Meletsis v Yeo in his capacity as trustee of the bankrupt estate of Karas - [2023] FCAFC 93 - FCAFC 2023 case summary — Zoe

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Meletsis v Yeo in his capacity as trustee of the bankrupt estate of Karas

[2023] FCAFC 93

Federal Court of Australia (Full Court)|2023-06-16|Before: Mr J, Abraham JJ

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Source facts

Court

Federal Court of Australia (Full Court)

Decision date

2023-06-16

Before

Mr J, Abraham JJ

Source

Original judgment source is linked above.

Judgment (36 paragraphs)

[1]

INTRODUCTION 1 In the proceeding before the primary judge, the first and second respondents (together, respondents), who are the joint trustees of the bankrupt estate of Mr Tom Karas, challenged the propriety of the conduct of the first appellant (Mr Meletsis), in connection with the sale by 70 Nicholson Street Pty Ltd (in liquidation) (Company) of its property at 70 Nicholson Street, Fitzroy (Property) to Establishment 5 Pty Ltd (Establishment 5) in November 2011. The respondents are the assignees of the "right, title and interest" of the Company in causes of action against the appellants and others pursuant to a deed of assignment dated 11 September 2017 (Deed of Assignment). The respondents sought equitable compensation from the appellants - Mr Meletsis and a company controlled by Mr Meletsis, Hallmark Group (Aust) Pty Ltd (Hallmark) - and others for their participation in an alleged dishonest and fraudulent design to defeat creditors. 2 The primary judge upheld the respondents' claims: Rambaldi (Trustee) v Meletsis, in a matter of the bankrupt estate of Karas [2022] FCA 73 (Judgment). The primary judge awarded compensation against Mr Meletsis and restitutionary relief from Hallmark, in favour of the respondents as the assignees of the Company's rights against Mr Meletsis and Hallmark. 3 An important issue in the proceeding concerned Mr Meletsis' brother-in-law, Mr Tom Karas (Mr Karas), who held a mortgage over the Property. Mr Karas was named as the third respondent on the appeal, but did not submit an appearance. On the sale of the Property, Mr Karas' mortgage was discharged without payment. The primary judge found that this was for the purpose of defeating Mr Karas' creditors. Hallmark was ordered by the primary judge to pay the respondents a sum representing the traceable proceeds of the avoided payment. 4 Final orders were made by the primary judge on 17 February 2022. Orders 5 to 10 contain the money judgments, and it is with them that the appeal is directly concerned. 5 The appellants appeal from the Judgment on the 14 grounds stated in the notice of appeal dated 29 April 2022. The following primary issues arise for determination from the 14 grounds of appeal: (a) first, the nature of what was assigned under the Deed of Assignment by the Company to the respondents; (b) second, the primary judge's findings that, in selling the Property, Mr Meletsis had a "dishonest and fraudulent design", and that Howard Speer (Mr Speer), Establishment 5 and Hallmark were involved, with Mr Meletsis, in a concerted plan to transfer the Property to avoid potential claims of creditors; (c) third, the primary judge's findings that, in selling the Property, Mr Meletsis had breached his duties as director of the Company, and that Hallmark was a knowing participant in this breach; (d) fourth, the admission into evidence of transcripts of examinations of Mr Meletsis and others under s 81 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act); and (e) fifth, the availability of a tracing remedy against Hallmark in connection with the discharge of Mr Karas' mortgage.

[15]

The sale of the Property to Establishment 5 33 Also on 23 November 2011, the Company executed a contract to sell the Property to Establishment 5 for $3 million (the contract of sale). The contract of sale, including the s 32 vendor's statement, was prepared by solicitors who were engaged by Mr Speer in about mid-November 2011 and included terms to the following effect: (a) the price of $3 million would be paid by way of a deposit of $300,000 upon signing, with the balance of $2.7 million payable at settlement subject to special conditions 4 and 5 and constituted by: (i) a cash payment of not less than $700,000; and (ii) an amount payable to third parties not exceeding $2,000,000 as provided in special conditions 4 and 5; (b) special condition 4 provided that Establishment 5 assumed liability for the Rover Mortgage, and the Company gave a warranty that the monies due and payable under the Rover Mortgage, including accrued interest and legal costs, would not exceed $1.35 million; (c) special condition 5 provided that Establishment 5 would pay all unpaid debts of the Company as specified in a creditors schedule annexed to the contract of sale. The Company gave a warranty that the debts would not exceed $650,000; (d) settlement was to occur on or before 19 December 2011; (e) the "Particulars of Sale" section of the contract of sale (page 3) recorded that the Property was sold: (i) "subject to existing mortgage", with reference then made to the Rover Mortgage, but not to the Karas Mortgage; and (ii) "subject to lease", with reference then made to the Tithang lease, but not to any assignment of that lease; and (f) special condition 10 was entitled "Subdivision and Assignment" and subparagraphs (b) and (c) thereof provided for assignment by the Company to Establishment 5 of all contracts entered into by the Company of "any subdivided part of the Property under a prescribed contract", which included the right to the deposits held. Further, the Company was required to "execute a formal Deed of Assignment in respect of each and every sale referred to in the preceding sub-condition". 34 The deposit of $300,000 was paid on 24 November 2011 and settlement took place the following day, only two days after the execution of the contract of sale. The transfer of land for the Property was lodged for registration with the Land Titles Office on 8 December 2011. On 9 December 2011, Mr Speer lodged the discharge of the Rover Mortgage for registration with the Land Titles Office. 35 It was not in dispute at trial that Establishment 5 did not pay any funds to the Company at settlement. There was a payment of another $500,000 about a month later, on 22 December 2011, which left $200,000 remaining to be paid. It was an admitted fact that the remaining $200,000 was never paid to the Company. 36 As to the third party liabilities which Establishment 5 assumed as part of the consideration for the acquisition of the Property: (a) it was ultimately not in dispute that there was no amount owed by the Company to Rover Nominees secured by the Rover Mortgage; and (b) the legitimacy of some of the debts and expenses listed in the creditors schedule attached to the contract was challenged by the respondents at trial. The respondents accepted that "up to about $300,000 of the debts referred to in the creditors schedule might have been legitimate debts of [the Company]" but in respect of the other debts and expenses they argued (primarily) that the Company was not liable for those debts and expenses at the time of the contract because they were prospective costs which would only become due if the development proceeded.

[23]

