In those circumstances, this Court is in as good a position as the primary judge to assess the evidence. Senior counsel for the liquidator accepted that was so.
By ground 2, CEG contends that: (1) in determining whether s 588FDA(1)(c) was satisfied, the primary judge was required to consider all of Runtong's relevant circumstances and all other relevant matters; (2) the primary judge did not do so; (3) the evidence before the Court, when considered as a whole, did not allow the primary judge to be satisfied that the condition in s 588FDA(1)(c) was met; and (4) the weight of the evidence supports the contrary conclusion, namely that it may be expected that a reasonable person in Runtong's circumstances would have granted the Runtong Mortgage.
We have concluded that ground 2 must be allowed for the reasons which follow. By way of overview, the principal error of the primary judge was in concluding that the negative proposition in s 588FDA(1)(c) - that it may be expected that a reasonable person in Runtong's circumstances would not have granted the Runtong Mortgage - was established: PJ[151]. The primary judge attained satisfaction as to the negative proposition notwithstanding that his Honour regarded there being a paucity of evidence in relation to many of the circumstances in which Runtong entered into the Runtong Mortgage. That was largely because the primary judge declined to draw inferences which were available on the evidence and which, taken in combination, supplied a commercial explanation as why, objectively assessed, Runtong did not act unreasonably in entering into the Runtong Mortgage. Allowing for a shift in the evidentiary burden, the onus of proving the negative proposition was at all times on the liquidator, as the party seeking to prove that the Runtong Mortgage was an unreasonable director-related transaction.
While we accept that the liquidator's evidence was sufficient to shift the evidential burden to CEG, we have concluded that the primary judge erred in his assessment of the totality of the evidence having regard to the well-established principle in Blatch v Archer [1774] EngR 2; (1774) 1 Cowp 63; 98 ER 969 at 970 (Lord Mansfield)‑ - that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted, approved in Australian Securities and Investments Commission v Hellicar [2012] HCA 17; 247 CLR 345 at 405 [144], 412 [166] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ) and 441 [250] (Heydon J).
The Blatch v Archer principle bears upon the appropriateness of deciding whether a fact has been proved when only limited evidence is available: BCI Finances Pty Ltd (In Liq) v Binetter (No 4) [2016] FCA 1351; 117 ACSR 18 at [125] (Gleeson J). Where material evidence is peculiarly within a party's knowledge, it may be sufficient for the opposing party to adduce slight evidence of a matter in issue: Gerard Cassegrain & Co Pty Ltd v Cassegrain [2013] NSWCA 453; 87 NSWLR 284 at 292 [26] (Beazley P).
The adequacy of the evidence before the Court was directly relevant to whether the Court could be satisfied that the liquidator has discharged his onus of proof. The observations of Hodgson JA (Beazley P agreeing) in Ho v Powell [2001] NSWCA 168; 51 NSWLR 572 at 576 [14]- [15], endorsed by the High Court most recently in GLJ v Trustees of Roman Catholic Church for Diocese of Lismore [2023] HCA 32; 97 ALJR 857 at 875 [58] (Kiefel CJ, Gageler, and Jagot JJ), are apposite:

[115]

As Goodman J explains at [340] of his Honour's reasons, in the present circumstances, the liquidator, by virtue of his position, had the benefit of various provisions of the Act (for example, ss 477(3), 530A to 530C, 596A, 596B and 597(9)) which enabled him to require the production of books and records of Runtong, and to require the provision of information concerning Runtong's circumstances, in addition to the processes of the Court (such as subpoenas) available to any litigant. In these circumstances, any inadequacy in the evidence in providing a complete picture of Runtong's relevant circumstances is not readily laid at the feet of CEG, as opposed to the liquidator, who carried the onus and had compulsive powers at his disposal. Even so, having regard to the primary judge's statement that the primary judge understood the directors of Runtong to no longer be in Australia, then the principle in Blatch v Archer requires the Court to be realistic and pragmatic in its approach to the capacity of the parties to prove the whole of the relevant circumstances.
The primary judge repeatedly commented on the paucity of the evidence in relation to Runtong's circumstances, including as at 12 December 2014. By way of illustration, the primary judge described the evidence as: "incomplete and lacking" (PJ[126]) and "imprecise and unsatisfactory in a number of important respects" (PJ[172]). Further, the primary judge commented on the "paucity of the evidence presented as to any relationship between the three companies" (PJ[95]), "no direct evidence of any imperative for Runtong to grant the [Runtong Mortgage]" (PJ[127]), and "no evidence of any intention by Datong or Futong to obtain further advances ..." (PJ[144]). However, rather than considering the significance of the inadequacy of the evidence by reference to the respective capacities of the liquidator and CEG to prove the circumstances surrounding entry into the Runtong Mortgage, and by reference to the liquidator carrying the onus, the primary judge concluded that "... the evidence falls far short of establishing that Runtong, Datong and/or Futong are part of a 'property development group'" (PJ[107]) and that "[o]verall, the evidence does not reveal any adequate commercial explanation for the Transaction, nor does it reveal any benefit to Runtong as at 12 December 2014" (PJ[138]).
The primary judge erred in declining to draw inferences that were available and should have been drawn on the basis of the: documentary evidence; uncontroversial propositions as to relevant commercial practice supported by expert opinion; and orthodox processes of reasoning applied to evidence of a later state of affairs or course of dealing to make a finding as to an earlier state of affairs or course of dealing.
Relatedly, the primary judge's approach to the evaluative task required by s 588FDA(1)(c) did not engage sufficiently with what was required in evaluating the relevant "benefits" and "detriment" to Runtong and other relevant persons having regard to the broad import of those words in their ordinary meaning and in the context of s 588FDA(1)(c)(i), (ii) and (iii) of the Act. In these circumstances, we have concluded that the primary judge erred in his assessment of the mandatory considerations in s 588FDA(1)(c) and in reaching his conclusion that the liquidator had discharged his onus to establish the negative proposition. We are satisfied that on the whole of the evidence, the definitional condition in s 588FDA(1)(c) was not established. It follows that the primary judge was wrong to conclude that the Runtong Mortgage was an uncommercial director-related transaction.
In what follows, we bear steadily in mind that in our consideration of the evidence it is necessary to have regard to the ability of both the liquidator and CEG to lead evidence on the particular matters that were in issue, and the extent to which they led such evidence. In that regard we take into account the usual difficulties that confront a liquidator as an external administrator in proving the circumstances attending to the conduct of the company's affairs when the company was under the control of the directors. Similarly, we note that Mr Ventrice of CEG, who was a director of CEG, was involved in the dealings with Runtong, Datong and Futong in relation to the First Loan Agreement, the Second Loan Agreement and the Loan Request, passed away prior to the hearing: PJ[13]. Further in this vein, we note that none of the directors of Runtong were still in Australia by the time of the hearing. While the primary judge noted that the primary judge was not asked to, and did not, draw an inference pursuant to Jones v Dunkel [1959] HCA 8; 101 CLR 298 (PJ[128]), the primary judge did not weigh the evidence by applying the principle in Blatch v Archer taking into account these circumstances and having regard to the fact that the directors of Runtong were not persons that would be considered to be answerable or under the control of CEG. As we have said, whether the liquidator has discharged the legal onus (which is his and his alone, notwithstanding the shift in the evidentiary onus to CEG) falls to be determined having regard to the principle in Blatch v Archer. For the reasons which follow we have concluded that the liquidator did not discharge his onus and that the evidence, limited as it was, was adequate to establish a commercial rationale for Runtong to enter into the Runtong Mortgage.
The inquiry under s 588FDA(1)(c) is concerned with the reasonableness of the company's conduct, objectively assessed by reference to the company's circumstances and encompassing all relevant matters: Tosich Construction Pty Ltd (in liq) v Tosich [1997] FCA 979; (1997) 78 FCR 363 at 366 to 367 (Burchett, Foster and North JJ); Capital Finance Australia Ltd v Tolcher [2007] FCAFC 185; 164 FCR 83 at 109 [129] (Heerey, Lindgren and Gordon JJ); Crowe‑Maxwell at [70] (Beazley P; Macfarlan and Gleeson JJA); Smith v Starke (No 2) at 162 [104] to [105] and [107] (Gleeson J); Weaver at 428 to 429 [91]. Each element of s 588FDA(1)(c)(i) to (iii) is a mandatory consideration in the requisite evaluative assessment: Weaver at 429 [92]. As is the "any other relevant matter" requirement in s 588FDA(1)(c)(iv) which necessitates that facts and circumstances of the particular case be considered in the evaluative assessment required to arrive at a conclusion as to whether the negative proposition is established.
The assessment of "benefits" and "detriment" and any other relevant matter as part of the mandatory considerations required to reach a conclusion as to the negative stipulation in s 588FDA(1)(c) demands a sensible commercial assessment of the reality of the company's circumstances and ought not be confined to analysing only the enforceable legal relationships as documented. To do otherwise risks artificially distorting the operation of s 588FDA by extending the definition of unreasonable director-related transactions to capture transactions in a way that is not consistent with the control mechanism in s 588FDA(1)(c).
We now turn to the evidence before the primary judge.
The primary judge first considered expert evidence given by Ms Karam, who it will be recalled is a chartered accountant and forensic accounting specialist. The primary judge set out Ms Karam's qualifications and experience at PJ[78]:

