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[2004] FCAFC 191
Federal Court of Australia (Full Court)
2004-07-30
Lander JJ
Original judgment source is linked above.
introduction 160 This appeal concerns two declarations made by Sackville J on 24 October 2003, and consequential orders which his Honour made on the same date. 161 His Honour set out his reasons for the declarations and orders in judgments given on 5 December 2002, Prentice v Cummins (No 5) [2002] FCA 1503 (Cummins (No 5)) and on 24 September 2003, Prentice v Cummins (No 6) [2003] FCA 1002 (Cummins (No 6)). 162 When the respondent had closed its evidence the appellants made a no case submission in relation to three of the respondent's pleaded claims. Two of the claims involved the transfer in August 1987, by the bankrupt ("Cummins") of the following property: (a) an interest in the matrimonial home at Alexandra Street, Hunters Hill to his wife ("Mrs Cummins") who is the first appellant; and (b) 6,000 shares in Counsel's Chambers Ltd to his family company, Aymcopic Pty Limited ("Aymcopic"), which is the second appellant. 163 His Honour only permitted the no case submission to be made on these transfers on the basis that the appellants elected to call no evidence: see Prentice v Cummins (No 4) [2002] FCA 1215. The appellants pressed their no case applications on that basis. 164 His Honour upheld the appellants' no case application in respect of the claim that the transfer of Alexandra Street was void against the Trustee in Bankruptcy pursuant to s 120 of the Bankruptcy Act 1966 (Cth) ("the Act"). However, his Honour dismissed the no case application in respect of the claim by the respondent that the transfer of the Alexandra Street property and the shares in Counsel's Chambers Ltd were void by reason of s 121 of the Act. His Honour's reasons are set out in Cummins (No 5). 165 In dismissing the appellants' no case submissions, his Honour held that the role of a judge sitting alone hearing a no case submission was to determine, not whether there was some evidence that could be the basis of proceeding to a jury, but whether the applicant had discharged its burden of proof. This approach is not challenged. The appellants challenge a number of findings by his Honour which are set out in the written submissions as follows: (a) that Cummins was well aware in August 1987 that he had incurred very substantial liabilities to the Commissioner of Taxation ("the Commissioner"), contingent only on the Commissioner issuing assessments in respect of past income years; (b) that Cummins was well aware in August 1987 that the Commissioner would issue assessments once Cummins' longstanding tax delinquency became known, and that this was an event which could occur at any time. The reference to "tax delinquency" is to the failure by Cummins to file any income tax returns over a period of forty-five years; (c) that Cummins divested himself voluntarily of virtually all of his substantial assets in August 1987; (d) that in any event, the assets retained by Cummins were not sufficient to meet his taxation liabilities if the Commissioner decided to issue assessments; and (e) that Cummins, at the time of transfers, intended to protect his assets from any claims by the Commissioner. 166 Essentially the appellants make the following two submissions regarding Cummins' main purpose in making the August 1987 transfers: (a) the evidence did not permit a finding as to what Cummins' main purpose was in implementing the transfers, or whether he was insolvent at that time; and alternatively, (b) that on the whole of the evidence, there were other inferences which were more likely, or at least as likely, as the inferences his Honour drew as to those matters.
background 167 This background is substantially taken from the two judgments of the primary judge referred to in paragraph [161] above. 168 Cummins and Mrs Cummins were married in 1964 and at all material times up to their separation in February 2002, lived together as husband and wife. Cummins was admitted as a solicitor of the Supreme Court of New South Wales in 1957. In 1961 he was admitted as a barrister of that court and practised as a barrister thereafter. He was appointed Queen's Counsel in December 1980. 169 In 1962 Mrs Cummins inherited an amount of approximately Ł13,000 from her mother's estate. Before the relevant transactions in August 1987, Cummins and Mrs Cummins had bought or sold a number of properties as follows:
CUMMINS' 1992-1999 tax returns 183 The tax returns constructed and filed retrospectively on behalf of Cummins by his accountant, Mr Morelli, for the eight financial years 1992-1999, show the following gross receipts and net income from his business or professional activities:
Year ended Gross Receipts Net Business Income 30 June $ $ 1992 335,425 181,026 1993 337,294 208,277 1994 299,664 188,859 1995 377,300 239,426 1996 191,909 89,679 1997 261,379 151,756 1998 350,625 264,051 1999 520,525 397,050 184 Not all the gross receipts were derived from Cummins' practice as a barrister, but Sackville J concluded that the great bulk were derived from that source. For example, the deposits for the 1992 tax year show that of the $335,425 recorded as gross receipts, the sum of $325,032 constituted fees received by Cummins. 185 None of the returns disclose the sale or disposal of any substantial assets during the period 1992 to 1999. The details of income and expenditure suggest that throughout the eight year period Cummins owned a motor vehicle and had a small share portfolio. The returns do not indicate that Cummins derived any substantial income from a source other than his practice as a barrister. This picture is not changed by the 2000 return, which covered an earning period after Cummins had finally recognised the need to lodge at least some income tax returns. Cummins presented a petition for his bankruptcy on 13 December 2000. On 16 March 2001, Mr Maxwell Prentice was appointed as trustee of his estate. 186 Cummins' Statement of Affairs as at 30 January 2001 disclosed that his assets totalled $259,614 and his liabilities to unsecured creditors totalled $1,040,400. His principal assets were the units in the Parramatta Unit Trust ($100,000), a motor vehicle (sold for $51,750) and shares (sold for approximately $42,000). 187 Mrs Cummins gave evidence on the hearing that she and Cummins separated in February 2002, largely in consequence of the events leading up to her husband's bankruptcy. Mrs Cummins' evidence was to the effect that her marriage to Cummins had broken down before the first hearing of the matter. 188 The evidence is that Mrs Cummins filed a number of tax returns over the period 1965 and 1987 showing amounts of taxable income ranging between $950 through to $17,140.
Appellants' submissions 189 The alleged errors relied on by the appellants can be summarised as follows: (a) His Honour could not and should not have reached the conclusions and drawn the inferences that he made as to: (i) the non-payment of the deposit by Mrs Cummins; (ii) the respective entitlements of the interests in the transferred property as at the date of the transfers by Cummins in August 1987; (iii) the existence of an intention to hinder or delay creditors in relation to the August 1987 transfers; (iv) the effect of the failure of the appellants to adduce evidence as to the August 1987 transfers in order to reach the conclusion that there was the necessary intent within s 121(1) of the Act; (v) the earnings of Cummins between 1965 and the time of the transfers in August 1987; (vi) the inferences drawn as to the likely source of the purchase price in respect of the purchase of Counsel's Chambers Ltd by Cummins; (vii)the importance of the tax returns prepared retrospectively by Mr Morelli for the income years 1992-1999. (b) His Honour erred in making the inferences when other more probable or possible inferences were available on the evidence. This includes the source of funds used to purchase Counsel's Chambers Ltd. In particular, it is said that the inference drawn by his Honour that the source of the funds to purchase 6,000 shares in Counsel's Chambers Ltd was from Cummins' income as a barrister was not open, because there was no evidence as to Cummins' income or financial position in the period before the purchase.