GROUNDS OF APPEAL 46 The grounds of appeal in the notice of appeal were as follows: (1) The primary judge erred in holding (at [137] of the Judgment) that, by the Deed of Assignment, the liquidator of the Company assigned to the respondents all of the Company's right, title and interest in the Company's causes of action against the appellants free of the interests of the beneficiaries of the Unit Trust. (2) The primary judge erred in inferring (at [119] of the Judgment) that, in causing the Company to sell the Property to Establishment 5, Mr Meletsis acted with a dishonest and fraudulent design, in that a tribunal of fact, applying the standard of proof required in Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 336 (Briginshaw standard) and taking into consideration the totality of the evidence, could not reasonably draw such inference. (3) The primary judge erred in failing to provide adequate reasons for the inference (at [114] of the Judgment) that it was the intention of Mr Meletsis to remove the Property and its sale proceeds from the "potential reach of creditors", in that her Honour did not identify whether Mr Meletsis' intention was to remove the Property from the potential reach of creditors of Mr Karas or from the potential reach of creditors of the Company. (4) The primary judge erred in finding (at [118] of the Judgment) that Mr Karas had an interest in the Property, the keeping of which was part of the design of the sale of the Property to Establishment 5. (5) Insofar as the primary judge inferred (at [114] and [119] of the Judgment) that, in causing the Company to enter into the contract for the sale of the Property to Establishment 5, it was the intention of Mr Meletsis to remove the Property from the potential reach of creditors of Mr Karas, her Honour erred in that such finding was not supported by the evidence, because at no time did Mr Karas have an interest in the Property (other than as mortgagee) and, therefore, the sale of the Property did not have, and could not have, the effect of removing the Property from the potential reach of his creditors. (6) Insofar as the primary judge inferred (at [114] and [119] of the Judgment) that, in causing the Company to enter into the contract for the sale of the Property to Establishment 5, it was the intention of Mr Meletsis to remove the Property from the potential reach of creditors of the Company, her Honour erred in that such inference was not reasonably open, having regard to the Briginshaw standard and the totality of the evidence. (7) The primary judge erred in finding (at [120] of the Judgment) that the appellants, Mr Karas, Mr Speer and Establishment 5 participated in a concerted plan to transfer the Property to Establishment 5 in order to avoid potential claims of creditors to benefit themselves, in that, according to the Briginshaw standard and having regard to the totality of the evidence, such a finding was not reasonably open. (8) Accordingly, the primary judge also erred in finding (at [128] of the Judgment) that Mr Meletsis had breached his duties as a director of the Company. (9) Accordingly, the primary judge also erred in finding (at [131] of the Judgment) that Hallmark was a knowing participant in Mr Meletsis' breach of duties as a director of the Company and a knowing recipient of the benefits of Mr Meletsis' breach of duties. (10) In reaching the above inferences and findings, the primary judge erred in admitting into evidence, and in having regard to, the transcripts of examinations of Mr Meletsis, Mr Karas, Mr Georgakopoulos, Mr Speer, Mr Costanzo and Matthew Franke conducted under s 81 of the Bankruptcy Act. (11) Further, the primary judge erred in failing to give reasons, alternatively adequate reasons, for her Honour's rejection of the appellants' objection to the admission of the said transcript into evidence. (12) Further or alternatively, the primary judge erred in failing to limit, pursuant to s 136 of the Evidence Act 1995 (Cth) (Evidence Act) (alternatively, the Court's inherent jurisdiction), the admission into evidence and use of the said transcript for the purposes of the first and second respondents' claims under ss 120 and 121 of the Bankruptcy Act. (13) The primary judge erred in refusing the appellants' application (insofar as such application was necessary) at the commencement of the trial for leave to amend their defence; further or alternatively, her Honour's discretion with respect to that application miscarried. (14) The primary judge erred in entering judgment against Hallmark in the sum of $467,728.82 ($218,842.24 plus interest) in respect of the discharge of the Karas Mortgage, in that the discharge was not an alienation of property within the meaning of s 172 of the Property Law Act 1958 (Vic) which was traceable into the hands of the Hallmark. 47 At the hearing of the appeal, counsel for the appellants informed the Court that the appellants did not press Ground 13.

[24]

Factual Background 48 The claims of breaches by Mr Meletsis of his duties as a director of the Company and of acting with a dishonest and fraudulent design would ordinarily be brought by the Company and its liquidator. However, the Company, its liquidator (Hamish MacKinnon), and the respondents executed the Deed of Assignment, pursuant to which the respondents purchased the claims for $25,000. 49 By cl 1.1 of the Deed of Assignment, the Company assigned to the respondents "absolutely all of its right, title and interest in the causes of action detailed in Part 1 of the Schedule" to the Deed of Assignment. Clause 1.2 provided for the assignment of the liquidator's right, title and interest in the causes of action detailed in Part 2 of the Schedule. The liquidator's claims are not relevant to the appeal. 50 Part 1 of the Schedule of the Deed of Assignment relevantly stated: 1. All causes of action against [Mr] Meletsis and any other party arising out of, or connected with, the sale and transfer by the [C]ompany of the key Property on or about 23 November 2011 to Establishment 5 and in particular, a cause or causes of action under first, Part 2D.1 of the Corporations Act 2001 (Cth) and secondly, breach of duties of a director at common law. 2. All causes of action against [Mr] Meletsis arising out of or connected with, the payment or transfer of [c]ompany monies to third parties arising out of or relating to the sale or transfer of the Property in the period from on or about 24 November 2011 to 31 July 2013. 3. All causes of action against Establishment 5 arising out of or connected with the sale and transfer of the Property on or about 23 November 2011 and in particular, a cause of action under section 172 of the Property Law Act 1958 (Vic). 51 At cl 4.1 of the Deed of Assignment, the Company and liquidator gave various covenants. Relevantly, at cl 4.1(d), the Company and liquidator warranted that "[t]hey have full power to assign the Claims" to the respondents. At cl 4.1(e), the Company and liquidator warranted that "[t]o the best of their knowledge, the assignment of the Company Claims and the Liquidator Claims under this Deed is taken by the [respondents] … free and clear of any mortgages, pledges, liens, charges, security interests or other encumbrances or claims or absolute or defeasible interests of any other person". 52 Clause 6 of the Deed of Assignment sets out the parties' warranties. Relevantly, at cl 6.2(a), the Company and the liquidator warranted that "the grant of any rights the subject of this Deed will not infringe the rights of any other person or constitute a breach of any agreement with any other person". 53 The Deed of Assignment was the subject of an application for approval, which was heard and determined by Davies J in 2018: Rambaldi (Trustee) v Meletsis [2018] FCA 791.

[25]

Dispute before the primary judge 54 The dispute under this ground of appeal concerns the exact nature of what was assigned to the respondents under the Deed of Assignment. 55 Before the primary judge, the appellants contended that the words in the Deed were unambiguous and susceptible of only one meaning; namely, that what was assigned was no more than the Company's right, title and interest in the causes of action. The appellants submitted that the Company's rights, as trustee of the Unit Trust, were limited to a right of indemnity against the proceeds of any causes of action for liabilities properly or reasonably incurred by it in acting as trustee of the Unit Trust, and to an equitable lien or charge over the proceeds of the causes of action to secure that right of indemnity. According to the appellants, it followed that the Company assigned to the respondents no more than a right to recover an amount sufficient to pay the Company's liabilities. 56 The appellants also contended before the primary judge that, to the extent that the Company had rights or causes of action against the appellants, which were capable of assignment, such rights and causes of action were affected or limited by "equities" which continued to affect those rights and causes of action after they were assigned. The appellants submitted that the relevant "equities" were the Unit Trust unit holders' rights, which remained "engrafted" on to any recovery action which the Company might have taken against Mr Meletsis and Hallmark, as a restriction on the manner in which the Company could have dealt with the proceeds of such recovery action. 57 The primary judge dealt with the proper construction of the Deed of Assignment at Judgment at [137]-[139] as follows: 137. These contentions disregard the fact that the assigned causes of action upon which the defendants are sued are causes of action of 70 Nicholson Street, upon which it could sue in its own right and, but for the assignment, any loss or damage recovered as consequence of those causes of action would be that of 70 Nicholson Street, even though 70 Nicholson Street would be accountable to the beneficiaries for such loss or damage. It is an established principle that where a company acts as trustee of a trust, the duties of its directors include a duty to ensure that the company acts in accordance with its obligations as trustee. If a director breaches their fiduciary duty, it is a breach of duty to the trustee to whom the duty is owed, and a cause of action against a director for breach of duty relating to trust property is the chose in action of the trustee company: see Australasian Annuities Pty Ltd (in liq) v Rowley Super Fund Pty Ltd [2015] VSCA 9; 318 ALR 302, 315-8 [52]-[65] (Warren CJ, dissenting but not on this point); Ying Mui Pty Ltd v Hoh (No 3) [2017] VSC 29; 349 ALR 296, [382], [387]-[388], citing the observations of Edelman J in Agricultural Land Management Ltd v Jackson (No 2) [2014] WASC 102; 48 WAR 1 (Agricultural Land Management), [277], [302]-[303]. As Edelman J explained: I explain below why it is nonsense to speak of fiduciary duties owed to a company in a particular capacity as trustee or as beneficial owner. Fiduciary duties are owed to the company. … Duties are generally owed to legal persons. A "trust" is not a legal person which has rights and is owed duties. The rights are held by the trustee. The duties are owed to the trustee. Viewed from the perspective of the trustee, the rights are held, and any loss is suffered, by the trustee. So, when a defendant damages a tangible thing the defendant will be liable to the owner for damages for conversion or trespass to the chattel. It does not matter if the ownership of the chattel is held on trust. The owner still holds the rights (subject to the trust). The claim for damages against the third party defendant (ie external to the trust relationship) is almost always brought by the trustee as part of the trustee's duty to protect the trust estate even though the ultimate loss might be borne by the beneficiaries. Thus, it is not correct that 70 Nicholson Street, by assigning "its right, title and interest in the causes of action" to the trustees, could assign no more than a right to recover an amount sufficient to pay its liabilities. 70 Nicholson Street, as the entity to whom the alleged wrongs were done, had the right to seek recovery of the loss and damage and the fact that the proceeds would be held by 70 Nicholson Street on trust would not have affected its right to recover those proceeds: Agricultural Land Management, [309]-[311]. 138. Nor is it correct, as the Meletsis parties contended, that what was assigned pursuant to the deed of assignment were the causes of action subject to the equities created by the 70 Nicholson Street Unit Trust Deed (Trust Deed) in favour of the unitholders. That contention was premised in part on the proposition that the company "could not transfer trust property free from such equities, not without the unitholders' consent". That proposition does not withstand scrutiny. First, for the reasons already given, the company's "right, title and interest in the causes of action" were not limited as a matter of law to its right of indemnity and equitable lien over the causes of action; and secondly, the terms of the Trust Deed expressly empowered the company to sell or dispose of property of the trust fund at its absolute discretion (cl 6.1(c)(i)). The exercise of that power did not require unitholders' consent. 139 That contention was also advanced as a matter of the proper construction of the deed of assignment. It was asserted that an assignment of the causes of action in their entirety, as distinct from the company's right, title and interest in them (being defined and measured by its rights of indemnity) would be contrary to the terms of the Trust Deed, in breach of the company's fiduciary duties to the unitholders, contrary to the interests of the unitholders and in breach of the warranty negotiated by the parties as to the infringement of third parties' rights and contrary to the law with respect to the assignment of choses in action subject to equities. It was submitted that in this context and in those circumstances a reasonable business person would not construe the assignment of the company's right, title and interest in the causes of action as including not only the company's interest in those causes of action, but also the unitholders' interests in the causes of action. There are two primary responses. First, once again, the contention relied in part on the wrongful premise that the company's "right, title and interest in the causes of action" was limited as a matter of law to its right of indemnity. Secondly, the reference to the "warranty negotiated by the parties as to the infringement of third parties' rights" was a reference to cl 6.2(a) of the deed of assignment. By that clause, the company and the liquidator represented and warranted to the trustees that to the best of their knowledge "the grant of any rights the subject of this [d]eed will not infringe the rights of any person or constitute a breach of any agreement with any other person". It was argued that a reasonable business person reading and interpreting the deed would understand that the rights of third parties, including in particular unitholders, were not intended to be adversely affected, transferred or destroyed by the assignment of the causes of action. That submission also partly depends for its efficacy on the wrongful premise that the company's "right, title and interest in the causes of action" was limited as a matter of law to its right of indemnity. Otherwise, it was a matter of assertion that the assignment of the causes of action in their entirety would be a breach of that clause, without elucidation as to why that must necessarily follow and I do not accept that a breach would necessarily follow, if the deed was construed as the trustees urged.