[119]

The primary judge did not accept Ms Karam's opinion evidence on any of these topics: PJ[115].
We have concluded that the primary judge erred in rejecting Ms Karam's evidence in so far as she opined as to the relevant relationship between Datong, Futong and Runtong, which entities were together engaged in various property developments, and in this sense operating together as a property development group, and that it was, in her professional experience, common practice of lenders to take cross-securities from related entities in such circumstances. As to the later proposition, we do not regard that as being controversial but in any event Ms Karam supplied her opinion on that topic based on her relevant expertise. Moreover, the evidence in this case demonstrated that both the NAB and CEG required cross-securities in support of advances they made to or for the benefit of the three companies, who they treated as an aggregated group for the purpose of their credit assessment. CEG did not use the terminology of aggregated group, but the evidence establishes that CEG's analysis proceeded on that footing.
In our view, the evidence led by CEG, including but not limited to Ms Karam's evidence, established each of these matters when assessed through the lens of the principle in Blatch v Archer. Our divergence from the primary judge's factual findings, amongst other things, informs our conclusion that the liquidator did not discharge his onus to establish the negative proposition in s 588FDA(1)(c) by reference to the requisite mandatory criteria. When the requisite evaluation is undertaken by reference to the broad concepts of "benefits" and "detriment" embedded in the mandatory criteria, it is in our view clear that the liquidator did not establish that the Court could be satisfied as to the negative proposition in s 588FDA(1)(c). To borrow from Beazley P in Crowe-Maxwell (at [89], extracted above) we are satisfied that the evidence in this case established on an objective basis a commercial explanation for Runtong's entry into the Runtong Mortgage.
For the reasons to which we now come, we have concluded that the liquidator has not discharged his onus because the evidence in fact established that there was a commercial explanation. This is sufficient to disturb the conclusions reached by the primary judge in relation to the mandatory considerations.
Datong, Futong and Runtong were "related entities" within the definition of "related entity" in s 9 of the Act because they each had two directors who were in common and they also had common shareholders at the time they entered into the Runtong Mortgage. The primary judge accepted that this was established by the company searches that were in evidence: PJ[118(2)].
The primary judge drew a distinction between the companies being "related entities" as defined by s 9 of the Act as opposed to being "related corporations", by which we understand the primary judge to be referring to the statutory definition of "related body corporate" under s 50 of the Act: PJ[84]. It may be accepted that the evidence was not sufficient to strictly satisfy that the three companies came within the statutory definition of "related body corporate(s)" because the evidence did not demonstrate the identity of the relevant holding company. Similarly, it may be accepted that the evidence demonstrated that some of the shares in the three companies were not beneficially held and did not establish the identity of the beneficial owners of the shares.
However, in our view, the primary judge allowed the application of the statutory definitions to distract from the substantive evaluative task posed by s 588FDA(1)(c), and in particular from the task of assessing the relative commercial relationship between the three companies and the related benefits and detriments to Runtong flowing from entry into the Runtong Mortgage. The statutory definitions, if applicable, may have been relevant to whether Runtong operated co-operatively with Datong and Futong as a property development group as that phrase is used in the commercial vernacular, but were not determinative of the issue to be determined under s 588FDA(1)(c).
At PJ[86]-[111], the primary judge addressed Ms Karam's evidence going to the reasonableness of Runtong in granting the Runtong Mortgage in the circumstances as they existed as at 12 December 2014. The primary judge noted that Ms Karam addressed the issue in three parts (at [86]):

[121]

The primary judge was critical of Ms Karam's conclusion as to the first part - that as related entities, Runtong, Datong and Futong were part of a corporate group and part of a "property development group" - describing Ms Karam's report as being based on circular reasoning and the business records of the NAB, particularly the NAB July 2016 Evaluation which the primary judge noted post-dated Runtong's entry into the Runtong Mortgage. Further, the primary judge placed emphasis on the fact that Ms Karam confirmed in cross-examination that she was not "instructed that there was such a group": PJ[88]. The primary judge also noted that Ms Karam had acknowledged, we would interpolate, appropriately, that "as she did not hold the financial records of Runtong as of 12 December 2014 nor any internal memos recording Runtong's decision to grant the [Runtong Mortgage], she was unable to comment on the totality of Runtong's circumstances at the time of the transaction and it did not form part of her analysis": PJ[109]. Again, that may be accepted but it is not the end of the factual inquiry required to inform the evaluative assessment in s 588FDA(1)(c) in this case.
The primary judge was critical of Ms Karam's conclusion that in her view that it appeared that Runtong, Datong and Futong are related entities and "in some way form part of a larger property development group with an overseas parent" notwithstanding she was unable to identify that parent: PJ[91]. Yet his Honour was prepared to accept some aspects of Ms Karam's analysis. The primary judge was only prepared to draw the inference that Datong was the developer of both the Futong Property and the Runtong Property. The primary judge otherwise rejected Ms Karam's conclusions as the relationship between the three companies: PJ[92].
The primary judge regarded Ms Karam's conclusion that Datong, Futong and Runtong were a part of a group known as the "Datong Group" as no more than speculation on her part: PJ[93]. The primary judge regarded the contemporaneous references in the NAB's business records to the "Australian Datong Group" as carrying no or very little weight: PJ[94]. In circumstances where none of the directors of Datong, Futong and Runtong gave evidence, the primary judge was not prepared to infer that the companies formed part of a "property development group": PJ[95]. The primary judge concluded that (at PJ[95]- [96]):

[125]