Purchase price contribution 190 The primary judge accepted that Mrs Cummins paid an amount of $13,053.27 towards the purchase price of Alexandra Street from her own funds, and that she was jointly liable for one half of the $15,000 borrowed for the purchase price from the Commonwealth Trading Bank. His Honour was not satisfied that she paid the deposit, and therefore concluded that she had contributed only 65.8% of the purchase price for the Alexandra Street property, and not 76.3%. as she contended. 191 In reaching this conclusion, his Honour accepted that the required deposit was probably $3,100, being 10% of the purchase price in accordance with usual conveyancing practice. His Honour saw the difficulty in Mrs Cummins' contention that she had paid the deposit as being the fact that the debit in her bank loan account for $3000 was made on 30 April 1970, which was 16 days after the date of the Contract for Sale. His Honour had regard to the practice that deposits in contracts for the sale of land are ordinarily paid on the date of contract. His Honour considered that possible explanations for the 16 day period could be delayed presentation of the deposit cheque or a preliminary deposit of $100. But his Honour considered that these explanations on behalf of Mrs Cummins were speculative. 192 His Honour considered that he could not make an affirmative finding as to whether or not Mrs Cummins or a third party paid most or all of the deposit. I note that there is no evidence whatsoever that any third party had any reason to pay the deposit. In view of the fact that $3,000 was debited to the account of Mrs Cummins shortly after the date of the contract, and because his Honour found that the balance purchase price was paid from Mrs Cummins' funds and out of the same bank account, I consider the correct inference to be drawn on this question is that Mrs Cummins paid the deposit. It is well-settled in circumstances such as the present that an appeal court can substitute what it considers to be the correct inference for that drawn by the primary judge: see Warren v Coombes (1979) 142 CLR 531 at 551. 193 The evidence is that in April 1970, Mrs Cummins opened a loan account with Commonwealth Trading Bank at Liverpool. On 14 April Cummins and Mrs Cummins signed a contract to purchase Alexandra Street. On 30 April there was a miscellaneous debit of $3,000 recorded in Mrs Cummins' account. The receipt is not in evidence, but on 24 July 1970 Mrs Cummins paid $13,053.27 towards the purchase from the same bank account, which amount his Honour found to have been paid out of her funds. 194 In July 1970, Cummins and Mrs Cummins opened a Commonwealth Trading Bank Loan account, and on 27 July 1970 that Bank lent $15,000 for the purchase of Alexandra Street by way of the fully drawn joint loan account. 195 On this evidence I consider the proper and more probable inference is that Mrs Cummins paid the deposit from her own monies, notwithstanding the delay of 16 days and the difference of $100, which was probably part deposit. I consider that it would be most unusual if she were prepared to pay $13,053 from the same account and not to have paid the $3,000 which was an almost identical amount to the deposit customarily paid on entry into a binding contract. Accordingly, in my view, his Honour erred in relation to this matter and the proper finding should be that she paid the deposit from her own monies.
RESULTING TRUST 196 The primary judge concluded that given the unequal contributions of the parties there was a presumption of a resulting trust with the consequence that Cummins and Mrs Cummins each had an unequal interest in the Alexandra Street property in accordance with their contributions. In reaching this conclusion, his Honour adopted the formulation of the principle as to a resulting trust expressed by Mason and Brennan JJ in Calverley v Green (1984) 155 CLR 242, ("Calverley") at 258, which was in the following terms: "… When two or more purchasers contribute to the purchase of property and the property is conveyed to them as joint tenants the equitable presumption is that they hold the legal estate in trust for themselves as tenants in common in shares proportionate to their contribution unless their contributions are equal. ..." 197 The primary judge considered that the presumption of resulting trust based on the contributions had been rebutted, because as at the date of transfer the interests of the parties were to be adjusted on the basis that each had one equal half share beneficial in the property. In reaching this conclusion, his Honour referred to the remarks of Lord Upjohn in Pettitt v Pettitt [1970] AC 777 ("Pettitt") at 815, which addresses property held in the names of husband and wife: "… where both spouses contribute to the acquisition of a property, then my own view (of course in the absence of evidence) is that they intended to be joint beneficial owners and this is so whether the purchase be in the joint names or in the name of one. This is the result of an application of the presumption of resulting trust. Even if the property be put in the sole name of the wife, I would not myself treat that as a circumstance of evidence enabling the wife to claim an advancement to her, for it is against all the probabilities of the case unless the husband's contribution is very small." 198 These observations of Lord Upjohn were referred to by Mason and Brennan JJ in Calverley at 259 in these terms: "In some instances, the drawing of such an inference might work to the disadvantage of a wife who holds a legal interest in property greater than a joint tenancy and who would otherwise be entitled to rely upon the presumption of advancement to assert as large a beneficial interest as the legal interest which she holds. It is not necessary now to consider whether the founding of a joint beneficial tenancy in husband and wife upon their inferred intention 'is the result of an application of the presumption of resulting trust.'" 199 Statements are made to similar effect, with respect to the decision in Pettitt, by the editors of Lewin on Trusts 17th ed (2000) at 9-57 and 9-61. See also the judgment of Kerr LJ in Bernard v Josephs (1982) 1 Ch. 391 at 408. 200 The primary judge concluded from these remarks in Calverley that their Honours understood Lord Upjohn to contemplate that where both spouses contribute to the acquisition of a property, and place it in joint names, they may be equal beneficial owners in equity, notwithstanding the effect that their contributions are unequal. His Honour the primary judge said at paragraph [56] of Cummins (No 6): "Mason and Brennan JJ appear to have understood Lord Upjohn to contemplate that where both spouses contribute to the acquisition of property and place it in joint names, they may become equal beneficial owners in equity notwithstanding that their contributions are unequal. In particular, by referring to the presumption of a resulting trust as perhaps being 'qualified' by Lord Upjohn's inference, their Honours seem to accept as a plausible view (without committing themselves) that if both parties contribute to the acquisition of an asset they may be equal joint beneficial owners even if the wife contributes a greater proportion of the purchase price than the husband." 201 His Honour also cited at paragraph [57], the remarks of Deane J in Calverley: "The weight to be given to a presumption of a resulting trust in the resolution of what is essentially an issue of fact may vary in accordance with changing community attitudes and with the contemporary strength or weakness of the rationale of the rule embodying the presumption: see, e.g., Snell's Principles of Equity, 28th ed. (1982), p. 183 and the case there cited, and per Mahoney J., Doohan v. Nelson [1973] 2 NSWLR 320, at 325-326. …" 202 In Doohan v Nelson at 325-326 Mahoney J accepted that the strength of the presumption of a resulting trust and of the evidence required to rebut it will be less where the interests are in the matrimonial home of the parties. 203 In Vedejs v Public Trustee (1985) VR 569 ("Vedejs"), Nicholson J held that there was at the time of the acquisition of a property by a deceased and his common law wife an implied common intention that the property should be acquired on the joint behalf of the plaintiff and the deceased. At 573 his Honour said: "… I am satisfied on the evidence that there was at the time of the acquisition of the property a common intention that the property should be acquired on their joint behalf. There was no evidence of an expressed statement to this effect but I find that it can readily be implied from what occurred. … the house was obviously acquired for the purpose of their relationship so that they might live together and for no other purpose, and the fact that they both contributed their savings to the purchase are to my mind strongly indicative of a common intention expressed at the time of acquisition of the property that the house should become a jointly acquired asset held equally by them." 204 The primary judge considered that the above dicta indicated that the presumption of a resulting trust might be rebutted by relatively slight evidence in circumstances where the parties to a marriage have made substantial even if unequal contributions to the acquisition of a property; where the property is intended to be used as the matrimonial home; and where the property is placed in the joint names of the parties. 205 His Honour said at [65] of Cummins (No 6): "In the present case, there is no occasion to consider all the circumstances in which the presumption of a resulting trust might be less difficult to rebut than is ordinarily the case. It is enough to say that although the circumstances of this case attract the presumption, it can be rebutted by slighter evidence than might ordinarily be required of a common intention that the parties should be joint beneficial owners of the property."