[26]

Appellants' submissions 58 On the appeal, the appellants contend that the primary judge misapprehended the appellants' point at trial. It was not their contention that the Company could do no more than assign its equitable right of indemnity, rather, their contention was, and remains, that in the present case, that is what the Company assigned, having regard to the language of the Deed of Assignment. The appellants contend that, having misapprehended the appellants' point, the primary judge failed to construe the relevant words of the Deed of Assignment. In particular, the appellants submit that the primary judge did not consider and take into account the import of the words "its right, title and interest in the causes of action detailed in Part 1 of the Schedule" (emphasis added). 59 The appellants contend that, properly construed, the Deed of Assignment assigned to the respondents the Company's interest in the Company's causes of action set out in Part 1 of the Schedule to the Deed of Assignment. Ultimately, this amounted to the right to recover out of the Unit Trust's property the liabilities of the Company pursuant to a right of indemnity. The appellants further contend that any rights that were assigned were subject to "equities", being the unit holders' interests. According to the appellants, if the Court accepted this latter submission, the respondents would be obliged to account to the unit holders for any amount recovered over and above the amount required to satisfy the Company's right of indemnity in respect of properly incurred trust debts. 60 In support of this construction, the appellants relied on the following submissions: (a) As trustee of the Unit Trust, the Company's title comprised the legal title, not the beneficial title, in the Company's rights. (b) The Company's rights and interest in trust property, as distinct from the trust property itself, were its right of indemnity against the trust property for liabilities properly incurred in the performance of its duties as trustee, and the concomitant equitable lien over the trust property securing that right of indemnity: see Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; 268 CLR 524 at [83] (per Bell, Gageler and Nettle JJ). (c) The unit holders' interest in the trust property was not "cut out" of the trustee's legal estate. Rather, it was "engrafted" on to it as a restriction on the manner in which the trustee could deal with the trust assets: Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; 268 CLR 524 at [82] (per Bell, Gageler and Nettle JJ). (d) The respondents, as assignees, took any chose in action under the Deed of Assignment subject to all the equities to which the Company was subject at the time of the assignment, including all the infirmities, defects and limitations affecting the title of the assignor. In support of this proposition, the appellants rely on Southern British National Trust Ltd (in liq) v Pither [1937] HCA 28; 57 CLR 89 at 105 (per Rich J). (e) The Deed of Assignment expressly provided, by cl 1.1, for the assignment of the Company's interest in the causes of action. The Deed contained no reference to the Unit Trust and nothing to the effect that trust property (including rights of action which might be enforced for the benefit of the Unit Trust) was assigned. (f) Clause 6.2(a) of the Deed of Assignment provided that the grant of any rights the subject of the Deed of Assignment would not infringe the rights of any other person or constitute a breach of any agreement with any other person. The appellants submit that, if the Deed of Assignment transferred to the respondents the entirety of the Company's causes of action against, amongst others, Mr Meletsis, this would place the Company and the liquidator in breach of that warranty because of the impact that that construction would have on the interests of the unit holders. (g) Although cl 1.1 of the Deed of Assignment stated that the Company assigned "absolutely all of its right", this did not mean the assignment was free of encumbrances. The appellants submit that an absolute assignment is simply one whereby the entire interest of the assignor in the chose in action is for the time being transferred unconditionally to the assignee and placed completely under the assignee's control. In support of this proposition, the appellants rely on J G Starke QC, Assignments of Choses in Action in Australia, Butterworths, 1972, s 16. (h) According to the appellants, the language of the Deed of Assignment is only susceptible of one meaning - that is, that the Company was assigning its rights, title and interest in the causes of action described in Part 1 of the Schedule. In any event, there is limited evidence of surrounding circumstances relevant to the construction of the Deed of Assignment. The one contextual factor that is emphasised by the appellants is the fact that the consideration paid by the respondents for the assignment of the Company's causes of action - $25,000 - is substantially less than the judgment secured from the primary judge after respondents prosecuted those causes of action. The appellants note that the primary judge's judgement was in excess of $4 million. The appellants submit that it beggars belief that it was the intention of the parties to the Deed of Assignment that the Company would assign these causes of action to the respondents without any obligation on the respondents to account to the beneficiaries of the Unit Trust. 61 The appellants place particular reliance on the reasons of Riordan J in Break Fast Investments Pty Ltd v Sclavenitis [2022] VSC 288 (Break Fast). Justice Riordan's reasons in Break Fast were handed down after the primary judge published the Judgment. 62 In Break Fast, the corporate trustee (COV), in its capacity as a trustee of a family trust, guaranteed the liability of the first defendant and her spouse (the borrowers) to the National Australia Bank up to a specified amount. COV was ultimately wound up, and ipso facto was removed as trustee of the family trust. COV discharged its liability to NAB under the guarantee. COV's liquidator then purported to assign to the plaintiff its rights with respect to the debt owed to it by the borrowers. The assignment deed relevantly stated that COV assigned to the plaintiff "all its right title and interest" in certain specified choses in action. By way of a different deed, the plaintiff had also been assigned a separate debt owed by COV and one of the borrowers to Perpetual (the Perpetual Debt). Justice Riordan considered whether this assignment was effective to assign both the legal and beneficial interests in the causes of action. Riordan J observed that a legal owner who transfers its interest in a trust asset does not transfer part of the asset. His Honour noted that the equitable interest is not "cut out" of the legal interest but is "engrafted onto [the legal estate] as a restriction on the manner in which the trustee may deal with trust assets": Break Fast [2022] VSC 288 at [36]. His Honour held that the assignment of COV's "right, title and interest" plainly included the legal interest, but also that that legal interest had been transferred "subject to the interests of beneficiaries": Break Fast [2022] VSC 288 at [35]. In reaching this conclusion, his Honour had regard to: (a) the text of the assignment provision in the assignment deed, which his Honour described as "unambiguous" (at [35(a)]); (b) the recitals to the assignment deed, which referred to the fact that COV held property on trust (at [35(b)]); (c) the apparent purpose of the assignment deed, when read in context, which was to allow the plaintiff to collect its debt from the borrowers for the purpose of raising a fund from which the right of indemnity could be exercised (at [35(c)]).

