Considerations
51 Before dealing with each of these contentions, the case pleaded by the Trustees against Waters needs to be examined in the context of the pleading overall so as to test whether the Statement of Claim makes clear to Waters the case advanced against them which they must answer especially having regard to their contention that the 1996 transactions have no coherent relationship, within the pleading, with the 1997 and 1999 transactions in terms of remedial relief. The principles guiding the exercise of the discretion for the purposes of Order 11, r 16 are well settled (Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564 at 585‑586 at [47] - [51] per French J; Australian Competition and Consumer Commission v Fox Symes & Associates Pty Ltd [2005] FCA 1071 at [92] to [109] per Lander J; BWK Elders Australia Pty Ltd v Westgate Wool Company Pty Ltd & Ors (No. 2) [2002] FCA 87 at [2], [3], [20] and [21] per Mansfield J; Pan Continental Mining Ltd v Posgold Investments Pty Ltd (1994) 121 ALR 405 at 414 per Beaumont J; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129 and 130, per Barwick CJ).
52 In sequence, the elements are these.
53 From about February 1996 companies associated with Waters began to fail financially. Jefferson and Stevenson became voluntary administrators of Freedom Homes on 29 February 1996, David Clout was appointed voluntary administrator of Delvine on 14 March 1996 and official liquidator of that company on 10 April 1996. Mr Waters was the primary examinee in a seven day public examination of the affairs of Freedom Homes and Delvine. In July 1996, Mr Waters sought legal advice as to his personal liability concerning guarantees he had given to the BSA in support of Freedom Homes and in July 1996 Waters were provided with a report to creditors of Freedom Homes prepared by Jefferson and Stevenson postulating a potential claim against Waters on a number of bases in an amount up to $2,647,255.00.
54 On 29 July 1996, the creditors of Freedom Homes resolved to place that company in liquidation. Between June and August 1996, Waters sought advice from solicitors and accountants concerning their liability to creditors and in relation to asset protection steps. In December 1996, the BSA issued letters of demand to Waters. These matters are recited as the particulars to para 22 and are set out in full at [16].
55 On 2 December 1996, Dalvella and Donemate were incorporated; the Cliffside Trust and Kings BeachTrust were established; and Waters retired as principals of each trust seven days after the creation of the trusts, in favour of their children on 9 December 1996. Between 4 December and 24 December, Waters caused 10 inherently odd transactions to occur by which Dalvella lent $2,199,960.00 to Waters and Waters made a gift of all of it plus $40.00 ($2.2m) to Dalvella. These transactions purportedly gave rise by 24 December 1996, to a debt due by Waters to Dalvella of $2.199m and a gift or disposition by Waters to Dalvella of $2.2m.
56 The pleaded events concerning the incorporation of Dalvella and Donemate, the creation of the two trusts, retirement of Waters and appointment of their children and the drawdowns and gifts back are said to be a scheme (see Particular 1) put in place by Waters with the intention of defrauding their present and future creditors. The Trustees say Dalvella did not give consideration nor act in good faith. The 10 transactions were part of a sham 'orchestrated' by Waters in December 1996 against the background of the adverse financial events emerging throughout 1996 as particularised (22.2.1 to 22.2.13). The Trustees' use the term 'orchestrated' to describe the conduct of Waters in implementing the scheme with intent to defraud their creditors. The events of orchestration are the steps taken on 2 December 1996 to create the trusts with companies (incorporated on the same day) as trustees; Waters retirement as principals and the consequent appointment of their children together with the sequence of simultaneous flexiphone transfers.
57 On 1 February 1997, Waters sought to deal with the resolution of their debt to Dalvella.
58 Waters made a request for an interest free loan for 25 years of $2.199m to Donemate. On 3 February 1997, Donemate borrowed that sum from Dalvella so as to lend it to Waters so that Waters could immediately pay it to Dalvella and thus extinguish their debt to Dalvella leaving Waters with a debt to Donemate and Donemate with a debt to Dalvella. The difference, apart from the new debtor/creditor relationship, was that Dalvella lent the money to Donemate (and thus to Waters with payment to Dalvella) on the strength of a third party mortgage by Waters over 17 lots of land including the Caloundra Property in favour of Dalvella to secure Dalvella's loan to Donemate. The transfers effecting the loans and payment all occurred on 3 February 1997.
59 These transactions and payments are described as round‑robin payments.
60 On 25 May 1999, Waters purported to enter into a contract with Dalvella to sell the Caloundra Property to it at market price and secure the release of the mortgage. The elements of that transaction are pleaded at para 28 of the Amended Statement of Claim.
61 The Trustees say that had Waters not entered into the 1997 transactions and round‑robin payments nor the 1999 transaction, each of Mr and Mrs Waters would have retained an equal beneficial interest in the Caloundra Property. The Trustees say the main purpose of Waters in entering into the 1997 transactions and the 1999 transaction was to prevent the Caloundra Property from becoming divisible among the creditors of Waters or to hinder or delay the process of making the Caloundra Property available to creditors.