206 His Honour in reaching his conclusion referred to a number of factors. The first was that Cummins and Mrs Cummins had been married for six years at the time of the purchase of Alexandra Street, and that at the time of purchase both were committed to the matrimonial relationship. Second, that Alexandra Street was the matrimonial home. Third, that Alexandra Street was not the first property acquired by the parties jointly or as a matrimonial home. The parties had acquired a property at Linley Point in 1965, and one in Ferdinand Street, Hunters Hill in 1967, and the parties were registered as joint proprietors on both properties. Fourth, the Linley Point property was acquired and financed by a mortgage loan of Ł7,000 secured on that property, and both Cummins and Mrs Cummins were mortgagors. That property was sold in December 1967 for $22,600 and the sum was paid to them. Fifth, in October 1967, Cummins and Mrs Cummins were registered as joint proprietors of 12A Ferdinand Street, Hunters Hill as a result of a sub-division of a property originally acquired by them as tenants in common with a third person in January 1967, and the original purchase of this property was arranged by a mortgage loan of $46,000, which was executed by all three tenants in common as mortgagors. The property at 12A Ferdinand Street was later sold by Cummins and Mrs Cummins in December 1971 for $58,500, and an amount of $45,064.15 was paid into a joint account of Cummins and Mrs Cummins, which was a fully drawn loan account. His Honour inferred that it was likely that the net proceeds of sale were paid to the parties jointly. His Honour noted, having regard to these transactions, that Alexandra Street was not a one-off occurrence. This was the third occasion on which Mrs Cummins was registered as co-owner with her husband. His Honour inferred that solicitors in the various transactions had, in the ordinary course, explained to her the significance of joint ownership. His Honour concluded that in 1970 it was more likely than not that Mrs Cummins understood the concept of a joint tenancy and the notion of survivorship attaching to it.
207 His Honour considered that the conduct of Mrs Cummins in 1987, in the absence of any explanation, was an acknowledgement that she regarded Alexandra Street as beneficially jointly owned by Cummins. He attached importance to the fact that Mrs Cummins agreed to pay one-half the appraised value of Alexandra Street for Cummins' interest, and that this suggested she regarded him as having a joint equal beneficial interest in the property. His Honour had regard to the fact that stamp duty was paid by her on the contract price on the basis of the transfer of a half interest. The fact that the purchase price was not ultimately paid, and perhaps was never intended to be paid, was not, in his Honour's view, to the point. The transaction was not a "sham". The transfer of the interest was effective and was registered. His Honour considered that the transfer was structured on the basis, and in such a way that acknowledged, that Cummins had a joint beneficial interest. He inferred, in the absence of evidence from her on this aspect, that Mrs Cummins understood that the transaction was structured in this way and was content for it to be so structured. A solicitor acted on the transfer of the assets. His Honour considered that he was entitled to take account of what occurred in 1987 when determining the common intention of the parties as to beneficial ownership of Alexandra Street in 1970. 208 In evaluating these matters his Honour considered that when all of them were taken into account, they justified the conclusion that the common intention in April 1970 was to acquire Alexandra Street as joint beneficial owners in equal shares, and that therefore, the presumption of resulting trust in unequal shares was rebutted. His Honour was supported in this conclusion by the fact that no evidence was given by Cummins or Mrs Cummins in relation to Alexandra Street, and he therefore more confidently drew the inference from the material and had to regard to the principles set out by Handley JA in Commercial Union Assurance Company of Australia Limited v Ferrcom Pty Limited (1991) 22 NSWLR 389 at 418, which concerned a failure to lead evidence from a witness on a central issue. In this case, although some evidence was elicited from Mrs Cummins, no evidence was led from her as to the intention of the parties on the acquisition of Alexandra Street. 209 Counsel for the appellants submits that no authority cited by the primary judge has expressly followed the statements of Lord Upjohn in Pettitt, with the exception of Vedejs referred to by his Honour and that these statements had no bearing on this case. 210 Counsel for the appellants referred to a decision of the Full Federal Court in Official Trustee in Bankruptcy v Lopatinsky (2003) 129 FCR 234. In that case, the Court concluded that there was nothing in the evidence which was capable of giving rise to a suggestion that Mrs Lopatinsky intended to make a gift to her husband of a payment by her and pointed out that there was no presumption of advancement in favour of her husband. At 252 the Court said: "We do not accept the Trustee's submission that the equitable presumption was rebutted by certain concessions made by Mrs Lopatinsky in cross-examination as to her understanding of the nature of the joint tenancy and her intention that the Peakhurst property was to pass by survivorship. In our view, this evidence established, at most, that Mrs Lopatinsky intended the legal interest in the property be held by the parties as joint tenants." (Emphasis added) 211 The decision in that case accepted that the presumption could be rebutted. However, the case turned on its own facts. The court did not decide the quantum of the interest of the parties and remitted the matter to the primary judge for reconsideration. The question whether an equitable presumption has been rebutted is a question of degree. In my view, Lopatinsky does not provide support for the proposition that the principles adopted by his Honour were erroneous or misapplied. 212 In relation to the property transactions referred to by his Honour, counsel for the appellants has pointed out that the property in Ferdinand Street was acquired as tenants in common with a third person, namely Mr Howarth, and submits that there is no evidence that either Linley Point or Ferdinand Street, were intended to be the matrimonial home. This is simply not correct. The tax returns of Mrs Cummins for 1965 and 1966 show Linley Point as her residential address and refer to Cummins as her husband. Her occupation is stated to be "Home Duties". Her tax returns for 1968 and 1970 show her residential address as 12 or 12A Ferdinand Street and again refer to her husband. It should also be recalled that when purchased, the property at Alexandra Street was vacant land. It did not immediately become the matrimonial home. 213 In my view, the cumulative weight of the factors referred to by his Honour provide adequate support for his Honour's inference of equality of interests. I can see no error in his Honour's reasoning or statement of principle in relation the rebuttal of the resulting trust in favour of the intention at the time of acquisition being that the parties should have equal beneficial interests.