[27]

Discussion 63 The appellants' submissions on appeal ground 1 must be rejected. 64 The powers of the Company as trustee of the Unit Trust were set out in a trust deed dated 14 May 2013 (Trust Deed). Clause 6.1(c)(i) of Trust Deed relevantly provided that the respondents "shall have power at their absolute discretion: (i) to sell transfer hire lease or dispose of any real or personal property" of the Unit Trust. Consequently, it was not in dispute that the Company was capable of assigning the entirety of the causes of action specified in Part 1 of the Schedule of the Deed of Assignment. The relevant question for this Court is what, on the proper construction of the Deed of Assignment, was assigned. 65 As a preliminary matter, any submission that the primary judge failed to construe the Deed of Assignment is rebutted by the primary judge's reasons in the Judgment at [139]. As explained there, the primary judge considered that the respondents' submissions as to the proper construction of the Deed of Assignment relied on the incorrect premise that the Company's "right, title and interest in the causes of action" was limited as a matter of law to its right of indemnity. Whether or not that view is correct, on the appeal, the question is whether the Deed of Assignment, properly construed, assigned to the respondents the entirety of the causes of action specified in Part 1 of the Schedule of the Deed of Assignment, or merely the Company's right of indemnity. On that question, the appellants' submissions must fail. 66 The meaning of the terms of the Deed of Assignment is to be determined by what a reasonable business person would have understood the terms to mean. This requires a consideration of the "commercial purpose" of the document including an understanding of the genesis of the transaction, the background context and market in which the parties are operating: Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 (Woodside) at [35] (per French CJ, Hayne, Crennan and Kiefel JJ). Ordinarily, this process of construction is possible by reference to the contract alone. If an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances cannot be adduced to contradict its plain meaning: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; 256 CLR 104 at [48] (per French CJ, Nettle and Gordon JJ). However, sometimes, recourse to matters external to the contract may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding of, relevantly, the genesis of the transaction, the background and the context: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; 256 CLR 104 at [49] (per French CJ, Nettle and Gordon JJ). 67 In the present case, cl 1.1 of the Deed of Assignment is ambiguous and susceptible of more than one meaning. We accept, consistently with the reasoning of Riordan J in Break Fast, that cl 1.1 is capable of being construed as assigning to the respondents no more than the Company's right, as trustee of the Unit Trust, to be indemnified out of the proceeds of any claim for liabilities properly incurred in the performance of its duties as trustee, on the basis that the rights assigned under the Deed of Assignment were encumbered by the unit holders' interests. However, there are three textual considerations which distinguish the Deed of Assignment in this case from the deed considered in Break Fast, and which support the respondents' contention that the Deed of Assignment assigned the entirety of the causes of action - that is, both the legal and beneficial interest in the causes of action. 68 First, the Company and the liquidators' covenanted in cls 4.1(d) and (e) of the Deed of Assignment that they had "full power" to assign their claims and that, to the best of their knowledge, the assignment was taken by the respondents free of other encumbrances. These clauses strongly suggest that the parties did not intend to assign anything less than the entirety of the causes of action listed in the Schedule to the Deed of Assignment. 69 Second, as distinct from the deed in Break Fast, the Deed of Assignment contained no reference to the Company's capacity as trustee of the Unit Trust, or to the beneficiaries of the Unit Trust. If the parties intended the Deed of Assignment to assign to the respondents title to the claim with the beneficiaries' interest engrafted onto it as a restriction on the manner in which the respondents may deal with the proceeds of a recovery action, one would expect that the Deed of Assignment would, at the very least, refer to the Company's capacity as trustee in the Deed of Assignment. 70 Third, as distinct from the operative provision under consideration in Break Fast, cl 1.1 of the Deed of Assignment provided that the Company assigned "absolutely" all of its right title and interest in the causes of action. The import of the term "absolutely" in the Deed of Assignment is not free from doubt. Both the appellants and the respondents cited J G Starke QC, Assignments of Choses in Action in Australia, Butterworths, 1972, s 16, in support of their competing contentions as to the meaning of the term. The appellants relied on the text in support of the proposition that an absolute assignment is one whereby the entire interest of the assignor in the chose in action is for the time being transferred unconditionally to the assignee and placed completely under the assignee's control. The respondents noted that the learned author had expressly stated that "an assignment may not be treated as absolute if the assignor retains any beneficial interest in the subject-matter of the chose in action assigned … or if the extent of what is assigned can be determined only upon an inquiry as to the state of accounts between the parties concerned". It is not necessary to resolve the meaning of the term "absolutely" in cl 1.1 - it suffices to say that its inclusion creates additional ambiguity as to the object of cl 1.1 which was absent in Break Fast. 71 Given the ambiguity in the language of cl 1.1, it is appropriate to have recourse to matters outside of the terms of the Deed of Assignment for the purposes of determining its objects. We consider that the following facts supply crucial context, which informs the determination of the commercial purpose of the Deed of Assignment. Each of these facts supports a construction of cl 1.1 of the Deed of Assignment as assigning the entirety of the causes of action set out in Part 1 of the Schedule to the Deed of Assignment: (a) First, as accepted by the appellants, at the time that the Deed of Assignment was executed, the only property held by the Company were the causes of action specified in the Schedule to the Deed of Assignment. (b) Second, the causes of action assigned under the Deed of Assignment all related to the sale and transfer by the Company of the Property, which it held on trust: Judgment at [5], [134]; (c) Third, despite being in liquidation, the Company has not been removed as trustee, and there was no evidence that any person intended to remove it as trustee: Judgment at [39], [43]; and (d) Fourth, as the Company was in liquidation, and nobody had taken any action to replace it as trustee, there was no means by which the respondents could have assessed the extent of the trustee's right of indemnity that, on the appellants' case, they were said to have purchased. This is because they had no means of accessing the Company, whose right of indemnity was the subject of the transfer. 72 Against this, the appellants have been unable to articulate the commercial purpose that would have been served by restricting the scope of the assignment in the manner contended for by them. It makes no commercial sense for the respondents to have gone to the trouble and expense of buying and prosecuting the causes of action only to realise a fraction of their value limited to the Company's right of indemnity. Furthermore, no commercial purpose would have been served by the liquidator or the Company disposing of something less than the Company's full entitlement presumably for a price lower than the full entitlement would have realised in circumstances where there were no funds available to take any further steps in the liquidation. 73 The most that can be said was, as put by the appellants, that the purchase price for the assignment - $25,000 - was substantially less than the value secured by the respondents in prosecuting the assigned causes of action. However, if the Company and liquidator procured an inadequate price for the assignment of the causes of action, that may give rise to a claim by the unit holders as against the Company and liquidator, but has no bearing on the proper construction of the Deed of Assignment. 74 For completeness, we reject the appellants' submission that an assignment of the Company's right, title and interest in the causes of action would place the Company and the liquidator in breach of cl 6.2(a) of the Deed of Assignment, by infringing on the rights of the beneficiaries. Where a company acts as trustee, any cause of action against a director for breach of a duty relating to the trust property is property of the trustee, and any proceeds from such an action are held on trust and must be dealt with according to the terms of the trust: Carter Holt Hardie Wood Products Australia Pty Ltd v Commonwealth [2019] HCA 20; 268 CLR 524 at [95] (per Bell, Gageler and Nettle JJ). 75 Taking the terms of the Deed of Assignment and contextual considerations together, we consider that a reasonable business person would have understood the terms of cl 1.1 of the Deed of Assignment to give effect to an assignment over the entirety of the Company's causes of action against the appellants to the respondents. 76 In the present case, the causes of action against the appellants were trust property. The Company was expressly entitled to transfer that property by cl 6.1(c)(i) of the Trust Deed. On a proper construction of the Deed of Assignment, it exercised its power to transfer the entirety of its causes of action against the appellants to the respondents. Following the transfer, the proceeds of the assignment were held on trust without affecting the unit holders' rights. 77 It follows that appeal ground 1 must be rejected. 78 There is substantial overlap between the remaining grounds of appeal such that it is convenient to group them.