We do not agree that the evidence suggests that the companies were standalone property development companies, as opposed to a co-ordinated property development group. The evidence before the primary judge was sufficient to draw the inference that on an objective basis that the three companies were acting cooperatively in financing and staging their respective developments and were in effect working as a property development group.
It is uncontroversial that the companies were special purpose vehicles, each engaged in property development, and each of which had overlapping directors and share holdings.
Datong was the first of the three companies to be incorporated, followed by Futong and then Runtong. The two Runtong Directors (Mr Jin Liang and Mr Ping Huang) were directors as at the date of each of the companies being registered.
Runtong was a special purpose vehicle that was incorporated for the purpose of purchasing the Runtong Property.
We turn now to address, amongst other things, the evidence supplied in relation to the commercial relationships between the three companies drawn from the business records of the NAB. The NAB was in the relevant period the principal lender to each of Datong, Futong and Runtong and the first mortgagee of the Datong Property, Futong Property and Runtong Property. The NAB documents in evidence spanned the period both before and after 12 December 2014, being the date of the Runtong Mortgage. The primary judge was dismissive of CEG's reliance on these documents and it is clear that his Honour placed little, if any, weight on these documents: PJ[94], PJ[97]. The relevant NAB documents were before this Court on the appeal. Based on our review of the NAB documents we have come to a different view as to the factual inferences that should be drawn from these documents. We have placed significant weight on these documents.
We make the following general observation in relation to the NAB documents.
First, the documents are business records of the NAB. Having regard to their purpose, which on the face of the documents, is to collate and analyse information in relation to the making, renewal, review and servicing of substantial property investment and development loans, we readily infer that the matters recorded in the documents reflect the information that was provided to the NAB by or on behalf of each of the relevant companies the subject of the individual documents. Further, that the matters canvassed in the documents were of obvious importance to the business of the NAB. We regard the documents as supplying a reliable source of information as to Runtong's circumstances.
Second, the information contained in the documents is likely to have been critically assessed and verified by the NAB bankers applying a level of scrutiny in accordance with the bank's ordinary business practice in processing credit applications.
Third, the documents present a chronological narrative of the NAB's interrogation of the three companies' circumstances, in so far as they were relevant to their financing relationship with the NAB, with each document drawing on the previous documents held on the NAB file for this group, which NAB approached on an aggregated basis. The primary judge regarded the NAB's use of the descriptor "Australian Datong Group" as a mere label of convenience by NAB staff which carried "no or very little weight" (PJ[94]). We disagree. The NAB documents make plain that the references to the "Australian Datong Group" were not simply a superficial internal label used for convenience. The use of the label and the unique aggregation group identifying number served to flag and reflect that the NAB's entire analysis was informed by and indeed predicated on an aggregated analysis of the three companies and the support that they each received from Chinese companies with which they were associated. Accordingly, we regard the fact that the NAB treated the three companies as an aggregated group for the purpose of assessing whether to extend finance, and if so on what terms, including as to security, as both relevant to the evaluative inquiry under s 588FDA(1)(c) and attracting significant weight.
The first of the relevant NAB documents is the NAB Credit Submission of 19 June 2012 which dates from about a week after Runtong was registered. We have extracted sections of this document at paragraphs [22] to [27] above.
On the face of the NAB Credit Submission, the group of three companies is ascribed a description by the NAB as the "Australian Datong Investment & Development Group". As mentioned, the companies were grouped by the NAB as an aggregation group and given a unique aggregation number. They were recorded as being the clients of Ryan Gu, the relevant NAB banker. The credit submission refers to each of Datong, Futong and Runtong, and notes that the credit submission covers a "new to bank customers/guarantors as part of this Aggregation Group". The new customer is Runtong. Datong and Futong were existing customers of the NAB. Datong had been introduced as a customer in relation to the development at the Datong Property (located in Pulteney Street, Adelaide). Futong was a customer in respect of the development at the Futong Property (located in Gouger Street, Adelaide). The "Aggregation Group Type" was recorded as "existing". The existing lending to the Aggregation Group comprised $4,480,000 of "Property Lending" and the submission was directed to an increase in "Property Lending" of $1,540,000, resulting in a total "Property Lending" of $6,020,000.
The NAB Credit Submission included an approval request, which is extracted at paragraph [22]. The salient features of that approval for present purposes are that Runtong was freshly incorporated and was to be the purchaser of the Runtong Property. The property was intended for "a future commercial property development site and as such will be untenanted for the near future." Runtong's capacity to purchase the property (and related expenses) was dependent on the NAB providing funding of $1,540,000 and the balance of $990,000 being provided by way of customer contribution. The NAB relevantly describes the commercial activities of the applicants (including Runtong) collectively and emphasised their connection with associated companies undertaking property development over some 20 years in the following terms extracted above, but reproduced for convenience:

[127]