MAIN PURPOSE 214 The issue is whether his Honour erred in finding that Cummins' main purpose in transferring Alexandra Street was to prevent that property becoming divisible among his creditors, or to hinder or delay the process of making that property available for division among his creditors. 215 The submissions for the appellants analyse in detail each of the circumstances relied on by his Honour to determine the intention of Cummins in an attempt to demonstrate that, on the whole of the evidence, there were other equally or more likely inferences to be drawn than those made by his Honour. 216 In support of the submission concerning the purpose of the August 1987 transfers, counsel for the appellants submits that the litigation concerning barristers in-court immunity that was ultimately decided by the litigant on 13 October 1988 in Giannarelli v Wraith (1988) 165 CLR 543 ("the Giannarelli litigation") explained the reasons for the transfers, and that his Honour erred in not accepting that submission. This is said to be at least an equally plausible hypothesis for the transfer of the assets which was equally open, or indeed more likely, because Cummins wanted to protect his assets from risk of suit by a client. 217 This argument was rejected by his Honour after careful analysis of the time scale of the litigation at first instance in the Full Court of the Supreme Court Victoria and in the High Court: see Cummins (No 5) at [56]-[61]. 218 It would be most unusual to take the significant decision to commit to a divesting of major assets before the decision of the High Court on a special leave application, when that decision may have brought an end to the question of barristers in-court immunity by refusal of leave. At the time when the steps were taken to effect the transfer of assets by Cummins, the decision of the Victorian Full Court, following a well settled line of authority, was in effect a unanimous decision rejecting the proposition that barristers did not have in-court immunity. In my view, the likelihood is that the existence of the Giannarelli litigation focussed the attention of Cummins on the need to protect his assets from pursuit by the Commissioner in the light of his decisions over the preceding forty-five years not to lodge any tax returns. 219 I am not persuaded that there was any error in his Honour's analysis and treatment of submissions based on the Giannarelli litigation, particularly as no evidence was adduced from Cummins or Mrs Cummins as to the purpose of the August 1987 transfers. I now turn to the principles relating to the failure to call evidence from an important available witness. 220 Judges do not leave common sense and experience outside the door when they enter the courtroom. Nor do they prefer speculative hypotheses as opposed to making available inferences arising from the circumstances where a key witness who could testify to those matters is not called by the party who advances the hypothetical alternative. As Rich J notes in Insurance Commissioner v Joyce (1948) 77 CLR 39 at 49: "… when circumstances are proved indicating a conclusion and the only party who can give direct evidence of the matters prefers the well of the court to the witness box a court is entitled to be bold … All sorts of hypotheses may be suggested … But this is not a criminal case in which we are called upon to allow our imagination to play upon the facts and find reasonable hypotheses consistent with innocence. A balance of probability is enough. And when the greater probability is that both had enough consciousness to be aware of what they had been doing, although not enough judgment and discretion to drive, why should a judge hesitate to find accordingly against a plaintiff who gives no evidence." (Emphasis added) 221 A similar approach was adopted by Lord Diplock in British Railways Board v Herrington [1972] AC 877 at 930-931 as follows: "The appellants, who are a public corporation, elected to call no witnesses, thus depriving the court of any positive evidence as to whether the condition of the fence and the adjacent terrain had been noticed by any particular servant of theirs … This is a legitimate tactical move under our adversarial system of litigation. But a defendant who adopts it cannot complain if the court draws from the facts which have been disclosed all reasonable inferences as to what are the facts which the defendant has chosen to withhold. … Anyone of common sense would realise the danger that the state of the fence so close to the live rail created for little children coming to the meadow to play … A court is accordingly entitled to infer from the inaction of the appellants that one or more of their employees decided to allow the risk to continue of some child crossing the boundary and being injured or killed …" 222 These words concerning litigious strategy and common sense are apposite to the present case. 223 In Holloway v McFeeters (1956) 94 CLR 470 at 480-481, Williams, Webb and Taylor JJ, in referring to the drawing of inferences in the absence of an explanation, said: "Inferences from actual facts that are proved are just as much part of the evidence as those facts themselves. In a civil cause, 'you need only circumstances raising a more probable inference in favour of what is alleged … where direct proof is not available it is enough if the circumstances appearing in evidence give rise to a reasonable and definite inference; they must do more than give rise to conflicting inferences of equal degree of probability so that the choice between them is a mere matter of conjecture: see per Lord Robson, Richard Evans & Co Ltd v Astley (1911) AC 674, at p 687 … All that is necessary is that according to the course of common experience the more probable inference from the circumstances that sufficiently appear by evidence or admission, left unexplained, should be that the injury arose from the defendant's negligence. By more probable is meant no more than that upon a balance of probabilities such an inference might reasonably be considered to have some greater degree of likelihood.'" (Emphasis added) 224 In the House of Lords decision in Murray v Director of Public Prosecutions [1994] 1 WLR 1 at 11-12, Lord Slynn, in his speech giving reasons that were concurred in by other members observed: "There must be thus some basis derived from circumstances which justify the inference. If there is no prima facie case shown by the prosecution there is no case to answer. Equally, if parts of the prosecution case had so little evidential value that they called for no answer, a failure to deal with those specific matters cannot justify an inference of guilt. On the other hand, if aspects of the evidence taken alone or in combination with other facts clearly call for an explanation which the accused ought to be in a position to give, if an explanation exists, then a failure to give any explanation may as a matter of common sense allow the drawing of an inference that there is no explanation and that the accused is guilty. In the present case, if the only evidence relied on was that relating to fibres in the hair, on the clothing and in the car, it might well not be enough to justify an inference that the defendant was guilty beyond a reasonable doubt. The cartridge residue on the jeans, the thumb print on the mirror and the mud on the trousers, the evidence that he was not at home during the night, clearly taken in combination call for an explanation if there was one. The judge was, moreover, entitled to have regard to the cumulative effect of all the circumstantial evidence in deciding whether a failure to give evidence justified an inference of guilt. In my opinion the evidence adduced by the prosecution established a clear prima facie case and the trial judge was entitled in all the circumstances of the case, and as a matter of common sense, to infer that there was no innocent explanation to the prima facie case and that the defendant was guilty. That inference was a 'proper' one open to the judge on all the material before him." (Emphasis added) 225 These comments were of course made in the context of proof beyond reasonable doubt. 226 The relevant principles and authorities are collected and considered in detail in Cross on Evidence, 6th Australian ed, J D Heydon (2000) at [1190]-[1220]. 227 Rather than provide evidence from Cummins and Mrs Cummins, the appellants proffered a series of possible hypotheses as to what their intention could have been when acquiring Alexandra Street in 1970, and transferring the interest of Cummins in August 1987 in the Alexandra Street property and Counsel's Chambers Ltd. 228 In Jones v Dunkel (1959) 101 CLR 298 at 308, Kitto J expressed the evidentiary principle which applies where there is a failure to call a witness in these terms: "… any inference favourable to the plaintiff for which there was ground in the evidence might be more confidently drawn when a person presumably able to put the true complexion on the facts relied on as the ground for the inference has not been called as a witness by the defendant and the evidence provides no sufficient explanation of his absence." 229 These remarks apply with considerable force here because the persons best able to testify as to their intent and purpose were not called. His Honour applied that principle in this case to strengthen and prefer the available inference that Cummins had the necessary intent under s 121 of the Act. Counsel for the appellants submits that his Honour's reliance on the failure of the appellant to call Cummins was wrong in the present case where there had been a requirement to elect to call no evidence because such an approach was inconsistent with the decision of the Full Court of Victoria in Protean (Holdings) Ltd v American Home Assurance Co [1985] VR 187 at 215 (Protean); which decision was cited with approval by the Full Federal Court in Rasomen Pty Ltd v Shell Company of Australia Ltd (1997) 75 FCR 216 at 226. The passage from Protean referred to by Counsel is in the judgment of Young CJ at 215, where his Honour referred to three results which may ensue in a situation where there is a no case submission without an election being required. His Honour said: "The third possible result of a submission that there is no case to answer is that the judge is persuaded by it and decides to uphold it. In reaching such a conclusion a trial judge is entitled to draw all proper inferences from the evidence, but he cannot draw inferences against the party making the submission based upon the absence of evidence from that party." (Emphasis added) 230 It is important to note that the above remarks were made in the context of a situation where there was no requirement of an election not to call evidence as a condition of entertaining the no case submission. That situation was specifically left open by Young CJ. 231 The binding election not to call evidence was a conscious voluntary choice by the appellants that neither Cummins nor Mrs Cummins would be called as witnesses on the relevant issues. Therefore, in principle, it was open to the trial judge to rely on the commitment made by the appellants that Cummins would not be called in the appellants' case and to use it to reinforce the inference which was open to his Honour as to the intent of the parties. This is quite a different situation to that in Protean where there had been no election. Counsel for the appellants referred to but conceded that the case of O'Donnell v Reichard [1975] VR 916 was not a case in which there had been an election. 