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APPEAL GROUNDS 4 AND 5: ALLEGED INTEREST OF MR KARAS IN THE PROPERTY 79 Appeal grounds 4 and 5 concern the primary judge's findings as to Mr Karas' interest in the Property. It is convenient to deal with these appeal grounds here, as the appellants' challenge to the primary judge's findings under these grounds forms part of the basis for their challenge under appeal grounds 2, 3, 6 and 7. 80 The key facts relevant to these grounds of appeal may be summarised as follows: (a) On 28 August 2008, the Company, Mr Karas and Mr Cant (the administrator of the Company) entered into a deed of company arrangement. Pursuant to that arrangement, Mr Karas was to loan an amount totalling $755,105 to the Company, with the loan secured by the Karas Mortgage. (b) The Karas Mortgage was registered on 2 March 2009. (c) On 15 June 2011, Mr Karas and certain of his associated entities had their assets made subject to freezing orders upon the application of the Deputy Commissioner of Taxation on the basis of personal tax liabilities of Mr Karas totalling $44,229,669. (d) On 23 November 2011, the Company executed a contract to sell the Property to Establishment 5 for $3 million. The deposit of $300,000 was paid on 24 November 2011 and settlement took place on 25 November 2011. At settlement, Mr Meletsis also provided Mr Speer with a discharge of the Karas Mortgage, which had been signed by Mr Karas. The discharge of the Karas Mortgage was lodged with the Land Titles Office. At the date of settlement, the amount owing under the Karas Mortgage was $218,842.24. (e) On 16 October 2015, Mr Karas filed a debtor's petition for bankruptcy. His liabilities at the time included the tax debt, which remained unpaid. 81 The primary judge held that it was evident that the sale of the Property was orchestrated in a way that had, as part of its design, for Mr Karas to keep an interest in the Property for himself: Judgment at [118]. The primary judge was also satisfied that Mr Meletsis had acted with a dishonest and fraudulent design, which could be inferred from various matters including the fact that the Property was sold at a time when Mr Meletsis knew that Mr Karas had a very significant tax liability to the Australian Taxation Office (ATO): Judgment at [119(a)]. 82 By appeal ground 4, the appellants contend that the primary judge erred in finding in the Judgment at [118] that Mr Karas had an interest in the Property. By appeal ground 5, the appellants contend that the primary judge erred in finding at [114] and [119] that, in causing the Company to enter into a contract for the sale of Property, it was the intention of Mr Meletsis to remove the Property from the potential reach of creditors of Mr Karas, because at no time did Mr Karas have an interest in the Property other than as mortgagee. 83 The appellants submit that Mr Karas had no relevant interest in the Property as he had no more than a mere expectancy to distributions as a general beneficiary of the GH Family Trust (which was one of the unit holders of the Unit Trust). 84 This submission must be rejected. Mr Karas had an interest as a mortgagee of the Property. The mortgage itself was vital to the fraudulent and dishonest design, which the primary judge found "was orchestrated in a way that had as part of its design for Mr Karas to keep an interest in it for himself": Judgment at [118]. 85 Mr Karas' interest as mortgagee had a value, which the primary judge found in the Judgment at [106] was $218,842.24. We detect no error in the primary judge's findings that Mr Karas had an interest as mortgagee in the Property at the time of the sale. 86 Further, the appellants' submission that the sale of the Property had no effect on Mr Karas' creditors must be rejected. At the time that the Property was sold, the Deputy Commissioner of Taxation had obtained freezing orders against the assets of Mr Karas and certain of his associated entities based on Mr Karas' personal tax liabilities, which exceeded $44 million. The ATO, as a creditor of Mr Karas, therefore had an interest in the mortgage. The primary judge found that Mr Meletsis was aware of the freezing order by 19 August 2011; that is, prior to the sale of the Property: Judgment at [59]. The Property settled on 25 November 2011, and on the same day, Mr Meletsis provided Mr Speer with a discharge of the Karas Mortgage. The transfer of the Property in this way had the effect of circumventing the ATO's interest as creditor. 87 Appeal grounds 4 and 5 must therefore be rejected.

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Primary judge's findings 88 We set out below the primary judge's findings relevant to appeal grounds 2, 3, 6 and 7: (a) In the Judgment at [114] the primary judge made a critical finding concerning Mr Meletsis' intention in arranging the Company's sale of the Property to Establishment 5. The primary judge stated: It is reasonably open to infer from those facts and circumstances, and I draw the inference, that it was the intention of Mr Meletsis to remove the property and the sale proceeds from the potential reach of creditors, by transferring the property to a new company for a consideration disguised as to part as the assumption of liabilities by the purchaser company, when the real arrangement was that Establishment 5 would not have the responsibility to pay the balance of the purchase price paid until after completion of the development and, when it became payable, would do so to such entity as directed by Mr Meletsis, which is what actually occurred. By that mechanism, aside from the $800,000 which 70 Nicholson Street did receive in late 2011, the balance of the sale proceeds were diverted and concealed with the Meletsis and Karas family interests both obtaining the benefit of the balance of the purchase price (through Hallmark) and an entitlement to a share of the profits of the development (through the Neaniki Property Developments Trust). (b) The primary judge was also satisfied on the evidence to the Briginshaw standard that Mr Meletsis acted with a dishonest and fraudulent design. The primary judge inferred Mr Meletsis' intention from his involvement in the concerted plan and each of the steps involved in its execution: Judgment at [119]. The primary judge also inferred Mr Meletsis' intention from: (i) the sale of the Property at a time that Mr Meletsis knew that Mr Karas had a tax liability to the ATO, and the SRO was investigating and was likely to levy a tax on the Property (Judgment at [119(a)]); (ii) the "unusual haste with which settlement under the contract of sale occurred, namely within two days of the contract being signed" and "the minimal involvement of solicitors on behalf of [the Company] in selling the property" (Judgment at [119(b)]); (iii) the "the utilisation of the façade of the assumption of liabilities by Establishment 5 to the value of $2 million to reduce the amount actually payable by Establishment 5 at settlement" (Judgment at [119(c)]); and (iv) the discharge of the Karas Mortgage for nil consideration (Judgment at [119(d)]). (c) The primary judge also found that the involvement of Mr Speer, Establishment 5 and Hallmark in the concerted plan was equally evident. The primary judge held that, as Mr Meletsis was a director of Hallmark, his knowledge and actions could be imputed to Hallmark's participation in the concerted plan and the receipt of the $2.2 million from Establishment 5. The primary judge held that, as Mr Speer was the director of Establishment 5, his knowledge and actions could be imputed to Establishment 5's participation in the concerted plan and the transfer to it of the Property. The primary judge inferred Mr Speer's knowledge from his involvement in: the setting up of Establishment 5 and the Establishment 5 Unit Trust; the sale of the Property; and Establishment 5's payment of $2.2 million to Hallmark on the direction of Mr Meletsis: Judgment at [120]. (d) The primary judge also inferred that Mr Karas was a party to the concerted plan. The primary judge found that it was improbable that the sale occurred without his concurrence in its fraudulent design and purpose given the sequence of events, including his agreement to the discharge of the Karas Mortgage without repayment of the outstanding debt secured by the Karas Mortgage. The primary judge held it was reasonable to infer that the reason that the Karas Mortgage was discharged without payment was because, otherwise, the moneys may have been available to be applied in reduction of his tax debt: Judgment at [121].