62 The facts from which an inference is to be drawn of this main purpose are the sequence of adverse financial events (and consequent steps taken by Waters) particularised at 22.2.1 to 22.2.13 [16] (and para 23) which identify demands made or claims to be made against Waters by then present or anticipated creditors; three letters of demand made by the BSA; proceedings taken by the Deputy Commissioner of Taxation against Waters for indemnity in respect of a preference claim ($200,000.00); proceedings taken by the liquidators of Freedom Homes to recover damages for insolvent trading ($1,656,127.87) and other proceedings identified in the particulars to para 30.
63 The Trustees say that the liquidators of Freedom Homes, the DCT, BSA and the liquidators of Delvine were either creditors, contingent creditors or anticipated creditors for substantial sums at the time of the 1997 transactions and the 1999 transaction; and those transactions effect a disposition of the Caloundra Property to Dalvella when the property would have been part of the estate of Waters.
64 Alternatively, the Trustees say the 1996 transactions involving the drawdowns and gifts back to Dalvella in December 1996, the transactions and payments in February 1997 and the proposed sale of the Caloundra Property and release of security in 1999, purported to result in a debt due by Waters to Dalvella, compromised and discharged by a payment by Waters, made possible by a loan by Donemate to Waters, in turn, reliant upon a loan by Dalvella to Donemate on terms that Waters provide Dalvella with security, which entitled Dalvella to take a transfer of the legal and beneficial interest of Waters in the Caloundra Property on the terms of the 1999 contract.
65 The Trustees say that the 1996 transactions, the 1997 transactions and the proposed 1999 sale and transfer transaction involving Waters, Dalvella and Donemate are evidenced by circular transfers of funds in which no consideration arose as Waters did not borrow $2.199m from Dalvella nor gift back $2.2m; nor did Dalvella make a loan to Donemate of $2.199m; nor did Donemate advance that sum to Waters; nor did Waters repay a debt due to Dalvella of $2.199m; and nor was a third party security granted for consideration in favour of Dalvella.
66 By reason of these matters, the Trustees say that the 1996 transactions, the 1997 transactions and the 1999 transaction are dispositions for the purposes of s 121 of the Act and are void as against the Trustees.
67 Waters could not seriously be in any doubt that the Trustees say these odd transfers between Waters and the trustees of the trusts in the events described were consciously put in place to defraud present or future creditors and the main purpose of Waters in entering into the 10 flexiphone transfers between them and Dalvella was, as to the gifts back of $2.2m, to prevent those monies remaining available to any present or future creditors of Waters or to hinder or delay the process by which those monies would become available to creditors. Alternatively, the Trustees say Waters entered into the 10 transfers, with an intent to defraud creditors, for the main purpose of hindering or delaying the process of making the Caloundra Property available to creditors.
68 Accordingly, it seems to me that from the Amended Statement of Claim, Waters would understand the challenge by the Trustees to the 1996 transactions and the 1997 and 1999 transactions.
69 Against that background, I reach these conclusions.
70 As to [45], it can be seen that the pleading asserts by para 22 that particular acts, namely, the 1996 flexiphone transfers and the scheme events giving rise to the pleaded disposition were orchestrated or consciously undertaken by Waters with an intention to defraud creditors. Secondly, intention is a question of fact determined, almost always, as an inference drawn from foundation facts. The chronology of the scheme events and orchestration together with particulars of para 22 are capable of supporting an inference of acts undertaken with an intention to defraud creditors.
71 As to [46], the particulars of the scheme are those facts commencing with incorporation of the companies and creation of the trusts (and related structural changes) and concluding with the 10 flexiphone drawdowns and gifts back at the same NAB branch. The particulars of orchestration are the particular sequential steps between 2 December and 9 December 1996 and substitution of the Waters' children for Waters as principals and the implementation of the transfers in the manner and on the dates pleaded. There is no inconsistency. The pleaded scheme of which the transfers are a part are identified and the method of organisation and implementation of the scheme is plain from the pleading.
72 As to [47], it is true that, in terms, s 121(1) of the Act is no longer framed by reference to a disposition of property with an intent to defraud creditors not being a disposition for valuable consideration in favour of a person who acted in good faith. The section operates upon a transfer of property to another if that property would probably have become part of the bankrupt's estate or would probably have been available to the creditors of the bankrupt where the transfer was made for one of two main purposes identified by the Act (s 121(b)(i) or (ii) [4]). Here, the Trustees plead facts going to the identification of property comprising the 10 transactions; the identity, formation and creation of the companies and trusts participating in the events of transfer; the circumstances of transfer and the accounts used to effect the transfers; the intention of Waters in implementing the scheme and their main purpose for doing so. Those facts go to the question of whether a transfer of property occurred; whether, in all the circumstances, that property would probably have become part of the bankrupt's estate or would probably have been available to creditors but for the transfers. In any event, if the Trustees seek to establish that the character of the conduct of Waters was fraudulent, that is, they set about a course of defrauding creditors, the Trustees are simply asserting facts that if proved, satisfy, they say, the statutory standard although on one view they may have set the bar for themselves unnecessarily high. In addition, the assertion that the transfers in December 1996 were part of the identified scheme implemented with a fraudulent intent may be relied upon if proved as part of the factual matrix going to the pleaded main purpose. Therefore, para 22.1 does not suffer the vice of inutility; the facts pleaded of an intent to defraud creditors ought not to be struck out and para 22 does disclose a cause of action. Two further final contentions are identified at [47]. First, the notion that the Trustees must plead that at the time of the disposition, the effect of the disposition was that creditors would be deprived of payment not simply that assets would be reduced. Secondly, para 22 fails to plead that Waters sought to defraud all present and future creditors at the time of the transaction.