232 I can see no sound reason why the principles in the above cases cannot apply in this case when determining Cummins' main purpose in executing the August 1987 transfers. It is a consideration of central significance that evidence was not led on this question from Cummins or Mrs Cummins. In my view, it is not a "sufficient explanation" of the absence of evidence from Cummins to say that the appellants had made a deliberate choice made by way of their election not to call Cummins, or lead any evidence as to the intent of Cummins. It is also suggested that the appellants were precluded from doing so by being put to their election in making their no case submission, but the fact is that the appellants had the choice as to whether or not they were going to call evidence, and decided not to do so. 233 It is next submitted that it was for the respondent to call Cummins, because the respondent had examined Cummins and was in a position to call him to support the respondent's hypothesis. However, in the circumstances of this case the party with particular, if not unique, knowledge of Cummins' purpose in making the transfer was Cummins, and he could reasonably have been expected to be called by the appellants in support of their case if the main purpose was not to hinder or delay any claims by the Commissioner. 234 I am not persuaded that his Honour's reasoning discloses any error of law in relation to the importance he attached to the appellants' failure to call Cummins to give evidence of his intent in making the transfers. No explanation whatsoever has been proffered for Cummins' absence from the witness box, or from giving any evidence whatsoever in this proceeding, where a central issue turns on his purpose. 235 The primary judge was satisfied on the evidence that Cummins was well aware in August 1987 that he had incurred very substantial liabilities to the Commissioner, contingent only on the Commissioner issuing assessments in respect of past income years; that Cummins was well aware at that time that the Commissioner would issue assessments once his long standing tax delinquency became known; that Cummins divested himself voluntarily of virtually all of his substantial assets in August 1987; that any assets retained by Cummins were not sufficient to meet his taxation liabilities if the Commissioner decided to issue assessments; and that Cummins saw the transfers as increasing the chances that his assets would be protected from any claims made by the Commissioner. On the basis of these findings, his Honour concluded that the main purpose of Cummins was to prevent the transferred property becoming divisible among his creditors, and in particular, the Commissioner. 236 The first matter challenged by counsel for the appellants relates to the conclusion of his Honour that Cummins had bought the chambers at Parramatta in 1986 out of his professional earnings. It is submitted that there is no evidence as to how this purchase for $30,000 was financed. It is said there was an infinite array of other possible sources of funds. For example, some form of borrowing, proceeds of sale from the other assets, or assistance from his wife or a third person. Because there was no evidence as to the source of funds for this acquisition, it is said that his Honour's finding that the source was from Cummins' professional earnings was not open, or was not probable, as a matter of inference. Accordingly, it could not be said as a matter of inference that for many years prior to 1987 Cummins derived substantial assessable income from his practice as a barrister. 237 His Honour at paragraph [126] of Cummins (No 5) sets out a range of considerations, and notes that there is nothing in the evidence to indicate that the assets connected with Cummins' practice as a barrister were paid for otherwise than out of Cummins' professional earnings. This observation, together with the other factors set out in that paragraph, then form the basis for his Honour's inference that for many years, Cummins had derived substantial assessable income from his practice as a barrister, which is inherently probable, and that he would have been liable to pay tax on that income. In my view, it beggars belief to suggest that by August 1987, after spending over twenty-two years in practice at the New South Wales Bar, six of which as Queen's Counsel, without paying any tax, Cummins had not built up a substantial liability for unpaid tax and the attendant penalties and interest consequent upon such defaults, or that he was not fully conscious of his exposure to the Commissioner when the August 1987 transfers were implemented. 238 The next error alleged is said to arise from his Honour's reliance on the assessable and taxable income disclosed in the taxation returns prepared by Mr Morelli, which are said to have been compiled from inadequate data and information for these income years between 1992 and 1999. The submission is that his Honour was not entitled to rely on these records to reach a conclusion that in the years leading up to 1987 it was probable that Cummins had earned substantial taxable income. In support of this submission, counsel for the appellants speculates as to aspects of Cummins' financial position in 1987 which may have caused him to transfer assets for the purpose set out in s 121(1) of the Act. Counsel says that it was not open to infer from the gross receipts shown for the 1992-1999 tax years what Cummins' financial position was in 1987, and that his Honour failed to take into account that there was no evidence at all of Cummins' net income in any of the years before 1992, or of his assets and liabilities during that time. Counsel submits that in any event, tax returns give a relatively incomplete picture of a person's financial position, in that they do not record assets and liabilities. It is suggested, for example, that an inference of equal probability may be made to the effect that, in the income tax years prior to 1992, Cummins' net taxable income was such that he was not required to lodge any income tax returns possibly because of offsetting losses in other varieties apart from his profession. It is said there was no evidence as to Cummins' other business interests or investments during this period and that critical unanswered questions arise as to first, the quantum of Cummins' income tax and liabilities in August 1987; second, whether Cummins was able to pay all of his debts as and when they fell due; and third, whether by the August 1987 transfers he rendered himself unable to pay such liabilities. 239 Counsel submits that other equally consistent inferences with those drawn by his Honour are that Cummins sold assets between 1987 and 1992, and that assets may have been sold after 1992 but the sale did not attract capital gain, or were personal use assets, or did not yield a taxable profit. He raises the possibility that Cummins had cash or other assets sufficient to enable him to discharge his liabilities and that these were not required to be recorded in the tax returns from 1992, and that Cummins had cash sufficient to enable him to discharge the liabilities, but spent the money after 1987. It is suggested that there are other available inferences, such as Cummins having had significant cash balances in the bank account. It is pointed out that when he became bankrupt in 1999 he had cash and other assets amounting to over $200,000. 240 It is further said that another available inference was that Cummins in fact did not have a considerable tax liability in 1987 and the fact that he said nothing to his solicitor about it did not in any way indicate any intention to defraud creditors. Counsel attempts to meet the lack of any evidence that Cummins told the solicitor in 1987 about his failure to pay tax over a considerable period by asserting that this was not significant because Cummins' solicitor was presumably engaged only in relation to conveyancing transactions, and it could not reasonably be expected that Cummins would disclose his taxation position to the solicitor. There is no basis in the evidence for this supposition. 241 A most important consideration in determining the purpose of Cummins is the advice and notes of the solicitor at the time of the August 1987 transactions, which specifically draw attention to ss 120 and 121 of the Act and to s 37A of the Conveyancing Act 1919 (NSW), which is concerned with transfers made with intent to defraud creditors. There is also reference in the notes to the High Court decision in Williams v Lloyd, which considered the principles relating to transfers of property to a wife with intent to defraud creditors under the Bankruptcy Act 1924 (Cth). His Honour concluded that Cummins must have been well aware of his own tax delinquency over the period leading up to 1987, and that he chose not to tell his solicitor of that fact despite his proposal to divest himself of his major assets. The solicitor's notes record advice that the transfers state that the expressed consideration had actually been received. There is a note by the solicitor that "Mary [Mrs Cummins] must be a purchaser". 242 It is evident that Cummins did not tell his solicitor in 1987 of his liabilities to the Commissioner. The solicitor's notes can be taken to have resulted from, and summarised legal issues arising from, discussions between Cummins and his solicitor in 1987 prior to the transfers. There is a reference in those notes which reads as follows:
"Do We need to lease back of shares for TAX purposes." 243 This reference to tax purposes would have been of academic interest if Cummins had in fact disclosed to his solicitor his failure to pay tax over twenty-two years, and his omission to ever file any tax return. His intention in 1987 was probably never to file tax returns because he had successfully avoided the attention of the Commissioner for over twenty years and did not wish to be detected. The fact is he did not file any return until twelve years later. There can be no suggestion that Cummins ever intended to pay income tax or lodge a return for 1987 or any of the years following. Cummins did not need a tax deduction in 1987 and subsequent years. He never paid tax or disclosed his tax position. 244 There is reference in a letter written ten years after the transfers by the solicitor that the solicitor considered in 1987 that if the transfers were for an expressed consideration and Cummins subsequently forgave the indebtedness, the transfers would not constitute "settlements" for the purposes of s 120 of the Act. These records support the inference that Cummins wished to place his major assets beyond the reach of his creditors. 245 His Honour formed the view that given Cummins' circumstances, it should be inferred that he had at the forefront of his mind, at the time of the August 1987 transfers, the impact of the transfers on the Commissioner's chance of recovering the income tax that Cummins should have paid over the preceding twenty-two years. The fact that Cummins did not inform his solicitor served, in his Honour's view, to reinforce the inference that the main purpose of the transfers was to protect Cummins' major assets from any claims made by the Commissioner. 246 In summary, in this case there has been an unexplained failure by the appellants to call evidence or witnesses or tender documents or other evidence as to the intention of Cummins and Mrs Cummins. No sufficient explanation has been given for this failure. It is clear that Cummins and Mrs Cummins could both give relevant evidence. They appear to be in the same camp notwithstanding the fact that they have separated. Facts are in evidence, which, in my view, raise an inference which requires an answer: see Jones v Dunkel at 322. There is no question of privilege. I do not accept that the respondent should have been expected to call Cummins. There has been a failure to ask Cummins and Mrs Cummins questions in chief in relation to the issues of intent. It is clear that inferences are not to be drawn in favour of her case by reason of not leading the evidences and the comments in the Ferrcom case establish that the omission to ask questions of a friendly witness may be more significant than the failure to call the witness. 247 Having regard to the cumulative weight of the considerations referred to by his Honour on this issue, I do not consider that any appellable error has been shown in the reasoning or conclusions reached by his Honour as to the purpose of Cummins in making the August 1987 transfers such as would warrant interference with the orders and determinations made by his Honour, which were the subject of this appeal. 248 My conclusion is that this appeal should be dismissed with costs. I certify that the preceding eighty-nine (89) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin.