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Appellants' submissions 89 The appellants in these appeal grounds do not identify any error of law by the primary judge in making the above findings. The appellants seek to challenge the findings and the inferences made by the primary judge. These appeal grounds may be summarised as follows: (a) Appeal ground 2 - The primary judge erred in inferring that Mr Meletsis acted with a dishonest and fraudulent design. (b) Appeal ground 3 - The primary judge erred in inferring that it was the intention of Mr Meletsis to remove the Property from the "potential reach of creditors" without distinguishing between Mr Karas' creditors from the Company's creditors. (c) Appeal ground 6 - The primary judge erred in inferring that the sale of the Property was intended to defeat the Company's creditors. (d) Appeal ground 7 - The primary judge erred in finding that the appellants, Mr Karas, Mr Speer and Establishment 5 participated in a "concerted plan" to defeat potential creditor claims. 90 The appellants' submissions in support of these grounds overlap. Under appeal ground 3, the appellants submit that the Judgment at [114] conflated the creditors of Mr Karas, Mr Meletsis and the Company. The appellants contend that it was imperative that the primary judge, in the Judgment at [114], identify whose creditors would be defeated. On the appellants' submissions, the only creditors of relevance to the primary judge's conclusions concerning the alleged "concerted plan" and "dishonest and fraudulent design" ought to have been the creditors of the Company. The appellants emphasise that the debts of the Company were limited to a $550 debt to the Commissioner of Taxation and a potential land tax liability of $138,000. 91 In turn, the appellants submit under appeal ground 2 that the primary judge's conclusion that Mr Meletsis acted with a dishonest and fraudulent design cannot stand. The appellants contend that such a conclusion assumes that the sale of the Property, and the elaborate (but disjointed) steps allegedly taken in anticipation and pursuance of it, were contrived for the express purpose of avoiding a $550 debt to the Commissioner of Taxation and a potential land tax liability of $138,000. The appellants submit that such a conclusion is highly improbable and inconsistent with Mr Meletsis' evidence, namely that he was unable to procure funding to carry on with the development of the Property, and this led to the implementation of a joint venture with Mr Speer and Establishment 5. At the hearing of the appeal, counsel for the appellants characterised Mr Meletsis' evidence as "uncontradicted", as no evidence was led by the respondents to contradict it. 92 Similarly, in support of appeal ground 6, the appellants note that the primary judge's finding that Mr Meletsis acted with a dishonest and fraudulent design was based on, amongst other things, inferences that the primary judge drew about the haste with which the Property was sold and the minimal involvement of the Company's solicitors in the sales process. The appellants contend that these matters are explained by Mr Meletsis' evidence that he was unable to secure finance to fund the development, and his evidence concerning the joint venture with Mr Speer. They also emphasise that no purpose was served by the appellants' alleged mis-statement of the Company's liabilities to Establishment 5. Accordingly, the appellants submit that, the primary judge erred in concluding that, in causing the Company to enter into the sale, Mr Meletsis intended to remove the Property from the potential reach of creditors of the Company. For the same reason, the appellants submit that the primary judge erred in holding that the appellants, Mr Karas, Mr Speer and Establishment 5 participated in a concerted plan to transfer the Property from the Company to Establishment 5 in order to avoid potential creditor claims (appeal ground 7).

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Discussion 93 The fundamental principles of appellate review were recently set out by the Full Court in Frigger v Trenfield (No 3) [2023] FCFCA 49 at [133]-[147] (per Allsop CJ, Anderson and Feutrill JJ). It is not necessary to recite all of those principles here. It is sufficient to observe that the Full Court accepted (at [138]) that, in Fox v Percy [2003] HCA 22; 214 CLR 118 at [27], Gleeson CJ, Gummow and Kirby JJ held that the advantages of the trial judge do not derogate from the obligation of the appeal court to conduct a real review by way of rehearing according for the purpose of correction of error. If, from this review, and after making due allowance for the advantages of the trial judge, the appeal court concludes that an error has been shown, effect must be given to that conclusion. However, the Full Court also recognised that the primary judge in that case "had the advantage, over time, during and after the trial, of relating the documents and the oral evidence together, and evaluating their overall effect in the discharge of the onus of proof": at [144]. This was in addition to the primary judge's advantage in seeing and hearing the relevant witness give evidence: at [141]. The Full Court stated that, while this did not absolve the Court of the obligation to examine all the material in a full review by way of rehearing, "it reveals why we must give respect to the findings of the primary judge": at [144]. The Full Court stated that, in the case of factual findings based in whole or in part upon a conclusion of the lack of credibility or honesty of a witness, those findings may only be reversed if they are shown to be contrary to "incontrovertible facts or uncontested testimony", "glaringly improbable" or "contrary to compelling inferences": Frigger v Trenfield (No 3) [2023] FCFCA 49 at [141] (per Allsop CJ, Anderson and Feutrill JJ). 94 The relevant standard of proof applicable in this proceeding was as set out by Dixon J in Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 336 at 362. In that case, his Honour stated: [R]easonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of the occurrence of a given description or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters, reasonable satisfaction should not be produced by inexact proofs, indefinite testimony or indirect inferences. 95 The primary judge accepted that, given the nature of the allegations in the proceeding, the Briginshaw standard applied, and consequently "a very high level of satisfaction should be reached in determining whether the respondents' claims against the defendants have been established on the evidence": Judgment at [52]. 96 The respondents in the case before the primary judge alleged that Mr Meletsis, Mr Karas, Mr Speer, Hallmark, and Establishment 5 acted in concert and participated in, amongst other things: (1) a "concerted plan … to avoid the potential claims of creditors to benefit themselves": respondents' second amended statement of claim (SASC) [72]; (2) a "dishonest and fraudulent design" by Mr Meletsis: SASC [79]. 97 The primary judge accepted the case advanced by the respondents and made findings of serious dishonesty and other credit findings against both of the appellants' witnesses, Mr Meletsis and Mr Karas after taking into account the Briginshaw standard. Specifically, the primary judge made the following adverse findings: (a) The primary judge found Mr Meletsis to be an unimpressive witness who was, at times, deliberately untruthful. The primary judge found that the occasions on which he was untruthful went to the core of the allegations against the defendants: Judgment at [91]. The primary judge further found that Mr Meletsis' evidence was largely an attempt at self-justification, which lacked a reliable evidentiary foundation: Judgment at [95]. (b) The primary judge found Mr Meletsis' denial that he neither knew of Mr Karas' tax debt of around $44 million nor of the freezing orders obtained by the ATO until March 2012 implausible and not credible: Judgment at [58]. (c) The primary judge did not accept Mr Meletsis' evidence that he relied upon a land tax clearance certificate to mean that there was no land tax levy owing on the Property when he signed the contract of sale: Judgment at [62] (d) The primary judge rejected, as not credible, Mr Meletsis' evidence that Mr Georgakopoulos did not know about the sale of the Property to Establishment 5: Judgment at [92]. (e) The primary judge rejected, as lacking credence, Mr Meletsis' denial that there was an arrangement that Establishment 5 did not have to pay the balance of the purchase price until after completion of the development of the Property: Judgment at [94]. (f) Contrary to Mr Meletsis' evidence, the primary judge found that Mr Meletsis did know that no amount was owed on the Rover Mortgage at the time of the sale of the Property: Judgment at [66]. (g) Contrary to Mr Meletsis' evidence, the primary judge found that Mr Meletsis did not genuinely believe that the Company was liable to pay an open space contribution of $125,000 (being an amount included in the creditors schedule prepared by Mr Meletsis): Judgment at [67]. (h) The primary judge rejected Mr Meletsis' evidence that the Property was sold to Establishment 5 in November 2011 so as to secure funding for the development of the Property on the basis that this evidence lacked credibility: Judgment at [73]. (i) Contrary to Mr Meletsis' evidence, the primary judge found that the payment of $2.2 million by Establishment 5 to Hallmark was the balance of the purchase price due and owing to the Company, but which was diverted to Hallmark: Judgment at [84]. (j) The primary judge also found Mr Karas to be an unimpressive witness, who gave inconsistent evidence and who was at times deliberately untruthful: Judgment at [96]. The primary judge concluded that Mr Karas' evidence on matters against his interest should be "considered with considerable caution": Judgment at [97]. (k) The primary judge found that the Karas Mortgage was discharged without the debt of $218,842.24, which it secured, being paid: Judgment at [106]. The primary judge rejected Mr Karas' evidence that, at the time the mortgage was discharged, there was no debt owing: Judgment at [104]. 98 Having made the above findings with respect to the evidence of Mr Meletsis and Mr Karas, and having regard to the evidence that was admitted or not in controversy, the primary judge made findings as to the backdrop to the sale of the Property, and the sale process itself. The judge's findings included that: (a) the Company intended to develop the Property for a sizeable profit (Judgment at [111(a)]); (b) Mr Karas had a second ranking mortgage over the Property and the first ranking mortgage (the Rover Mortgage), to the knowledge of Mr Meletsis and Mr Karas, secured no amount (Judgment at [111(c)]); (c) Mr Meletsis knew that the ATO was pursuing Mr Karas for tax liabilities of $44 million and his assets were subject to a freezing order (Judgment at [111(d)]); (d) Mr Meletsis knew that the Company no longer qualified for a land tax exemption, and the SRO was exploring this (Judgment at [111(e)]); (e) the Property was sold to a newly formed company, Establishment 5, in which the Meletsis and Karas families had an interest (Judgment at [112(a)]); (f) the sale occurred at an undervalue (Judgment at [112(b)]); (g) by an undocumented side agreement to the sale agreement, Mr Meletsis and Mr Speer agreed that only $1 million of the $3 million purchase price would be payable at settlement, with the balance payable only after the development was completed (Judgment at [112(d)]); (h) only $800,000 was paid at settlement (Judgment at [113]); and (i) following completion of the development, Mr Meletsis directed Mr Speer to cause Establishment 5 to pay $2.2 million to Hallmark, a company controlled by Mr Meletsis and in which the Meletsis and Karas families had an interest through their unit holding in the GH Family Trust (Judgment at [113]). 99 It was against the background of these findings that the primary judge: (a) inferred that Mr Meletsis affected the sale of the Property with the intention of avoiding potential claims of creditors (Judgment at [114], challenged under appeal grounds 3 and 6); (b) inferred that Mr Meletsis acted with a dishonest and fraudulent design (Judgment at [119], challenged under appeal grounds 2 and 6); and (c) found the appellants, Mr Karas, Mr Speer and Establishment 5 participated in that concerted plan (Judgment at [120]-[121], challenged under appeal ground 7). 100 On a review of the primary judge's reasons as set out in paragraphs [97]-[99], it is apparent that the appellants' contention that the primary judge erroneously failed to distinguish between the creditors of Mr Karas and the Company is without merit. The primary judge clearly identified in the Judgment at [111(d)] and [111(e)] that Mr Karas' creditor was the ATO, and that the Company had a prospective liability to the SRO. It is clear that the primary judge's statement in the Judgment at [114] that "it was the intention of Mr Meletsis to remove the property and the sale proceeds from the potential reach of creditors" was a reference to the Company's and Mr Karas' creditors. 101 It is also apparent that the primary judge's findings as to Mr Meletsis' intentions, design and the participation of Mr Karas, Hallmark, Mr Speer and Establishment 5 in this plan - being the findings impugned by appeal grounds 2, 3, 6 and 7 - arise out of the primary judge's initial adverse findings as to the credibility of Mr Meletsis and Mr Karas, and the truthfulness of their evidence (being the findings set out above at [97]). In reaching these conclusions with respect to Mr Meletsis' and Mr Karas' evidence, the primary judge had the advantage of observing Mr Meletsis and Mr Karas when giving evidence, and during and after the trial, of relating the documents and the oral evidence together, and evaluating their overall effect in the discharge of the onus of proof. 102 The appellants have failed to identify a sufficient basis which would justify this Court on appeal substituting its findings for those of the primary judge who had the above advantages: Warren v Coombes [1979] HCA 9; 142 CLR 531, especially at 545-553; State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) [1999] HCA 3; 160 ALR 588 at [89]-[91]; Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission [2000] HCA 47; 203 CLR 194 at [203]-[204], [214]; Fox v Percy [2003] HCA 22; 214 CLR 118 at 124-129, [20]-[31]; Lee v Lee [2019] HCA 28; 266 CLR 129 at [53]-[58]; Robinson Helicopter Inc v McDermott; [2016] HCA 22; (2016) 331 ALR 550 at [43]; and the principles of appellate review recently stated by this Court in Frigger v Trenfield (No 3) [2023] FCFCA 49 at [133]-[147]. 103 It cannot be said that Mr Meletsis or Mr Karas' evidence was "uncontested": cf Fox v Percy [2003] HCA 22; 214 CLR 118 at [28] (per Gleeson CJ, Gummow and Kirby JJ). Although their evidence was not contradicted by the evidence of other witnesses, their evidence on matters going to the core of the allegations in the proceeding was the subject of cross-examination. The primary judge ultimately did not accept their evidence, as her Honour was entitled to do. Critically, Mr Meletsis' evidence that the Property was sold to Establishment 5 in November 2011 so as to secure funding for the development of the Property was the subject of cross-examination, and was rejected by the primary judge as lacking credibility. No other evidence was presented by the appellants to explain why the Property was transferred to Establishment 5: Judgment at [73]. 104 Nor, contrary to the appellants' submissions, were the primary judge's conclusions "glaringly improbable": cf Fox v Percy [2003] HCA 22; 214 CLR 118 at [29] (per Gleeson CJ, Gummow and Kirby JJ). At the hearing of the appeal, the appellants emphasised that it was improbable that Mr Meletsis, Mr Karas and Mr Speer would embark on a series of transactions which, on the appellants case, could only have caused damage to the Company's creditors in circumstances where the Company's debts - principally, a potential land tax liability to the SRO of $138,000 - were less than the stamp duty payable for the transfer of the Property. Such a submission is artificial. As the primary judge found, Mr Meletsis' brother-in-law, Mr Karas, had a second ranking mortgage over the Property, and the ATO had obtained a freezing order against his assets, having assessed his personal tax liabilities as totalling $44,229,669. There was a clear incentive in these circumstances for the appellants, Mr Meletsis, Mr Speer, and Establishment 5 to arrange the transaction in the manner that they did. For the same reason, the primary judge's conclusions were not "contrary to compelling inferences": cf Fox v Percy [2003] HCA 22; 214 CLR 118 at [29] (per Gleeson CJ, Gummow and Kirby JJ). 105 The findings and inferences made by the primary judge relevant to appeal grounds 2, 3, 5, 6 and 7 were open to the primary judge to make and demonstrate no error. 106 It follows that appeal grounds 2, 3, 5, 6 and 7 must be rejected.