The financial analysis and commentary included in the NAB Credit Submission is extracted at paragraph [25]. It is clear that Runtong was from its inception dependent on support in order to meet its initial equity commitment and thereafter for its repayment and servicing commitments under the NAB facility. It was noted in the NAB Credit Submission that "Equity contribution via funds held in China GST portion of $220K to be repaid after 3 months." The GST portion was to be repaid by Futong.
The NAB Credit Submission culminated in a recommendation that the financing be approved (see paragraph [27]). In the recommendation for approval, the interrelationship between the companies is made plain. The NAB regard it as relevant to record that the conduct of the Datong and Futong facilities is "excellent with good deposit funds held at all times", that the "Group has access to large amount of funds from overseas" and that term deposits will be in place before settlement.
The NAB noted that the primary exit analysis was by "cash generated from customers cash flow" with interest to be covered by "the funds to be held in the working account and then the 1 year's interest held on term deposit as additional security for this transaction." We infer that the reference to "customers" is, consistently with the usage elsewhere in the NAB Credit Submission, a reference to the three companies and comprehends the support the companies receive from associated companies in China. The secondary exit analysis was for a sale of the property based on its undeveloped value and assuming a selling period in the vicinity of 3 to 9 months. Again, the comments highlight that Runtong is being assessed on the basis that it is part of a group - "Existing debts to the same group have been serviced in a satisfactory manner."
The loan to Runtong was subject to conditions imposed on Datong, Futong, Mr Liang and Mr Huang, amongst others. As mentioned, the condition imposed on Futong was that it repay the GST component of $220,000 advanced to Runtong by 31 October 2012.
We infer from the NAB Credit Submission, that when Runtong was incorporated, it was dependent for financial support on Datong and Futong and on funds being provided from China. The whole of the equity contribution to the purchase of the Runtong Property was supplied via funds transferred from China. The NAB recognised that the Runtong Property would not be income producing and that without external support Runtong would fail to meet its obligations under the facility in 2013. The NAB accepted that Runtong was a special purpose vehicle that was being used, together with Datong and Futong, to expand the property development activities of associated companies in China into South Australia. That is evident from the information included in the background/history section of the NAB Credit Submission, which is extracted at paragraph [23] above. We note that the NAB refers to "the company" having built up a good reputation in China and South Australia. This is another indication that the NAB had satisfied itself that for the purpose of credit assessment in relation to the Runtong loan it was appropriate to have regard to the substantive relationship between each of Runtong, Datong and Futong, and to the support they could access from associated companies in China. The fact that the NAB observed that the transaction was "stand alone and separate from previous transactions" to Datong and Futong does not undermine the fact that the analysis which informed the NAB Credit Submission, and the approval of the Runtong loan, was based on there being substantial support of Runtong by Datong and Futong. The description of the Runtong facility as "stand alone and separate from previous transactions" merely reflected that each transaction was the subject of a separate facility agreement.
That the three companies and Mr Liang and Mr Huang were acting co-operatively in securing finance from NAB is evident from the NAB Credit Submission. The risk to the NAB if the facility was not serviced and discharged according to its terms is obvious. In those circumstances, we infer that the matters addressed in the NAB Credit Submission were the subject of careful analysis and based on information supplied by, or on behalf of, the three companies. The NAB assessed that key risk as being mitigated by their acceptance that the "Customers have committed to project and are allocating $150k in interest to be held for one year at all times. Interest calculated at Affordability Rate of 11.10%." Further, it is clear that the NAB's analysis of the primary exit strategy was predicated on the three companies working co-operatively and with the support of the broader Chinese based part of the business.
The other aspect of the NAB Credit Submission that is significant for present purposes is that the Runtong facility was relatively short term and was subject to renewal application about every 12 months. The commencement date was 3 July 2012, the date for the last drawdown was 3 October 2012, and the expiry date was 31 July 2013.
On 4 July 2012, the NAB offered Runtong a loan with a limit of $1.54 million. On 5 July 2012, Runtong accepted the NAB's offer. In doing so, Runtong committed itself to being dependent on others to meet its obligations in relation to the NAB and the proposed development of the Runtong Property. Contemporaneously with its acquisition of the Runtong Property, Runtong granted a mortgage over the Runtong Property to the NAB: PJ[4], [19(7)]
That Runtong was entirely beholden to the support it expected to receive from its related companies, and from the associated Chinese companies, is clear having regard to the terms on which the facility was granted. Runtong could not expect by recourse to its own resources to be in a position to retire the facility at the end of the term or even service the interest and repay the GST component within the three-month time frame to which it had agreed. Runtong was a newly incorporated special purpose vehicle with no income. The Runtong Property was not expected to and did not produce income, other than minor rent paid by its related entities for use of an existing car park. It planned to undertake a major property development. It needed substantial funds to do so. It was at risk from the time it acquired the Runtong Property to the Council exercising its option to repurchase if the development was not commenced within 18 months and completed within 36 months. The evidence to which we refer below makes it plain that these features of Runtong's circumstances persisted as at December 2014. The reasonableness of Runtong's conduct in December 2014 in entering the Runtong Mortgage must be assessed in that context.
In September 2013, the Runtong facility with the NAB was up for renewal together with the Datong facility. We have extracted the relevant sections of the NAB Annual review and renewal for the NAB Datong Aggregation Group at paragraphs [34] to [36] above. Relevantly for present purposes, this document confirms that plans for approval for the construction of a mixed use hotel/apartment complex on the Runtong Property were being finalised for lodgement and that the facility was to be renewed for "a further 12 months pending redevelopment" The time imperative embodied in the contract for sale, which required development approval by July 2014 was noted and in the context of addressing the renewal of the NAB Datong facility, the NAB observed that the Datong Property was "also a future property development site however main focus at this point is on the Runtong development given the strict timeframes allowed for commencement of property development." The NAB had also provided a $100,000 bank guarantee facility in support of the completion of the pedestrian link which Runtong was required to build as a condition of the contract of sale. In this review and renewal application, it was noted that construction was "still underway" and that the bank guarantee would be extended for a further 12 months. The NAB recorded that the facilities the subject of this review were serviced from overseas income.
The NAB's analysis of the aggregated cashflow summary for Datong and Runtong confirmed that without external support the forecast "year of failure" for the facilities was 2014, with an forecast aggregated cashflow deficiency of $407,075.92, of which $148,981 was attributable to Runtong. The NAB noted that both properties were future development sites and that interest payments are currently met from overseas funds with the term deposits in place protecting the bank's position, reducing the effective rate of interest but otherwise not being permitted to be used to service interest. Significantly, as extracted at paragraph [36], the NAB recorded that:

[129]

As outlined at paragraph [37] above during 2014, steps were taken toward obtaining development approval in respect of the Runtong Property. As noted at paragraph [38], from 11 August 2014 at the latest, Runtong was the recipient of regular funds transfers from Datong or Futong. Runtong also transferred some funds to Futong. The transfer of funds into Runtong to cover property outgoings is consistent with the observations made by the NAB in the September 2013 review. From the NAB documents, we infer that the main source of inflow was from associated companies in China.
Runtong obtained conditional planning consent for the development of the Runtong Property in August 2014 and marketing commenced in September 2014, with some pre-sales of apartments.
In or around September 2014, CEG first became involved with Datong. As set out above, the First Loan Agreement between CEG and Datong was executed on 8 September 2014 accompanied by the securities described at paragraphs [44] to [46] above.
On 12 September 2014, Mr Gu of the NAB completed a new credit submission for the Datong Aggregation Group which was in respect of an additional advance of $18.3 million for Futong to assist in the Aria on Gouger development and the renewal on an interest only basis of the Datong facility and the Runtong facility, each for a further year. We have extracted the salient parts of the credit submission at paragraphs [48] to [49] above. It bears emphasis in the present analysis that the NAB continued to assess the three companies on an aggregated basis and continued to emphasise the role of "Mr Jin Liang (Chairman) and his property development group" which is said to be "committed to invest in SA on a long term basis, have been liaising with City Council and Statement Government in terms of their ongoing development plans for Adelaide City".
Then on 26 September 2014, CEG entered into the Second Loan Agreement for $5 million with Datong and Futong. As set out above, the Second Loan Agreement between CEG and Datong and Futong was accompanied by the securities described at paragraphs [51] to [52] above.
In December 2014, Mr Ventrice arranged for a new file to be opened which he described as "Datong/Futong U2 apartments file". This email is one of the earliest traces of what became the Third Loan Agreement. It reflects that the financing was intended to be directed to the U2 on Waymouth development on the Runtong Property. It is also an early indication of CEG approaching the three companies on a group basis. This is confirmed by later CEG documents.
On 1 December 2014, a formal loan request was made. It is extracted at paragraph [58] above. In the loan request, Runtong is identified as one of the intended company borrowers and its directors, including Mr Liang and Mr Huang, are named as "non-company individual directors". The loan is described in the request as a $6 million line of credit and is noted to be associated with the two earlier CEG loans. The proposed exit strategy, reproduced here for convenience, is as follows:

[132]