Associate: Dated: 30 July 2004 Counsel for the Appellants: Mr P L G Brereton SC (with Mr M Ashhurst)
Solicitors for the Appellants: Messrs Russell and Co
Counsel for the Respondents: Mr B Coles QC (with Mr C Newlinds SC)
Solicitors for the Respondents: Messrs Clayton Utz
Cummins
The Trustees of the Property of John Daniel Cummins,
INTRODUCTION 1 This case concerns a barrister who, seventeen years ago, transferred his beneficial interest (which we have found to be slightly less than a quarter share) in the matrimonial home to his wife. At the same time he transferred some shares, which entitled him to occupy a double room in a set of barristers' Chambers, to his family trust. The barrister became a bankrupt nearly four years ago. 2 The central question in the appeal is whether the trustees of the bankrupt's estate adduced sufficient evidence at the trial to permit the inference that the transfers were made with the main purpose of preventing those assets from being divided among his creditors. As will be seen below, we do not think that very much evidence was required to show that. But there had to be enough evidence. The transferees were entitled to require the trustees to prove their case. Our conclusion is that the evidence put before the Court below fell short of the minimum required for that purpose. It would not have been difficult, we think, for sufficient evidence to have been assembled. 3 Our reasons in this matter cannot be said to reflect any judgment by us on the conduct of the bankrupt who, notwithstanding that he is a barrister and, later, one of Her Majesty's counsel, failed to lodge any income tax returns for a period of about 45 years. His conduct has been considered in other proceedings. We are concerned only with whether the evidence before the learned primary judge was sufficient to justify the declarations and other orders which he made. 4 The respondents to this appeal (applicants before the primary judge) are the trustees of the bankrupt estate of John Daniel Cummins (the bankrupt). His wife, Mary Elizabeth Cummins, is the first appellant on this appeal. Originally, the bankrupt was a party to these proceedings but, on 17 September 2002 at the commencement of the hearing before the primary judge, the primary judge ordered that the bankrupt cease to be a party to the proceedings: Prentice v Cummins (No 1) [2002] FCA 1140; Prentice v Cummins (No 2) [2002] FCA 1165. 5 The second appellant, Aymcopic Pty Ltd (Aymcopic), (the third respondent in the proceedings before the primary judge) is the trustee of the Cummins Family Trust, the beneficiaries of which are Mrs Cummins and the four children of the bankrupt and Mrs Cummins. 6 The respondent trustees applied for various declarations and orders, pursuant to ss 120 and 121 of the Bankruptcy Act 1966 (Cth) (the Act) that certain assets transferred by the bankrupt to Mrs Cummins and Aymcopic are void as against them.
94 There was some evidence that the Shares were encumbered at the time when the bankrupt was about to transfer them to Mrs Cummins. 95 A contemporaneous note made by Mr Harris on 10 August 1987 (the share transfer was dated 17 August 1987)read "Nat Bk L/Soc has scrip". It is clear that the reference was to the Shares. There was a further note by Mr Harris on 13 August 1987 which read "JC says Bank has CT and Nat L/Soc has scrip". We would infer from those notes that the National Bank of Australasia Ltd, Law Society Branch, held the scrip for the Shares. On 8 October 1987 Mr Harris recorded a telephone conversation with a Mr Bruce Wood, Assistant Manager of the National Bank, which included the following: 'SS security for o/d would need security @ $60,000 (I to get him to ring you) re alternative SECURITY.' 96 In the context of Mr Harris' two other diary notes, we infer that he used "SS" as a shorthand expression for the Shares. How long the shares had been used as security was, in our view, something which the respondents (with all the powers vested in them as trustees in bankruptcy) could readily have ascertained and put into evidence. The position is that there was simply no evidence that the bankrupt had purchased the Shares out of his professional earnings and in our view his Honour erred in reversing the onus of proof in the manner referred to above. Such an approach tends to nullify the whole point of a "no case" submission, that is, to test whether an applicant has proved its case. A careful application of the "no-case" procedure can result in a considerable saving in costs. 97 Nor did the respondents call any evidence from any officer of the Commonwealth Bank which held a mortgage over the Hunters Hill home and which might have been given as collateral security for borrowings to acquire the units relating to the Parramatta chambers. 98 The truth of the matter was that there was simply no evidence about the source of funds for this acquisition and accordingly nothing to support his Honour's finding that the bankrupt purchased the shares and the units relating to the chambers at Parramatta out of his professional earnings. 99 His Honour also relied on an assumption that he could take judicial notice, in the absence of any dispute by Mr Brereton, of the fact that the bankrupt's appointment as a senior counsel was recognition of his professional attainments and expertise. 100 It might well be expected that, on average, a barrister who had been in practice for 22 years, including six years as senior counsel, would have enjoyed a large taxable income. But, in our opinion, the respondents needed to adduce some evidence (albeit slight) of the likely level of taxable income which this particular barrister enjoyed, i.e. did he fit the stereotype average? Or even, was it likely that he did? Presumably his Honour took judicial notice of this "fact" under the common law doctrine (as to which see now Gattellaro v Westpac Banking Corporation [2004] HCA 6 at [17]). But even using s 144 of the Evidence Act 1995 (Cth) would not, in our view, permit the jump from the significance of the appointment as a senior counsel to an assumption about even the approximate level of the bankrupt's taxable income. 101 The appellants also criticised his Honour's use of the figures for gross receipts and net business income shown in the tax returns eventually filed on behalf of the bankrupt for the subsequent years ended 30 June 1992 to 30 June 1999 respectively. They submitted that there was no evidence as to the bankrupt's other business interests or investments during the earlier period before 1987. There was, so it was put, an inference of equal probability that in the years in respect of which the bankrupt had not lodged income tax returns, his net taxable income did not require him to pay any income tax for those years. 102 In our view, the evidence offered by the respondents, and accepted by his Honour, fell short of the evidence required for the inference drawn by his Honour in the last sentence of paragraph [126] of his reasons. 103 We do not think that, in those circumstances, it was open to his Honour to allay any doubts (which presumably he had) by extrapolating backwards for a period of between four and eleven years as the basis for justifying an inference that in 1987 the bankrupt faced contingent tax liabilities amounting at the very least to several hundred thousand dollars. 104 Given the seriousness of the allegations (even allowing for the fact that there is no need to show fraud) the evidence fell short. 105 It should not have been very difficult for the respondents to have assembled enough evidence to take their case over the line. We have given some examples above. We will mention three more obvious sources of such evidence. A selection of solicitors who had regularly briefed the bankrupt could have been subpoenaed to produce their books to show how much they had paid him on behalf of their clients over some of the relevant years. His bank could have been subpoenaed to produce its records of his deposits of fees. So could the bankrupt's clerk. Nor would it be difficult to assemble sufficient evidence of any other assets in the bankrupt's name in order to produce what in income tax circles is known as a betterment analysis or betterment statement. This is a familiar tool for assessing income where no returns have been furnished. Evidence of substantial unencumbered assets would have helped to tip the scale. There was no such evidence. Nothing of that type was in evidence in this case. 106 The next factual question to which his Honour directed attention was whether the bankrupt had retained insufficient assets to satisfy his tax liabilities. 