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APPEAL GROUNDS 10, 11 AND 12: SECTION 81 TRANSCRIPT EVIDENCE 111 On the first morning of the trial, the primary judge received written and oral submissions concerning the admission into evidence of transcripts of public examinations of Mr Meletsis, Mr Karas, Mr Georgakopoulos, Mr Speer, Mr Costanzo, and Matthew Franke (the solicitor that drafted the contract of sale for the Property). The public examinations had been conducted under s 81 of the Bankruptcy Act. The primary judge informed the parties that she had formed the view that ss 81(17) and 255 of the Bankruptcy Act permitted the use of the transcripts in relation to all causes of action. The primary judge informed the parties that she would set out her reasons for doing so in her final reasons: Transcript 47.5-10. The Judgment ultimately omitted reference to the primary judge's reasons for her conclusion as to the admissibility of the public examination transcripts. 112 The appellants contend that the primary judge erred in admitting that evidence (appeal ground 10), failing to give reasons for her ruling (appeal ground 11) and failing to limit the use of the transcript pursuant to s 136 of the Evidence Act (appeal ground 12). The substance of the appellants' submission is that the proceeding was brought under the general law, save insofar as the respondents brought claims with respect to the Karas Mortgage under ss 120 and 121 of the Bankruptcy Act. Accordingly, the appellants submit that the primary judge should not have permitted the respondents to rely on the transcripts, on the basis that those parts of the proceeding were not "proceedings under" the Bankruptcy Act within the meaning of s 81(17) of that Act. 113 The respondents accept that the primary judge did not supplement her ruling with reasons (appeal ground 11) but submit that this is of no moment because: (a) the appellants do not allege that the evidence contributed to any erroneous outcome; and (b) if the transcripts had impacted upon the outcome, this Court can and should determine that the transcripts were properly admitted. 114 Section 81(17) of the Bankruptcy Act provides that the transcript of evidence given at an examination of a person under s 81 of the Act "may be used in evidence in any proceedings under this Act whether or not the person is a party to the proceeding". Section 255 of the Bankruptcy Act provides that: (1) A transcript or electronic or magnetic recording that purports to be a record of proceedings under section 77C or 81, or of proceedings before a court, is to be taken to be a record of that kind, unless the contrary is proved. (2) The transcript or recording is admissible as evidence of the matters described by a person whose words are recorded in the transcript or recording, unless the Court, or a court in which the transcript is sought to be introduced, makes an order to the contrary. 115 Section 255(2) was inserted in the Bankruptcy Act by the Bankruptcy Legislation Amendment Act 1996 (Cth) to overcome the common law rules excluding hearsay evidence, and to enable evidence given at examinations to be put on the record in court proceedings without the need for witnesses to repeat their accounts of events: Explanatory Memorandum to that Act at paragraph 182.2. 116 In Colonial Mutual Life Assurance Society Ltd v Donnelly [1998] FCA 364; 82 FCR 418 at 434 (per Wilcox, O'Connor and Sackville JJ) (Donnelly), the Full Court stated that s 255 of the Bankruptcy Act "was intended to make the transcript of evidence admissible as evidence not merely of the words spoken by the examinee, but of the matters described by the examinee in his or her evidence". However, the Full Court noted that it did not follow that the contents of a transcript of a public examination would automatically be admissible in subsequent proceedings. Instead, the Full Court held that s 255 must be read together with s 81(17), which at the time provided that a transcript of an examination may be used in evidence in any proceedings under the Act in which the person is a party. The Full Court therefore held that "the apparently broad terms of s 255(2) must be qualified so as to make a s 81 transcript admissible (subject to the power of the court to make an order to the contrary) only in proceedings under the Bankruptcy Act to which the examinee is a party": Donnelly at 432. 117 Since the decision in Donnelly, the language of s 81(17) has been amended. The words "whether or not the person is a party to the proceeding" were inserted in s 81(17) by the Bankruptcy Legislation Amendment (Anti-avoidance) Act 2006 (Cth) (the 2006 Act). In Rambaldi v Mullins (No 2) [2016] FCA 977, Murphy J held at [67] that: … at that time s 81(17) of the Act provided that a transcript could only be used in evidence in proceedings under the Act in which the person whose evidence is sought to be adduced was a party to the proceeding. It is significant that there is no longer any restriction to the use of transcripts only to proceedings to which the examinee is a party. That is made clear by the current s 81(17)(b), into which the words "whether or not the person is a party" were inserted by the [2006 Act]. (Citations omitted.) 118 Nonetheless, for transcripts of public examinations to be admitted into evidence, the terms of s 81(17) of the Bankruptcy Act must be satisfied. This means that the respondents must establish that the proceeding constituted "proceedings under" the Bankruptcy Act. 119 In the present case, the appellants' objection to the tendering of the transcripts was a partial objection only. The appellants accepted that the respondents were entitled to rely on the transcripts for the purposes of those claims, which were brought under the Bankruptcy Act. 120 We accept the respondents' submission that those claims, as well as the assigned claims, arose out of the transfer of the Property. The Karas Mortgage was discharged as part of the transaction that formed the basis of the assigned claims. The inter-relationship between the claims is demonstrated by order 11 made on 7 February 2022 by the primary judge. As a result, the respondents' claim under the Bankruptcy Act regarding the mortgage interacts with and is inseparable from the assigned claims. 121 In these circumstances, we are satisfied that the proceedings before the primary judge were "proceedings under" the Bankruptcy Act. 122 Further, the reasons of Austin J in Australian Securities and Investments Commission v Vines [2003] NSWSC 995; 48 ACSR 282 are instructive. His Honour considered the operation of s 56(1) of the Evidence Act 1995 (NSW), which is in the same terms as s 56(1) of the Evidence Act. Section 56(1) provides "[E]xcept as otherwise provided by this Act, evidence that is relevant in a proceeding is admissible in the proceeding". His Honour relevantly held (at [22]): It is notable that both ss 55 and 56 address the question whether evidence is admissible in a proceeding. … if the evidence is relevant, it is admissible. Once it is admitted, it is evidence in the proceeding, and therefore available to be used for any purpose, unless one of the exclusionary rules of the Act or any surviving general law exclusionary rule applies, or the court makes use of its statutory discretions to exclude admissible evidence or limit its use. 123 Although his Honour's reasons concerned the application of s 56(1) of the Evidence Act 1995 (NSW), they are instructive as to the application of s 81(17) of the Bankruptcy Act. If the proceeding in which the evidence is tendered satisfies the prescription of s 81(17) of the Bankruptcy Act, the section does not limit the use to which the evidence may be put. 124 For these reasons, the primary judge was correct to disallow the partial objection to the tender of the transcripts. 125 Appeal ground 10 must therefore be rejected. Having concluded that the primary judge was correct to disallow the partial objection to the tender of the transcripts, appeal ground 11 must also be rejected. 126 As to appeal ground 12, a review of the transcript of the trial reveals the following: (a) Counsel for the appellants made a range of submissions in support of the appellants' objection to the tender of the transcripts. At the end of those submissions, counsel for the appellants foreshadowed his intention to make an objection under s 136 of the Evidence Act in the following terms: "if the transcript is going to come in at some point for some purpose, we will be asking your Honour to give a certificate under section 136 as to the use of the transcript": Transcript 35.11-13. (b) Counsel for the respondents sought to respond to the appellants' contentions with respect to the appellants "oral application" under s 136 of the Evidence Act. The primary judge cut those submissions short, stating that she would not deal with that application at that time. The primary judge stated that she would first need to consider whether the transcripts were admissible, and that it was a separate question whether there should be any limitations on the use of the transcripts. The primary judge then stated: "If that question arises for determination, it ought properly be done at the point of time which - having regard to the use that's intended to be made of the examinations. I'm not going to do it in a vacuum now": Transcript 40.25-33. (c) Counsel for the respondents subsequently informed the Court that the respondents intended to tender the whole of the transcripts into evidence. Counsel for the appellants stated: "I think that's the only way it can be permitted to be done": Transcript 70.8-12 127 The transcripts were subsequently tendered into evidence. At the time that the transcripts were tendered into evidence, the appellants did not seek a direction limiting the use of the transcripts under s 136 of the Evidence Act. 128 In circumstances where the appellants did not seek such a direction, the primary judge cannot now be criticised for not addressing the application of s 136 of the Evidence Act. 129 It follows that appeal ground 12 must be rejected.