The loan purpose is recorded in a CEG document entitled "Loan Summary" as being to "cover prelim marketing, Display suite, GST Aria & General cashflow". Again, Runtong is named as one of the company borrowers. As mentioned at paragraph [62 (1)], a handwritten note located in CEG's files, records that the "Funds to commence U2 $60m" and the question is posed as to whether NAB is "fully drawn".
On 12 December 2014, Datong and Futong, the Four Guarantors and CEG entered into the Third Loan Agreement as described in paragraph [66] above, which was secured by the security described in paragraph [68] above, which included the Runtong Mortgage. Despite the pre-contractual references to it being proposed that Runtong would be named as a borrower under the Third Loan Agreement, Runtong was not named as a borrower. The primary judge was correct to find that Runtong was not a primary debtor or borrower under the Third Loan Agreement: PJ[103]-[104]. That is relevant to, but not determinative of the question posed in s 588FDA(1)(c).
The commercial reality was that Datong, Futong and Runtong were working with considerable support in the form of fund inflows from associated companies in China collaboratively in pursuit of the development of the commercial properties held in their respective names. The funds obtained by them collectively from their financiers were in practice being pooled and applied according to priorities as they arose. The NAB recorded that Mr Jin Lian was the chairman of group and also noted the group's principal focus was on Runtong because of the strict time frames it faced under the contract for sale. We infer that the NAB's observations were based on information obtained from or on behalf of the companies. That commercial relationship between the companies is supported by the companies' dealings with the NAB and CEG over the period preceding the grant of the Runtong Mortgage. The evidence demonstrates that the development that became known as the U2 on Waymouth development on the Runtong Property had been in contemplation from the time the Runtong Property was purchased. By the time of the Third Loan Agreement, funds were being sought for the purpose of constructing a display suite for the purpose of promoting the U2 on Waymouth development. The primary judge erred in concluding to the contrary.
The commercial relationship between the parties is reflected in the terms of the Runtong Mortgage whereby Runtong agreed and acknowledged that "as at the date of this mortgage, [CEG] have agreed to lend $15,110,715.07 to you or at your request. This amount, together with any further advances and other amounts more fully described in the Memorandum, is called the Mortgage Moneys". The documentary evidence supports that the CEG advances, like the NAB advances in the earlier period, were being made on the basis of the combined financial fortunes of the three companies as they worked together on their property development projects. In this way, the funds lent by CEG were, as Runtong acknowledged, "to or at [Runtong's] request". That Runtong was not a primary debtor or borrower does not alter the analysis. The evidence establishes that: Runtong was dependent on Datong, Futong and associated Chinese companies; did not of itself have the funds or the requisite borrowing capacity to purchase the Runtong Property or undertake the U2 on Waymouth development; and through its directors actively engaged in obtaining finance on an aggregated basis, such that it was correct for it to acknowledge that the "Mortgage Moneys" were advanced at its request, notwithstanding it was not a named borrower.
The primary judge's conclusion at PJ[118(6)] that Runtong had no apparent need to borrow money at the time and there was nothing that amounted to an imperative for Runtong to grant the Runtong Mortgage is against the weight of the evidence. Runtong was a special purpose vehicle that was dependent on external funding from related entities, including associated companies in China. Datong and Futong provided funding to Runtong that they in turn obtained from the NAB and CEG, as well as from associated companies in China. The evidence demonstrates that the overlap in the directorships of each company, while not complete, meant that the companies were operating in lock step in pursuing common objectives in three separate property developments. The U2 on Waymouth development was the raison d'etre for the purchase of the Runtong Property. Runtong was incorporated as the special purpose vehicle to act as the purchaser on the contract for sale for the Runtong Property. The time imperatives for the development to be commenced and completed were incorporated into the contract for sale. Runtong had the Council's option to repurchase hanging over it from inception. Taking into account the whole of the evidence, it is clear that Runtong was in need of finance and operating under significant time constraints. The fact that the Council does not appear to have taken steps to exercise its option to repurchase does not lessen the imperative inherent in the risk that it could do so if the relevant milestones were not achieved.
For these reasons, taking into account the whole of the relevant sequence of events and circumstances, we are satisfied that the liquidator has not established on an objective basis that a reasonable person in Runtong's position would not have entered into the Runtong Mortgage in December 2014. The onus of establishing that the Runtong Mortgage constituted an unreasonable director-related transaction was on the liquidator. Here, there was limited evidence of the nature or purpose of the transaction, but the surrounding circumstances show that it was not a departure from normal commercial practice, when the commercial reality of the relationship between the parties is brought into the analysis.
It is not necessary for us to address seriatim the way in which the primary judge assessed each of the mandatory considerations in s 588FDA(1)(c)(i) to (iv) because our findings of fact represent a fundamental departure from the findings of fact made by the primary judge which informed his Honour's evaluation under s 588FDA(1)(c).
For completeness, we note that the primary judge was critical of Ms Karam's evidence concerning Runtong's circumstances as at 12 December 2014 including the adequacy of the existing securities, requests for further advances and contemplation of further advances. The primary judge's principal criticism of Ms Karam's evidence on this issue was that she had used the NAB July 2016 Evaluation to provide a basis to extrapolate backwards to a factual position in December 2014. The primary judge regarded this as not being "a legitimate approach to have taken": PJ[97]. The first point to note is that the documentary evidence that predates the Runtong Mortgage supports the inferences we have drawn as to the commercial reality of the relationship between Runtong and Datong and Futong such that it is not necessary to rely on the NAB July 2016 Evaluation. The second point is that the NAB July 2016 Evaluation is relevant in that it demonstrates that the commercial reality in terms of Runtong's dependency on the support of Datong and it associated companies, including in China, continued as at July 2016. Although it may be of lesser weight than the material predating entry into the CEG Guarantee, the NAB July 2016 Evaluation is relevant in that it gives rise to an inference that Runtong's financial dependency was so substantial and indeed structural in the earlier period that it persisted as at July 2016.
In similar vein, it is relevant that the evidence demonstrates that after December 2014, Runtong in fact received continuing and substantial support from Datong and Futong. In the six months following the Third Loan Agreement and the grant of the Runtong Mortgage, Datong and Futong advanced $1,116,000 to Runtong. What in fact occurred is relevant to whether in entering into the Runtong Mortgage, Runtong relied on an expectation that was reasonable as to continued support being extended to it by its related entities if it entered the Runtong Mortgage. It is possible to infer what was expected to happen from what in fact happened. That evidence is relevant subject to the usual caveats as to weight.
Finally, and to be clear, it is not necessary for us to make the finding urged by CEG, namely that it may be expected that a reasonable person in Runtong's circumstances would have granted the Runtong Mortgage. We are not satisfied that a reasonable person in Runtong's circumstances would not have granted the Runtong Mortgage. Ground 2 must be allowed.

[146]

To establish that the grant of the CEG Direct Mortgage was an unreasonable director-related transaction, the liquidator was required to prove each of s 588FDA(1)(a), (b) and (c).
It was common ground, and the primary judge was satisfied, that s 588FDA(1)(a) was established, on the basis that the granting of the CEG Direct Mortgage was either a disposition by Runtong of its property, or the incurring of an obligation by Runtong to make such a disposition.
The parties were at issue as to whether s 588FDA(1)(b) was satisfied. The primary judge held that it was, on the basis that the grant of the CEG Direct Mortgage was made to CEG for the benefit of the Directors, as it reduced their contingent liability to CEG.
The parties were also at issue as to whether s 588FDA(1)(c) was satisfied. The primary judge concluded that it may be expected that a reasonable person in Runtong's circumstances would not have granted the CEG Direct Mortgage.
As the primary judge was satisfied that each element of s 588FDA had been established, he concluded that the CEG Direct Mortgage was an unreasonable director-related transaction within the meaning of s 588FDA and thus a voidable transaction under s 588FE of the Act.
The primary judge then considered the appropriate form of relief and ordered, pursuant to ss 588FF(1)(c) and (4) of the Act, that CEG pay the sum of $1,983,100.40 to Runtong; and published his reasons for doing so: Cooper as Liquidator of Runtong Investment and Development Pty Ltd (In Liq) v CEG Direct Securities Pty Ltd [2024] FCA 6 (J; or primary judgment). The primary judge subsequently made orders with respect to interest and costs and published his reasons for doing so: Cooper as Liquidator of Runtong Investment and Development Pty Ltd (In Liq) v CEG Direct Securities Pty Ltd (Costs) [2024] FCA 120.
By an amended notice of appeal filed on 31 May 2024, CEG brings this appeal against both sets of orders made by the primary judge. It challenges his Honour's findings with respect to s 588FDA(1)(b) and s 588FDA(1)(c); and with respect to his Honour's calculation of the amount of compensation to be paid. For the reasons developed below, the challenge to s 588FDA(1)(b) fails; the challenge to his Honour's findings with respect to s 588FDA(1)(c) succeeds; and it is unnecessary to consider the challenge to the calculation of compensation.