107 His Honour's findings on this matter were as follows: '[130] A similar factual question arises as to whether the Bankrupt retained insufficient assets to satisfy his tax liabilities, if the Commissioner were to issue assessments against him. The significance of this question is that, if the Bankrupt left himself insufficient assets to meet his potential tax liabilities, it is much easier to infer that his main purpose was to defeat or delay his creditors, specifically the Commissioner. Once again, Mr Brereton submitted that the evidence did not support the inference that the Bankrupt could not have paid any tax that might have become due. He argued that I could not be satisfied that the Bankrupt did not retain assets, other than those transferred to Mrs Cummins and Aymcopic, that could be used to satisfy any debt to the Commissioner. [131] There is no evidence that, after executing the transfers in 1987, the Bankrupt retained assets substantial enough to enable him to satisfy his liability to pay tax. (The Bankrupt did retain his units in the Parramatta Unit Trust, but this was due to his solicitor's failure to implement instructions to transfer the units in 1987 by way of gift.) However, the mere absence of evidence that the Bankrupt retained other assets could not, without more, satisfy me affirmatively that there were no such assets. But there is some evidence from which inferences can be drawn. [132] If, as Mr Brereton contended, one of the Bankrupt's motives for divesting himself of two valuable assets in 1987 was to protect himself against being sued by future clients, it would have made no sense for the Bankrupt to have retained other substantial assets in his own name. Furthermore, if one thing is clear in this case, it is that the Bankrupt was not concerned to make provision for his income tax liabilities. Moreover: · the Bankrupt's tax returns give no indication that he either disposed of substantial assets or derived substantial income from investment assets during the period 1992 to 2000 (the disposal of substantial assets would have had implications for capital gains tax); · the Bankrupt's 2001 statement of affairs disclosed no substantial assets in his own name, other than the units in the Parramatta Unit Trust, a motor vehicle and shares worth about $40,000; and · bank documents record, apparently on the basis of information supplied by or with the authority of Mrs Cummins in 1998, that "all assets are in her name". [133] The evidence does not enable me to rule out definitively the possibility that the Bankrupt retained assets in his own name after the 1987 transfers, but disposed of them between September 1987 and June 1991 (the tax returns cover the period from July 1991 onwards). However, I regard this as merely a possibility. It is much more likely on the evidence that the Bankrupt disposed of virtually all his substantial assets in 1987. Whether or not this is so, having regard to the documentary evidence to which I have referred, I am satisfied that the Bankrupt, after August 1987, did not retain sufficient assets to meet in full his then liability to pay income tax. A fortiori he did not retain sufficient assets to ensure that he could meet in full his liability to pay income tax and any additional tax that the Commissioner might have chosen to impose.' [Emphasis added] 108 The first sentence of paragraph [131] above strongly suggests that the appellants had some onus to establish the proposition that the bankrupt retained assets substantial enough to enable him to satisfy a correspondingly substantial tax liability. Once again, in our view, his Honour reversed the onus of proof and once again the respondents failed to adduce sufficient evidence. There was simply no evidence to show that, by the transfers, the bankrupt had denuded himself of assets sufficient to pay his supposed liability to pay tax. 109 Furthermore, in our opinion, it is not correct to say that it would have made no sense for the bankrupt to have retained some assets in his own name even if he contemplated being sued by future clients. We think it is quite conceivable, as Mr Brereton submitted, that a barrister facing the prospect of being sued by future clients might seek to protect the matrimonial home and his chambers, but at the same time leave some assets unprotected. But in the absence of evidence, all this is speculation. In our view, there was simply no evidence for his Honour's conclusion that: 'It is much more likely on the evidence that the Bankrupt disposed of virtually all his substantial assets in 1987.' 110 We accept Mr Brereton's submission that those circumstances are equally consistent with the following inferences, namely that: (a) the bankrupt sold assets between 1987 and 1992; (b) the bankrupt sold assets after 1992 (but before 1998) which were pre-capital gains tax assets or were personal use assets or did not yield a taxable profit; (c) the bankrupt had cash (or other assets) sufficient to enable him to discharge the liability and the cash and other assets were neither recorded nor required to be recorded in the tax returns from 1992 onwards; and (d) the bankrupt had cash, or other assets sufficient to enable him to discharge the liability, but spent this money after 1987 and/or after 1992. 111 Mr Eric Morelli, an accountant, was retained to reconstruct accounts for the bankrupt and prepare income tax returns for the years to which his Honour refers. This may be only a small piece of evidence, but Mr Morelli's trial balances showed the bankrupt's estimated cash at bank on 30 June 1995 was $152,389, at 30 June 1996 $31,617, at 30 June 1997 $35,690, at 30 June 1998 $65,353 and at 30 June 1999 $168,104. The bankrupt's statement of affairsshowed that when he became bankrupt he had cash and other assets amounting to well over $200,000. Just under half of that amount ($100,000) was cash on deposit being the proceeds of sale of the bankrupt's chambers at Parramatta. 112 It is perfectly clear from Mr Morelli's evidence that the documents which he relied upon to prepare those tax returns were incomplete and unsatisfactory in many serious respects. Mr Morelli gave details. He asked for information but, so he swore, on by far the majority of those occasions, no satisfactory information was available. He also swore as follows: 'In cases where I was unsure as to the nature or purpose of a payment or receipt, I treated it as taxable income and as a non-allowable deduction, respectively.' 113 The significance of that evidence is that Mr Morelli made those decisions in favour of the Commissioner. 114 In the light of that evidence it is difficult to understand his Honour's passing remark in parenthesis in paragraph [127] above. 115 The next step taken by his Honour in assessing the bankrupt's purpose or purposes in transferring the assets was to have regard to the form of the transactions and the advice which he appeared to have received. His Honour said that he was not prepared to infer from Mr Harris' contemporaneous notes that he was privy to the bankrupt's "tax delinquency". His Honour opined that if Mr Harris had been so informed the likelihood was that the notes would have been expressed differently. His Honour made the following finding or inference: 'But the Bankrupt was well aware of his own tax delinquency and chose not to tell his solicitor of that critical fact, despite his proposal to divest himself of his major assets.' 116 In our opinion, this factor is neutral. As Mr Brereton submitted, if the bankrupt had been concerned with his tax liability and wished to place his assets beyond the reach of the Commissioner, it is in our view just as likely that he would have told his solicitor about this so as better to secure his family's position. If the discussion had taken place we would not expect the solicitor to have recorded it. The absence of any record of any such discussion, in our opinion, does not support a finding that there was no such discussion. There is simply no evidence that there was or was not such a discussion. We think that the finding was not open to the primary judge. 117 Furthermore, the finding suffers from the deficiency of evidence that the bankrupt in fact had taxable income which he had not returned. 