[35]

APPEAL GROUND 14: TRACING WITH RESPECT TO THE DISCHARGE OF THE KARAS MORTGAGE 130 At trial, the respondents submitted that the discharge of the Karas Mortgage for nil consideration was an alienation of that property with intent to defraud creditors within the meaning of s 172 of the Property Law Act 1958 (Vic). The primary judge upheld the respondents' submissions: Judgment at [148]-[149], [152]. 131 The judge consequently ordered that there be judgment for the respondents against Hallmark in the sum of $467,728.82. This amount reflected the amount that should have been paid to discharge the Karas Mortgage plus interest. 132 By appeal ground 14, the appellants contend that the primary judge erred in making this order, as it was based on the erroneous conclusion that the avoidance of the discharge of the Karas Mortgage by operation of s 172 of the Property Law Act 1958 (Vic) gave rise to a tracing remedy against Hallmark. The appellants contend that there was no property created or transferred by the discharge of the Karas Mortgage, which is amenable to tracing. 133 Section 172(1) of the Property Law Act 1958 (Vic) relevantly provides that: Save as provided in this section, every alienation of property made, whether before or after the commencement of this Act, with intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced. 134 As the primary judge held in the Judgment at [149], s 172 does not require a transfer of property - it merely requires an alienation of the property with intent to defraud creditors. In Deputy Commissioner of Taxation v Haritos [2014] VSC 379; 287 FLR 136 at [219], Sloss J held that s 172 applies to all forms of property, both legal and equitable. In Hall v Poolman [2007] NSWSC 1330; 215 FLR 243 at [550], Palmer J made the following comments about the meaning of s 37A of the Conveyancing Act 1919 (NSW), which corresponds with s 172 of the Property Law Act 1958 (Vic): The purpose of s 37A is to defeat fraud no matter by what device it is implemented. The reach of the section is not foreshortened by technical obstructions placed in the way of recovery proceedings in furtherance of the original fraudulent intent. The words of the section are of the widest possible application; they focus on the effect of what is done, not on the means by which it is done. The word "alienation" encompasses every conceivable means whereby property might be removed from the reach of a person's creditors. 135 In the present case, as the primary judge found in the Judgment at [148] and [152], the effect of the discharge of the Karas Mortgage for nil consideration was to transfer value to Establishment 5, namely the value of the funds that should have been utilised to repay the debt from the Company to Mr Karas which the Company later passed through to Hallmark, which was also a party to the dishonest design. The primary judge was correct to conclude that the discharge of the mortgage constituted an alienation of property with the intent to defraud creditors within the meaning of s 172(1) of the Property Law Act 1958 (Vic). The orders made by the primary judge recognised this and sought to reverse that series of value transfers. 136 We detect no error in the primary judge's reasoning in the Judgment at [148], [149] and [152] nor in the orders made by the primary judge. Appeal ground 14 must be rejected.

Meletsis v Yeo in his capacity as trustee of the bankrupt estate of Karas

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