[150]

Runtong Investment & Development Company Pty Ltd was established 6/2012 for the purchase of Commercial Property located at 114 - 122 Waymouth Street, Adelaide.

Directors are: Wei Xiao (15%), Yong Liu (15%), Jin Liang (40%) & Shaohua Liu (30% O/Seas Resident)

Clients were originally managed by Retail branch and later on have been introduced to NAB business via Broker Jonathon Hii however clients no longer deal through this channel_._

Initial introduction was for purchase of Commercial Property located at 201 - 209 Pulteney Street, Adelaide via Australian Datong Investment & Development Pty Ltd.

Directors are: Wei Xiao (20%) Jin Liang (45%) Yong Liu (30%) & Ping Huang (5% Overseas Resident)

Additional Commercial Property purchase was undertaken 4/2011 for purchase of property at 271 - 281 Gouger Street, Adelaide for $2.6M via Futong Investment & Development Pty Ltd.

Directors are: Jin Liang (60%) Wei Xiao (20%) Yong Liu (10%) Ping Huang (5% O'seas) Yiyong Jiang (5%).

Up until recent property purchases in Adelaide, applicants have completed large scale developments throughout South East Asia and South Australia. We have been provided with a copy of the past 20 years developments that the clients have completed overseas.

Clients have been in the property industry in China for a period of time and have been well performed in Kun Ming City in YunNan Province China, is currently recognised as one of the major contributors over there.

Mr Liang and his property development group have committed to invest in South Australia on a long term basis, have been liaising with City Council and State Government in terms of their ongoing development plans for Adelaide City.

The group have been helping to introduce a number of quality investors to the state and NAB.

It is evident able (sic) the company has built up a good reputation in both China and South Australia in the past, and willing to carry forward the existing great relationship with NAB towards to the future.

(italic emphasis added)

[156]

Facilities will continue on interest only basis for a further 12 months. Term deposit funds have been provided to cover 12 months interest at affordability of 11.10% on both facilities in the event that applicants fail to meet interest repayments. Actual interest rate on facility is in the vicinity of 6.5%. These funds are not to be utilised to assist with servicing. Because of the nature of this group classified as property developer, it's been the case of relying on TD with interest cover to fund for development site in the past with a strong Secondary exit.

Servicing indicates deficit due to properties being partially vacant, on the ground car park only generates a small amount of income, land is due to be developed in the next 12 months.

Applicants are reliant on overseas income to service interest portion of this debt along with property outgoings which not evidenced as Runtong is part of Australian Datong Group who is one of the top 3 property developers in Kunming, Yunnan Province, China. This group holds a significant amount of cash deposit with NAB which has been used to service the debt, and backed up by its mother company in China, Funds transfer in is on regular basis as this group has been heavily encouraged and protected by State Government SA as known as one of the major investors from mainland China.

There is no change to Group's financial position over the last 12 months.

All facilities have been serviced in a satisfactory manner over the past 12 months.

Secondary Exit

Banker is aware of commercial property at Corner of Flinders St and Pulteney St is currently used as Group's head office, with an on the ground car park leased to Park Fast. Development plan for this property was DA approved in the past to build the tallest building in Adelaide CBD, due to limit height has been changed hence group is now working on revised development plan for this site, and working towards to DA submission which will happen after Waymouth Street DA gets approved (Runtong Investment Pty Ltd). This is not related to this renewal submission as it is due April 2014. Banker will be updated with Datong Group's decision in early 2014 about time frame and planning decision of Flinders St and Pulteney St Corner property. The intention is to build the tallest mixed use commercial property with Hotels, Offices and Retails.

(italic emphasis added)

[195]

CEG submits that the primary judge made several errors of construction concerning the phrase "... for the benefit of..." in s 588FDA(1)(b).
The first contended error of construction is that the word "benefit" is a "net benefit" to the recipient and the provision of any benefit is insufficient if the recipient's net position is not improved. CEG then contended that at a factual level there was no net benefit to the Directors and there was in fact an increase in the contingent liability of the Directors because the Third Loan Agreement - which by dint of cll 3.3 and 3.4 thereof was conditional upon the provision of the CEG Direct Mortgage - increased the contingent liability of the Directors from $9 million to $15 million (and implicitly, that the inclusion of the Land under the CEG Direct Mortgage was insufficient to offset this increase).
I do not accept this submission as to the construction of the word "benefit" for the following reasons.
The word "benefit" can mean "any benefit" or "net benefit". The preferred construction in a particular statutory provision must be determined by the proper application of the usual and well‑established principles of statutory interpretation. The statutory text, context and purpose are critical: see e.g., the various authorities concerning the meaning of the word "benefit" reviewed in Australian Securities and Investments Commission v Commonwealth Bank of Australia [2023] FCAFC 135; (2023) 299 FCR 604 at 640 to 641 ([147] to [153]) (O'Bryan J; Moshinsky and Jackman JJ agreeing).
The text of s 588FDA(1)(b) does not suggest that any balancing of benefits against detriments to assess a net position is required. Similarly, "benefit" is defined broadly in s 9 of the Act as meaning "any benefit, whether by way of payment of cash or otherwise".
The statutory context in which s 588FDA(1)(b) is found also does not suggest that a net benefit approach is to be preferred. In particular, s 588FDA(1)(c) involves an evaluation of the reasonableness (or otherwise) of entry into the impugned transaction by reference to both benefits and detriments to the company. In other words, "benefits" is used in s 588FDA(1)(c)(i) in a way which can only mean a gross benefit without any netting against detriment. Were it otherwise, s 588FDA(1)(c)(ii) would be otiose.
Further, s 588FDA was intended as an anti-avoidance provision and the section should be construed with that in mind: see Vasudean v Becon Constructions (Australia) Pty Ltd [2014] VSCA 14; (2014) 41 VR 445 at 451 [19] (Nettle JA, Beach JA and McMillan AJA agreeing). This also suggests that the narrower net benefit approach for which CEG contends is inapposite.
The second contended error of construction is that the expression "... for the benefit of..." should be construed as requiring that the impugned payment, disposition or issue have been made for the purpose of benefiting the recipient, and that it is not sufficient that such payment, disposition or issue simply had the effect of providing a benefit to the recipient.
I do not accept that submission.
In Vasudean at 452 [23], Nettle JA held that "... for the benefit of ..." a person means "for the advantage, profit or good" of that person. I respectfully agree. Further, as s 588FDA is an anti‑avoidance provision, the broader construction, which does not require proof of purpose, is to be preferred.
The third contended error of construction is that the word "benefit" applies only to benefits which are direct or primary and are sufficiently contemporaneous to the transaction. In the present case, CEG submitted, the CEG Direct Mortgage was for the benefit of Runtong, Datong and Futong but not for the benefit of the Directors. I do not accept this submission. In Vasudevan, the Court of Appeal of the Supreme Court of Victoria expressly rejected the proposition that the benefit needed to be direct as this would be contrary to the evident anti‑avoidance purpose of s 588FDA (at 451([19] and [20]). Again, I respectfully agree. It follows also that the section should not be construed as requiring that the benefit be the primary benefit flowing from the impugned transaction; or as requiring an element of contemporaneity beyond the transaction being the cause of the benefit.
It follows that the grounds of appeal directed to the primary judge's findings concerning s 588FDA(1)(b) are not made out.