73 As to the first, the pleading asserts by para 22 that at the time of the 10 flexiphone transfers, Waters undertook the transactions with an intent to defraud creditors, that is, so as to deprive creditors of the disposal funds. This is not an allegation that steps taken by a transferor had the effect of reducing a pool of assets then available to a person who subsequently became bankrupt coupled with an allegation that the effect of a general reduction of assets from the pool should be regarded as an event of contravention of s 121(1). The Trustees contend for something quite specific: a scheme calculated to defraud creditors at the moment of implementation of the disposition of property undertaken for the main purpose of preventing the monies becoming available to creditors or as part of a process of hindering or preventing the Caloundra Property from becoming available to the creditors of Waters.
74 As to the second matter, the Trustees contend that Waters sought to defraud creditors. The particulars make it clear that the contended intention was held in relation to all present and future creditors. In other words, Waters engaged in the conduct to defeat any person who had a debt then due and payable or any person Waters anticipated would, if put to it, be able to establish in the future a claim against them. Examples of such persons included the liquidators of Freedom Homes and the BSA, not in any class closing way but only in the sense of future creditors emblematic of all future creditors.
75 As to [48], para 22.3 is to be read with paras 22.1 and 22.2 which are in turn reliant upon paras 8 to 21. That is, para 22.3 must be read in context. It pleads that the 1996 transactions were entered into for an identified main purpose. The entry into those transactions resulted in the transferor, it is said, making a disposition for no consideration in favour of Dalvella for the main purpose (put in the alternative) pleaded. Paragraph 22.3 does not fail for the reason contended at [48].
76 As to [49], the Trustees plead that the 1996 transactions were entered into for, in the alternative, the purpose of hindering or delaying the process of making the Caloundra Property available to creditors. At para 30, the Trustees say the main purpose of Waters entering into the 1997 and 1999 transactions was to prevent the Caloundra Property becoming divisible among the creditors of Waters or to hinder or delay that process. The facts of the circular money transactions of 1997 are pleaded and the 1999 transaction. The facts from which an inference of purpose is invited are pleaded as particulars of para 30. Paragraph 32 pleads the construct arising out of the 1996, 1997 and 1999 transactions. Paragraph 33 pleads the contended true effect of those transactions. Paragraph 34 pleads that the 1996, 1997 and 1999 transactions are void as against the Trustees. In reliance upon the void character of those transactions and instruments, the Trustees seek declarations in relation to the mortgage and the 1999 Contract of Sale. Accordingly, the contention at [49] is not made out.
77 As to [50], the Trustees claim [3] a declaration that the mortgage granted by Waters to Dalvella on 3 February 1997 and the contract of 25 May 1999 is void; an order for removal of Dalvella's caveat; declarations as to the beneficial interest of each bankrupt in the Caloundra Property; and such further or other order as the Court thinks fit, in the resolution of the controversy. The controversy of fact upon which the relief dispositive of the controversy rests includes a contention as to the efficacy of the 1996 transactions, the events surrounding those transactions and the intent and purpose of Waters in effecting those transactions. The controversy comprehends contentions as to the relationship between the money transfers in December 1996, the round‑robin of loans and payments in 1997 and the contended transfer of Waters' interest in the Caloundra Property to Dalvella in 1999. Arising out of those events and the identified transactions, the Trustees seek the relief formulated in the principal application and in particular declarations that particular instruments purporting to effect a transfer of property by Waters are void. Section 121(1) of the Act operates so as to render a transfer of property to another void (in the relevant circumstances). Orders declaratory of the legal effect of a transfer of property might well be made in circumstances where declarations are not sought as to each step in a sequence of steps the combined effect of which is to render a transfer made in reliance upon the steps void notwithstanding that findings of fact might be made about each step. The relief claimed by the Trustees is confined to the transfer of property effected by the mortgage and the contract, and the nature of the interests held by Waters in the Caloundra Property. That relief, in part at least, is framed by a controversy extending to the 1996 transactions and the validity of those transactions in the circumstances pleaded. Accordingly, there is no basis for striking out paras 20, 21, 22, 23 and 34 of the Amended Statement of Claim.
78 Accordingly, the application by Dalvella and Donemate must be dismissed with costs.
I certify that the preceding seventy-eight (78) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.