118 His Honour then referred to some of Mr Harris's notes which included observations that the transfer should be for consideration in the hope of surviving subsequent scrutiny. With respect, we agree with his conclusions that that was what Mr Harris recommended. His Honour then said this: '[136] It is very likely that the solicitor discussed his views with his client, the Bankrupt. The Bankrupt, being aware of his own tax delinquency, would have seen the transactions in a very different light than his solicitor. Given the Bankrupt's state of knowledge, I think it virtually inevitable that, whatever techniques he used to rationalise his tax default, at the time of the transactions he had at the forefront of his mind the impact of the transfers on the Commissioner's chances of recovering the income tax that he (the Bankrupt) should have paid over many years. The fact that the Bankrupt had no intention of "coming clean" reinforces the inference that, in his mind, the principal or leading purpose of the transfers was to protect his major assets from any claims that would be made by the Commissioner if and when the tax delinquency was discovered. Whether the Bankrupt took that view because he thought that the misleading form of the transfers would offer protection when the time came, or because the solicitor's advice gave him reason for optimism, is not necessary to determine.' 119 Once again we accept the appellants' submissions concerning the difficulties which arise with these conclusions, namely that: (a) it is based on the assumption that the bankrupt did in fact have a considerable tax liability; (b) it assumes that the instructions to Mr Harris to execute two simple conveyances included instructions to advise the bankrupt on the transactions, or otherwise to provide an occasion for him to "come clean" to Mr Harris; (c) the evidence was to the contrary - Mr Harris' file disclosed only private file notes and no advice to the bankrupt at all on the question of avoiding liabilities. It included a contemporaneous letter from the bankrupt containing instructions to make a gift; and (d) the conclusion that the bankrupt wished the transfers to be executed in a "misleading form" was contrary to the evidence that he simply intended the transfers to be gifts, but Mr Harris had expressed them as having been made for consideration, to avoid stamp duty at higher rates on transactions which were gifts. 120 There is one further matter to which we should refer. Contrary to the impression, which might reasonably be gained from reading his Honour's reasons, that the third hypothesis was a matter advanced solely by the respondent [the third hypothesis was that the bankrupt was motivated by his concern that the law relating to a barrister's in-court immunity might change and his desire to avoid the possibility that his assets might be at risk if a future client sued him], the suggestion can be found in the respondents' Second Further Amended Statement of Claim where in the particulars to paragraph 9 the trustees pleaded: '(v) Further and in the alternative, Mr Cummins in his public examination on 6 June 2001 before Registrar Tesoreiro stated that his intention was "to divest [himself] of any assets in [his] name because of claims being then made on barristers in respect of negligence claims as a barrister in giving advices.' 121 In our opinion, the evidence was not strong enough to exclude that hypothesis on a balance of probabilities. There is nothing in the evidence to suggest that in 1987 the bankrupt anticipated being unmasked as a person who had not filed income tax returns for many, many years. On the contrary, the pattern of not filing income tax returns continued for another twelve years until Mr Harris referred the bankrupt to Mr Morelli for the purpose of preparing and lodging the returns. 122 On the evidence, the only thing special about 1987 was the Giannarelli litigation. On 9 May 1986 Marks J of the Supreme Court of Victoria held in Giannarelli v Wraith that s 10(2) of the Legal Profession Practice Act 1958 (Vic) operated to subject the plaintiff's barristers in certain criminal proceedings to liability in respect of the negligence alleged against them. On 10 April 1987 the Full Court of the Supreme Court of Victoria discharged the orders made by Marks J, but did not publish its reasons for taking that course until 19 May 1987 - see Wraith v Giannarelli [1988] VR 713 at 715, 716. It is true, as his Honour noted, that the bankrupt instructed Mr Harris, in relation to the two relevant transfers, before the High Court of Australia granted special leave in the Giannarelli case (on 14 August 1987). But the application for special leave must have been made shortly after 19 May 1987 or, more likely, shortly after 10 April 1987. Mr Harris received his instructions from the bankrupt no later than 10 August 1987, being the date shown on the first of the diary notes referred to above. The approximate coincidence of the timing is, in our opinion, quite marked. We would not attach the same importance as his Honour did to the fact that the High Court did not grant special leave in Giannarelli until four days later. The litigation was very well known in legal circles at that time. 123 Evidence consistent with the third hypothesis was, first, the observation made by a finance broker in an application, dated 2 March 1998, on behalf of Mrs Cummins to the National Australia Bank Ltd for financial accommodation of $1.3 million: 'The attached Statement of Assets and Liabilities demonstrates the high net worth of Borrower [Mrs Cummins]. In addition to substantial real estate holdings, which are held in her name for legal reasons in view of her husband's occupation, Mrs Cummins currently has $1,000,000 invested in the share market and $300,000 on deposit with Macquarie Bank Ltd.' [Emphasis added] 124 The third hypothesis was also consistent with a notation in the records of the National Australia Bank Ltd, dated 7 October 1998, in relation to Mrs Cummins: 'She is married to John Daniel Cummins who is a Barrister and maintains satisfactory account relationship with our Law Courts branch since 17/6/1983. Due to his occupation all real estate property are in Mrs Cummins name who personally controls financial affairs.' (Emphasis added) 125 The case at first instance appears to have been conducted on the basis that if the bankrupt's main purpose for making the dispositions was to put them beyond the reach of a client successfully suing him for negligence, then that purpose would not fall within s 121(1). We should not be thought to be agreeing with the correctness of that assumption. 126 In answer to the first question in the appeal, in our view, the evidence at first instance did not permit the principal inference, made by his Honour, to be made reasonably and distinctly. As we have mentioned, the principal inference was that the bankrupt's purpose in transferring the Hunters Hill property to Mrs Cummins and the Shares to the second appellant was to defeat or delay creditors. We would allow the appeal on that ground alone. 127 It is not necessary for us to consider his Honour's reliance on Jones v Dunkel (1959) 101 CLR 298 other than to say that we think it was misplaced, for at least two reasons. First, it conflicts, in our view, with the statement of principle, that such an inference may not be drawn in the circumstances such as these, set out in a passage of Young CJ's reasons for judgment in the decision of the Full Court of the Supreme Court of Victoria in Protean (Holdings) Ltd v American Home Assurance Co [1985] VR 187 at 330-331, which was set out with apparent approval in the Full Court of this Court's decision in Rasomen Pty Ltd v Shell Company of Australia Ltd (1997) 75 FCR 216 at 226-227. The circumstance that in both those cases the trial judge had not put the "no-case" moving party to an election only serves to make the present case an even stronger candidate for the application of that principle. Secondly, reliance on Jones v Dunkel in cases such as these undermines the utility of the no-case procedure and, in our view, flies in the face of the policy on which it is based - see paragraph [96] above.
(1979) 142 CLR 531
(1992) 35 FCR 515
(1959) 101 CLR 298
(1997) 75 FCR 216
(1984) 155 CLR 242
(1934) 50 CLR 341
(1991) 22 NSWLR 389
(2003) 129 FCR 234
(1988) 165 CLR 543
(1956) 94 CLR 470
(1952) 88 CLR 322
(1948) 77 CLR 39