[200]

The primary judge first considered in some detail the expert evidence of Ms Robyn Karam, a chartered accountant and forensic accounting specialist, adduced by Runtong (J[77] to [115]). That evidence involved three central opinions (J[80]).
The first of Ms Karam's opinions is that it is common practice for lenders to take "cross‑securities" from related entities. She opined that it is not possible to prepare an exhaustive list of the sort of circumstances in which a lender takes cross-securities from related entities, but it would be rare for a lender not to take cross-securities from related entities in circumstances where the lender considered the security proffered by the related entity borrower inadequate to secure the proposed loan.
The primary judge rejected this evidence on the bases that: (1) Ms Karam's conclusion that Datong, Futong and Runtong were part of a group of companies was no more than speculation (J[93]); (2) the NAB's references to the "Australian Datong Group" carried no or very little weight (J[94]); (3) none of the directors of Datong, Futong and Runtong gave evidence (J[95]); and (4) he was not prepared to infer that those companies formed part of a property development group (J[95]).
The second of Ms Karam's opinions is that it was reasonable for Runtong to enter into the CEG Direct Mortgage, in the circumstances as they existed at the time of the execution of the CEG Direct Mortgage, taking into account the adequacy of existing securities, requests for further advances and contemplation of further advances.
The primary judge rejected this evidence on the bases that: (1) Ms Karam's opinion was based in part on her conclusion that Runtong was part of a "property development group" (J[105] to [107] and [111]) with Datong and Futong, which his Honour did not accept; (2) Ms Karam impermissibly relied upon the July 2016 document to establish Runtong's circumstances at the time it granted the CEG Direct Mortgage (J [97]); and (3) Ms Karam conceded that as she did not hold the financial records of Runtong as of 12 December 2014 nor any internal memos recording Runtong's decision to grant the CEG direct mortgage, she was unable to comment on the totality of Runtong's circumstances at the time of the transaction and it did not form part of her analysis (J[109]).
The third of Ms Karam's opinions is that CEG acted in respect of the CEG Direct Mortgage and subsequent advances in accordance with reasonably accepted lending practices for a similar lender, taking into account that the security over the Land was second ranking security. The primary judge rejected this opinion on the basis that it was irrelevant (J[112] to [114]).
The primary judge then noted that:

[211]

(1) the handwritten note ([266(1)] above) which contained "Datong Funds to commence U2 $60 m", from which CEG invited the primary judge to infer that the U2 development must have been the subject of some discussion. The primary judge acknowledged that the note was evidence that the topic had been discussed, but found that nothing could be taken from it. In particular, no inference could be drawn as to Runtong's need for funding as at 12 December 2014 (J[129]);

(2) the Loan Request ([263] above), which referred to a "Loan Purpose" as construction funding over an 18 month period and identified the Land as one of the securities; recorded the proposed exit strategy as overseas funding from China and the sale of assets; and noted that the Loan Request was associated with two prior loans totalling at that stage $9,110,715.07 (J[131]). The primary judge found that other than the reference to overseas funding from China there was no evidence that funding occurred, was to occur, or was the subject of confirmed funding. The primary judge was not prepared to infer that there was sufficient background funding to justify Runtong entering into the CEG Direct Mortgage (J[132]); and

(3) the Loan Summary ([266(2)] above). The primary judge noted that the Loan Summary recorded that the purpose of the $6 million loan as being "To cover prelim marketing, Display suite, GST Aria & General cashflow. $4 m-17/12/201 (sic 2014), $2 m-5/1/2015" (J[133]). The primary judge recorded that he had been invited to infer - despite there being a reference to "GST, Aria" and a reference to "display suite" in the Loan Summary - that because of the subject line in what appears to be a CEG internal email sent on 11 July 2019 forwarding an email dated 12 December 2014 from Ping Huang to "Jim" attaching a "licence agreement regarding U2 disply (sic)" ([270] above) that one of the reasons Runtong gave security was that a display suite was to be constructed for the purpose of selling the apartments to be constructed on the U2 development (J[134]). The primary judge was not prepared to draw that inference as the licence agreement was incomplete and unexecuted; and because the land the subject of the licence agreement was different land to that owned by Runtong (J[135]).

[219]

CEG challenges the primary judge's finding that it may be expected that a reasonable person in Runtong's circumstances would not have entered into the CEG Direct Mortgage. The essence of this challenge is that: (1) in determining whether s 588FDA(1)(c) was satisfied the primary judge was required to consider all of Runtong's relevant circumstances and all other relevant matters; (2) the primary judge did not do so; (3) the evidence before the Court, when considered as a whole, does not allow the Court to be satisfied that s 588FDA(1)(c) has been met; and (4) such evidence supports the conclusion that it may be expected that a reasonable person in Runtong's circumstances would have granted the CEG Direct Mortgage.
The liquidator, as the party seeking to prove that the CEG Direct Mortgage is an unreasonable director-related transaction bore the onus of proving the negative proposition that it may be expected that a reasonable person in Runtong's circumstances would not have granted the CEG Direct Mortgage.
The statutory task set by s 588FDA(1)(c) requires identification of the circumstances of the company in question and consideration of what a reasonable person in such circumstances may be expected not to do with respect to the impugned transaction. As the primary judge noted, a company's circumstances "encompass all relevant matters, starting with its status as a company and what flows from that; its controllers, shareholders, business and other activities; and the facts and circumstances of, and surrounding, the transaction": Weaver v Harburn [2014] WASCA 227; (2014) 103 ACSR 416 at 429 [92] (McLure P, Buss and Murphy JJA agreeing).
Each of s 588FDA(1)(c)(i) to (iii) is a mandatory consideration in the requisite evaluative assessment: Weaver at 429 [92].
The manner in which the impugned transaction is defined in a pleading which alleges that it is an unreasonable director-related transaction may affect the scope of the questions for determination under s 588FDA(1)(c)(i) to (iii). For example, the narrower the formulation of the impugned transaction, the narrower the likely range of benefits and detriments to the company from its entry into that transaction. However, the manner in which a particular transaction is pleaded cannot operate to diminish the scope of the inquiry required by s 588FDA as a whole when s 588FDA(1)(c)(iv) compels consideration of "any other relevant matter". This is an expression of the widest import.
The inquiry under s 588FDA(1)(c) is concerned with the reasonableness of the company's conduct, objectively assessed by reference to the company's circumstances and encompassing all relevant matters: Tosich Construction Pty Ltd (in liq) v Tosich [1997] FCA 979; (1997) 78 FCR 363 at 366 to 367 (Burchett, Foster and North JJ); Capital Finance Australia Ltd v Tolcher [2007] FCAFC 185; (2007) 164 FCR 83 at 109 [129] (Gordon J, Heerey J agreeing); Crowe‑Maxwell v Frost [2016] NSWCA 46; (2016) 91 NSWLR 414 at 427 [70] (Beazley P, Macfarlan and Gleeson JJA); Smith v Starke, in the matter of Action Paintball Games Pty Ltd (in liq) (No 2) [2015] FCA 1119; (2015) 109 ACSR 145 at 162 ([104] to [105] and [107]) (Gleeson J); Weaver at 428 to 429 [91].
The task on this appeal is to conduct a real review of the evidence that was before the primary judge and of the primary judgment to determine whether the primary judge has erred in fact or law: Lee v Lee [2019] HCA 28; (2019) 266 CLR 129 at 148 to 149 [55] (Bell, Gageler, Nettle and Edelman JJ). In view of the nature of the evidence before the primary judge, this Court is in as good a position as the primary judge to consider what inferences, if any, ought be drawn from the basal facts: Warren v Coombes [1979] HCA 9; (1979) 142 CLR 531, a proposition with which senior counsel for the liquidator agreed.
A striking feature of this case is the deficiency in the evidence before the primary judge as to Runtong's circumstances as at the time that it granted the CEG Direct Mortgage, and the evidence of other relevant matters.
The evidence before the primary judge comprised principally:

[222]

(1) "I pause to note that how Datong and Futong could covenant with CEG for Runtong to grant the CEG Direct Mortgage as security for their borrowings in circumstances where apart from the Directors there were other directors of Runtong has not been explained." (J[59]);

(2) "None of the directors of Datong, Futong and Runtong gave evidence" (J[95]);

(3) "The paucity of the evidence presented as to any relationship between the three companies, whatever that may have been, including happenstance, in circumstances where there were a number of other directors who were not directors of Runtong and a number of different shareholders both beneficial and otherwise, does not allow such an inference to be drawn." (J[95]);

(4) "... the evidence falls far short of establishing that Runtong, Datong and/or Futong are part of a 'property development group'" (J[107]);

(5) "...Ms Karam concluded that as she did not hold the financial records of Runtong as of 12 December 2014 nor any internal memos recording Runtong's decision to grant the CEG direct mortgage, she was unable to comment on the totality of Runtong's circumstances at the time of the transaction and it did not form part of her analysis." (J[109]):

(6) _"_There is no evidence that Runtong had requested the advance of any money at the time the CEG Direct Mortgage was granted." (J[116]);

(7) "... the facts and circumstances of and surrounding the transaction, such as I have been able to ascertain them ..." (J[125]);

(8) "The evidence in this matter is incomplete and lacking in a number of important respects." (J[126]);

(9) "There is no direct evidence of any imperative for Runtong to grant the CEG Direct Mortgage." (J[127]);

(10) "... no evidence was called from either of the Directors or any other of Runtong's directors. As I understand it, those individuals are no longer in Australia but there is no evidence as to any attempt by CEG to have any of Runtong's directors give evidence in person or otherwise"(J[128]);

(11) "Other than the reference to overseas funding from China there is no evidence that funding occurred, was to occur or was the subject of confirmed funding." (J[132]);

(12) "The purpose behind the advance of $6 million has not been explained." (J[136]);

(13) "There is no evidence to suggest it was to Runtong's benefit to encumber the Land by granting the CEG Direct Mortgage whether for cash flow purposes or otherwise. Further, there was no suggestion any money was actually advanced to Runtong until October 2015." (J[137]);

(14) "Overall, the evidence does not reveal any adequate commercial explanation for the Transaction, nor does it reveal any benefit to Runtong as at 12 December 2014." (J[138]);

(15) "... there was no evidence of any intention by Datong or Futong to obtain further advances ..." (J[144]); and

(16) "As I have noted, the evidence in this matter is imprecise and unsatisfactory in a number of important respects." (J[172]).

[224]

That passage has been endorsed and followed numerous times in appellate courts in this country. Recent examples include GLJ v Trustees of Roman Catholic Church for Diocese of Lismore [2023] HCA 32; (2023) 97 ALJR 857 at 875 [58] (Kiefel CJ, Gageler, and Jagot JJ); Frigger v Trenfield (No 3) [2023] FCAFC 49 at [314] (Allsop CJ, Anderson and Feutrill JJ), citing Coshott v Prentice [2014] FCAFC 88; (2014) 221 FCR 450 at 468 to 469 ([80] to [82]) (Siopis, Katzmann and Perry JJ); and Capitalink Pty Ltd v Withnall [2024] NSWCA 172 at [60] (Bell CJ) and [86] (Leeming JA).
Also relevant to the question of whether the liquidator has discharged his onus is the nature of the statutory task set by s 588FDA(1)(c) of the Act. As noted above, that sub-section requires the Court to consider whether it may be expected that a reasonable person in the company's circumstances would not have entered into the impugned transaction. This requires identification of the company's circumstances and then consideration of whether the Court is satisfied that it may be expected that a reasonable person in such circumstances would have not entered into the impugned transaction. The two questions identified by Hodgson JA in Ho v Powell must be borne in mind when making this assessment.
I am not satisfied that the evidence adduced before the primary judge, considered in its entirety, provides a satisfactory or sufficient basis from which to reach a conclusion as to what Runtong's circumstances were when it granted the CEG Direct Mortgage, much less a conclusion that a reasonable person in such circumstances would not have granted that mortgage. I have reached that conclusion for the following reasons.
First, as noted above, Runtong's circumstances encompass all relevant matters, starting with its status as a company and what flows from that; its controllers, shareholders, business and other activities; and the facts and circumstances of, and surrounding, the transaction. Similarly, "any other relevant matter" is, as also noted above, an expression of the widest import.
Secondly, the evidence of Runtong's circumstances and of other relevant matters is slender and inadequate. There is no evidence from any person associated with Runtong, Datong or Futong. There is also no evidence of business records (including financial statements or minutes) held by Runtong, Datong or Futong. Nor is there an explanation from the liquidator as to why such evidence was not adduced. By way of illustration only, there is no evidence of the existence (or absence) of:

[228]

I make no finding of the kind urged by CEG, to the effect that it may be expected that a reasonable person in Runtong's circumstances would have granted the CEG Direct Mortgage ([318(4)] above). For the reasons explained above, there is insufficient evidence to allow such a finding to be made. Critically, the matters described at [335] above demonstrate that - even on the slender and inadequate evidence that was adduced - a state of satisfaction that a reasonable person in Runtong's circumstances would not have granted the CEG Direct Mortgage cannot be reached.
Finally, this is not a case in which it can be said that CEG bore any (legal or) evidentiary onus.
Where a party who bears the legal onus of proving a negative proposition produces sufficient evidence from which the negative proposition may be inferred, the evidentiary onus shifts to the other party to adduce evidence that tends to show that the negative proposition is not true: see Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd [2008] NSWCA 39 at [78] (Campbell JA; McColl JA and Handley AJA agreeing); Ellis v Central Land Council [2019] FCAFC 1; (2019) 267 FCR 339 at 385 [126(f)] (Barker, Griffiths and White JJ). In Crowe-Maxwell, at 428 [74] Beazley P noted the similarities between s 588FDA and s 588FB of the Act (which concerns uncommercial transactions but which is expressed in similar terms to s 588FDA(1)(c) and thus requires proof of the negative proposition that a reasonable person would not have entered the transaction). At 432 [89] to [91], her Honour explained:
1. A common thread in the uncommercial transaction cases is that, where there is limited evidence of the nature or purpose of a transaction, but the surrounding circumstances show it to be a departure from normal commercial practice and to raise inferences as to a lack of benefit to the company, detriment caused to the company, or benefit accruing to other parties, absent some commercial explanation, courts may infer the transaction was uncommercial, without requiring the liquidator to prove its precise uncommercial nature. The same may be said with respect to the identification of unreasonable director-related transactions.
2. In those limited circumstances, for practical purposes, a defendant may be said to bear an "onus", sometimes referred to as an evidentiary onus, of raising some commercial explanation for the transaction. Thus, in Hawksford v Hawksford (2005) 191 FLR 173; [2005] NSWSC 463 Campbell J explained, at [54]: