Polimeni v Villacam Pty Ltd [2003] VSC 86

[2003] VSC 86

SHARE TRANSFERS - Registration - Where company register no longer in existence. Bankruptcy Act 1966 - Where share transfer was voidable at instance of Trustee in Bankruptcy - Where Trustee chose not to avoid the transaction in consideration of payment by transferee. Sham transaction - Where undated transfers back were signed by transferee at the time the original share transfers were signed - Whether transfers should be set aside as a sham. Non est factum - Where prior transfers alleged to have been signed by transferors but denied by them - Where transferors illiterate and reliant on business associate.

2. These proceedings are the product of a dispute between members of the Polimeni family and members of the Belmuda family as to ownership of shares in a company named Villacam Pty Ltd ("Villacam").

5. Villacam was acquired as a shelf company in 1990 by Santino Belmuda and his wife Rita ("the Belmudas") in order to establish a vehicle for the ownership of a commercial property in Thomas Street, Dandenong. Following the acquisition of Villacam, the Belmudas each held one ordinary share in the company. It was the intention of the Belmudas to refurbish part of the Thomas Street premises (and in particular a first floor area previously used as a bowling alley) and to utilise the refurbished portion of the premises for the purpose of reception rooms to be operated by another company controlled by them.

8. The price payable for the premises was $1.2 million, of which the Belmudas paid an initial deposit of $120,000 and sought to borrow the balance through Villacam. In the event there was a shortfall of some $400,000 in the amount able to be borrowed and they sought the interest of other parties to participate in the venture. Mr Belmuda was introduced to Antonio Polimeni by a mutual acquaintance. It was agreed that in consideration of Mr Polimeni and his wife Gennarina ("the Polimenis") lending $400,000 to the company, the Polimenis would be issued with one ordinary share each in Villacam, resulting in a situation where each member of the two couples held a share in the company. It was understood that the business of ownership of the premises would be conducted on a 50/50 basis as between the Belmudas and the Polimenis.

11. The financing of the acquisition resulted in a situation where Villacam had the following principal liabilities:

(a) It was indebted to "Forward Mortgage" (Perpetual Trustees Ltd) for the bulk of the purchase money secured by a first mortgage on the premises;

(b) It was indebted to the Polimenis for $400,000 which had been obtained by loan from the Commonwealth Bank and was secured by a first mortgage loan over the Polimenis' home and guaranteed by a personal guarantee signed by each of the Polimenis and the Belmudas. Mr Belmuda gave evidence that because of these guarantees this loan was regarded as a loan made jointly by the Polimenis and the Belmudas;[1]

(c) Villacam was indebted to the Belmudas for the loan of the initial deposit of $120,000.

17. It was understood by all parties that there would be further expenditure involved in the refurbishment of the reception rooms. Mr Belmuda asserts it was also understood that there was some uncertainty as to the continuation of the flow of rental income from the then main tenant on the ground floor.

20. In any event, both the Belmudas and the Polimenis made further contributions to the company over the next four years. The balance sheet for the company as at 30 June 1994 discloses a net deficit of $389,223 and records the principal assets and liabilities of the company as follows:

Loan Belmuda International Receptions Pty Ltd $ 385,621

32. The reception room business commenced in 1993. The company accountant one Robert Zaia ("Zaia") gave evidence that the loan to Belmuda International Receptions Pty Ltd recorded in the balance sheet as at 30 June 1994 was in fact comprised by arrears in rent from the operating company which conducted the reception rooms and which subsequently went into liquidation.

35. This evidence and the balance sheet demonstrate:

(a) that Villacam provided a value to the Belmudas beyond that provided to the Polimenis by providing for them premises at which they could accommodate a business;

(b) that this accommodation was in the initial years of such business a matter of substantial financial risk to Villacam;

(c) that the Belmudas had loaned more to Villacam than the Polimenis as at 30 June 1994 (if the balance sheet does not reflect the "credit" to the Belmudas as guarantors to which Mr Belmuda deposed in evidence) but the difference was more than off-set by the outstanding rentals due from Belmuda International Receptions Pty Ltd.

(d) that the true value of the company depended upon the value of the Thomas Street premises which was recorded in the balance sheet at cost rather than at market value.

41. In addition to loans to the company, it is apparent that both families made personal contributions to the company. Mr Belmuda in effect managed its affairs and his family worked in the reception room business once it commenced at the premises. Mr Polimeni, who is a concreter by trade, worked on the renovations at the premises between 1990 and 1994, and thereafter on an occasional basis assisting in the kitchen. Mrs Polimeni worked regularly in the kitchen (for no wage other than the taking of food) up until 1997.

44. In 1994 and 1995 Villacam was under substantial financial pressure and in turn the Polimenis faced difficulties in maintaining repayments to the Commonwealth Bank. Mr Belmuda gave evidence that if the company had difficulty meeting all of its loan repayments the moneys due under the primary loan from Forward Mortgage were always repaid, but those due under the Polimenis' loan from the Commonwealth Bank were not.

47. On the evidence, some $85,000 was loaned by the Polimenis to the company from funds provided by their relatives in 1994 and 1995. This included a loan of some $60,000 from Donna Polimeni, the sister of Antonio Polimeni and the plaintiff in this action. This was recorded in a written agreement expressed to record a loan from the plaintiff to the Polimenis and the Belmudas.

50. The defendants' case is that in 1995 the pressure of ongoing responsibility as shareholders and in effect joint partners in the company became too much for the Polimenis and they transferred their shares to Robert and Elvira Moretti, the son-in-law and daughter of the Belmudas ("the Morettis"). The plaintiff and the Polimenis deny that this occurred. Their case is that in 1997 the Polimenis transferred their shares to the plaintiff. They say further that this step was taken because it was apprehended the Polimenis would be bankrupted by the Commonwealth Bank. The Polimenis assert this course of action was advised and encouraged by Mr Belmuda and the accountant Zaia "for the good of the company". In furtherance of this purpose transfers back from the plaintiff to the Polimenis were also signed by the plaintiff to enable the shares to be transferred back after the impending bankrutpcy had been resolved. After the share transfers were executed they were provided to Zaia (who had prepared them) in order that the transfers to the plaintiff could be registered.

53. In 1998 the plaintiff and the Polimenis sought to recover the loan moneys then remaining owing to them by the company. A meeting was held with Zaia (who was seeking to negotiate a settlement on behalf of the Belmudas) and Zaia tabled a summary of the company's financial position in the form of a rough asset and liability statement. This disclosed as assets the Thomas Street building valued at $1.9 million and total liabilities of some $2.7 million. The liabilities included:

(said in evidence to include the $60,000 loaned by the plaintiff)

- Loans from R. and E. Moretti in the sum of $20,000

- Loans from A. and G. Polimeni in the sum of $272,398

- Loans from S. and R. Belmuda in the sum of $468,759.

61. Thereafter Messrs Holding Redlich solicitors, put forward an offer on behalf of the Belmudas to purchase the plaintiff's shares in Villacam and settle the plaintiff's and the Polimenis' claim for loan moneys for a lump sum of $200,000. The offer was made by way of a draft deed under cover of a letter dated 19 June 1998. It was not accepted.

64. On 3 February 1999 the trustee in bankruptcy of the estates of the Polimenis advised the plaintiff that it appeared to him that the transfers of shares in Villacam to the plaintiff may be void as against him pursuant to s.120 or alternatively s.121 of the Bankruptcy Act 1966. He offered to transfer his interest in the Polimenis' home at Clayton (subject to existing encumbrances) and his interest in the shares in Villacam to the plaintiff for the sum of $50,000. The plaintiff accepted this offer and paid such sum to the trustee.

67. During 1999 it is Mr Belmuda's evidence that he discovered within an archive box supplied to him by Zaia, the transfers from the Polimenis to the Morettis and the transfers back from the plaintiff to the Polimenis (but curiously not the transfers from the Polimenis to the plaintiff).

70. The plaintiff's solicitor made requests to Zaia at successive places of his employment for financial information relating to the company first in 2000 and then again in 2001. No such information was provided.

73. In and between 1997 and 1999 a series of annual company returns were lodged in relation to Villacam with the ASC/ASIC declaring that the Polimenis had ceased to be shareholders and that the plaintiff was the holder of two ordinary shares. In February 2001 an undated annual return was lodged on behalf of Villacam for the year ending 1999. This document is the first company document produced to the Court post dating 1996 in which it is stated the Morettis are shareholders in the company and the plaintiff is not. By solicitor's letter of 9 August 2001 it was asserted on behalf of the company and the Belmudas that the Polimenis had transferred their shares to the Morettis. The letter enclosed copies of:

(a) transfers of shares by A. and G. Polimeni to the Morettis purportedly executed in 1995; and

(b) undated copies of transfers from Donna Polimeni back to A. and G. Polimeni.

The letter stated in part:

"According to our instructions, Elvira and Robert Moretti acquired their shares from Antonio Polimeni and Gennarina Polimeni pursuant to the attached instruments on 1 July 1995. In consideration for the transfer, at the request of the Morettis, Mr Santino Belmuda assumed liability for a debt of $120,000 owing by Gennarina Polimeni and Antonio Polimeni to the Commonwealth Bank of Australia."

80. Before seeking to state the issues between the parties which have been litigated before me, it is useful to summarise the chronology upon which the plaintiff relies.

Shares issued to A. and G. Polimeni. Premises at Thomas Street, Dandenong purchased by Villacam.

National Mutual Ltd refinances principal loan to Villacam.

Villacam annual return lodged in respect of year ended 1995 stating A. and G. Polimeni as shareholders.

Transfers of shares executed from A. and G. Polimeni to Donna Polimeni, and simultaneous transfers back from Donna Polimeni to A. and G. Polimeni signed by plaintiff.

Transfers of shares from A. and G. Polimeni to plaintiff delivered to Zaia's office for registration.

Villacam annual return for year ended 1996 signed by S. Belmuda (date not inserted by S. Belmuda).

Annual return of Villacam for 1996 lodged with ASC declaring, inter alia, that the plaintiff is a shareholder in the company in place of A. and G. Polimeni.

Notification to ASC of change in shareholders in Villacam signed by S. Belmuda stating plaintiff a shareholder

Date of bankruptcy of A. and G. Polimeni (sequestration order made on behalf of the Commonwealth Bank).

Notification of change of shareholders in Villacam lodged with ASC stating plaintiff a shareholder.

Statements of affairs of A. and G. Polimeni made under the Bankruptcy Act 1966 stating shares in Villacam disposed of to plaintiff on 1 July 1996.

Villacam annual return lodged in respect of preceding year stating plaintiff a shareholder.

Plaintiff's meeting with Zaia concerning financial position of Villacam.

Subsequent offer by Belmudas to purchase shares from plaintiff.

Villacam annual return lodged stating plaintiff is a shareholder in Villacam.

Offer by Trustee in Bankruptcy to sell his interest in the plaintiff's shares in Villacam to the plaintiff. Offer accepted and payment made by the plaintiff thereafter.

Further offer by Belmudas to purchase shares from the plaintiff.

Plaintiff requests financial information from company accountant.

Undated company annual return lodged for year ending 1999 stating Morettis shareholders in place of the plaintiff.

Company annual return lodged for year ending 2000 also showing Morettis as shareholders.

Plaintiff's solicitors query company accountant as to the annual returns.

Solicitor's letter sent on behalf of the Belmudas and the company denying the plaintiff has an interest in the company.

84. The defendants assert in effect that this chronology is critically deficient with respect to events in 1995. They assert that in mid 1995 discussions took place between Mr Polimeni and Mr Belmuda, and between Mr Polimeni and Zaia in which the transfer of shares to the Morettis was discussed. They further assert that on or about 1 July 1995 transfers of the shares were executed by the Polimenis disposing of their interest in the shares to Robert and Elvira Moretti. They further assert that these transfers were taken to Zaia's office for the purpose of registration by Robert Moretti and that these transfers were ultimately registered in 2000.

87. The plaintiff and the Polimenis in turn assert that the Polimenis at no time knowingly transferred or intended to transfer their shares in Villacam to the Morettis. The Polimenis are illiterate and have sought to explain their signatures upon such transfers, firstly by a claim that they must be forgeries, secondly after independent investigation of such signatures had been completed by then asserting that they may have signed documents in blank, and thirdly by maintaining that however such signatures came to be on the documents, the Polimenis did not sign them knowing them to be transfers to the Morettis.

90. There is thus a fundamental dispute as to the sequence and character of events relating to the share transfers. The parties also dispute a large number of matters of circumstantial detail.

93. By amended originating process the plaintiff claims:

A. An order under s.233 or alternatively under s.1071F of the Corporations Act 2001, that Villacam forthwith register the plaintiff as the holder of two fully paid ordinary shares and issue to her, in her name, a share certificate for those shares on the grounds set out in s.232 of the Act or alternatively on the grounds set out in s.s.1071F(2) of the Act.

B. An order under s.233 of the Act that the second and third named defendants purchase the shares held by the plaintiff in Villacam at a price of $919,900.

C. An order under s.233 of the Act that all shares in Villacam, if any, allotted, issued or registered to Robert Moretti and/or Elvira Moretti be cancelled forthwith.

D. An order under s.233 of the Act that Villacam be wound up.

E. A declaration that the plaintiff is and has been since the date of transfer in 1997 the holder of two fully paid ordinary shares in Villacam.

F. A declaration that the fourth and fifth named defendants do not hold any shares in Villacam.

G. A declaration that the second and third named defendants or one or other of them have acted in the affairs of Villacam in their own interests rather than in the interests of the members as a whole and in a manner that is unfair and unjust to the plaintiff.

H. A declaration that affairs of Villacam are being conducted in a manner that is oppressive or unfairly prejudicial to or unfairly discriminatory against the plaintiff or in a manner that is contrary to the interests of the members as a whole.

I. A declaration that the refusal, failure or omission by Villacam to register the plaintiff's shares and to issue to her a share certificate was oppressive or unfairly prejudicial to or unfairly discriminatory against the plaintiff or was contrary to the interests of the members as a whole.

J. Alternatively, an order under s.461 of the Act that Villacam be wound up by the Court pursuant to one or more of sub-paragraphs 461(e), (f), (g) or (k) of the Act.

106. There is no dispute between the parties that the defendants deny the plaintiff's membership of the company and have conducted the company without regard to her asserted interest in it. In particular, the defendants have refused to allow the plaintiff to participate in the affairs of the company and caused shares to be issued to others. Having regard to this situation, I have formed the view that it is desirable to resolve the fundamental dispute between the parties as to whether the plaintiff is a shareholder in Villacam before considering whether any and, if so, what consequential orders should be made with respect to the substantive position of the company. Accordingly by consent I have ruled that the parties should adduce evidence and address me with respect to the claims referred to in paragraphs A, C, E, and F above. The parties have, accordingly, not addressed considerations relating to the claims for a winding up order, or purchase of the plaintiff's shares, or further and other relief which may or may not be appropriate consequent upon the adjudication of the Court as to matters of shareholding. I have also reserved leave to the parties to adduce further evidence as to these matters should it become necessary.

109. In seeking to resolve both the fundamental dispute and the incidental circumstantial disputes between the parties, it can be observed that the documentation of the company is vestigial. No share register was produced to the Court nor were any minutes of directors' meetings, nor any other documents relating to the affairs of the company between 1995 and 1999 which in any way refer to shareholders, other than the annual returns and notice of change in membership referred to above. In these circumstances the Court must address the oral evidence of the parties and assess its credibility as against the evidence as a whole including that as to the underlying circumstances of the alleged transactions, the company records such as they are, and the courses of action taken by the relevant parties.

112. Given the complexity of the arguments ultimately put forward in the matter and in the absence of pleadings, the Court sought during final addresses to formulate a summary of the issues raised by the parties. That summary is annexed hereto amended to include additional matters raised by counsel in response to it in final address.

115. This judgment will address the issues by reference to five principal considerations:

(a) What is the effect of the evidence as to the company's share register?

(b) Do the provisions of the Bankruptcy Act 1966 defeat the plaintiff's claim?

(c) Were the transfers of shares to the plaintiff a sham?

(d) Did the Morettis obtain an equity or equitable interest in the shares prior to the transfers to the plaintiff?

(e) Should the Court make an order in favour of the plaintiff by way of declaration, under s.1071F of the Act, or under s.233 of the Act?;

Registration Issues

121. The question whether the plaintiff was, in 1997, registered as the holder of two ordinary shares in Villacam is of obvious significance in this case.

124. Section 168 of the Act provides that a company must set up and maintain a register of members. Section 169 provides for the contents of the register.

127. Section 176 provides that in the absence of evidence to the contrary a register kept under the provisions of the Act is proof of the matters shown in the register.

130. Section 231(b) of the Act provides a person is a member of a company if they agree to become a member of the company after its registration and their name is entered on the register of members.

133. The Articles of Association of Villacam contemplate and require the keeping of a share register (9 and 11). Further by Article 3(a) the right to transfer a share is restricted as provided in the constitution. They specifically provide by clause 29:

"Every instrument of transfer shall be signed by the transferor and transferee and shall be duly stamped and left at the office of the company for registration accompanied by the certificates of the shares to be transferred and such other evidence as the directors may require to prove the title of the transferor or his right to transfer the shares. All instruments of transfer which shall be registered shall be retained by the company but any instrument of transfer which the directors may decline to register shall on demand be returned to the person depositing the same. The transferor shall be deemed to remain the holder of a share until the name of the transferee is entered in the register in respect thereof."

137. Section 1070A(1) provides that a share is transferable as provided in the company's constitution. Section 1085(1) of the Corporations Act 2001 (pre Financial Services Reform Act) and, prior to that, of the Corporations Law was to the same effect throughout the relevant period.

140. Under s.1071B(2) a company must only register a transfer of securities if a proper instrument of transfer has been delivered to the company. Section 1091(1) of the Corporations Act 2001 (pre Financial Services Reform Act) and, before that, of the Corporations Law was formerly to similar effect.

143. In the present case the first factual issue which confronts the Court is the question whether Villacam does in fact have a share register. No register has been produced to the Court and it is open to conclude:

(a) that if produced the register would not assist the company's case; and/or

(b) that the register is lost or has been destroyed.

149. Zaia gave evidence that in 1997 he was employed by McDonnell Cuneen & Associates and acted as the company accountant for Villacam. Zaia says that in early 1997 Mr Polimeni advised him by telephone that the Polimenis had transferred their shares to the plaintiff. Zaia said "Okay, that's fine, I'll note it."[2]

152. The plaintiff, on the other hand, says that after the share transfers were executed she spoke by telephone with Zaia to arrange registration and was advised that the shares would be registered.

155. Zaia says further that within his office there was a system whereby he would instruct a female employee to prepare the annual company returns, for Villacam and like companies, and that that same female employee or another employee would also be instructed to complete the documentation of share transfer transactions.

158. Mr Belmuda states in the first affidavit sworn by him in these proceedings:

"6. Upon the incorporation of Villacam, the books and records of Villacam including the secretarial file and common seal of Villacam were held by the accountant for Villacam, first McDonnell Cuneen & Associates and later Peter Delis & Co. Mr Robert Zaia (Zaia), my nephew, is an accountant who was employed by these firms. Zaia was employed during the period 1990 to March 2000 by McDonnell Cuneen & Associates, who were originally at 330 South Road, Hampton East. In around March 1996, McDonnell Cuneen & associates moved their offices to Level 1, 6 Clow Street, Dandenong, which was a very short distance from the Property. In or about March 2000, Zaia left McDonnell Cuneen & Associates and was later employed at Peter Delis & Co. Peter Delis & Co have been the accountants for Villacam since early 2000. The office of Peter Delis & Co at Suite 7, 4 St. James Avenue, Springvale is also the registered office for Villacam. 7. Whilst Zaia was still employed at McDonnell Cuneen & Associates, he gave me a box of documents relating to Villacam. I do not recall when he gave me the box, however, it could have been late 1999. I reviewed the contents of this box and found share transfers and other documents relating to Villacam. However, the complete secretarial file for Villacam was not contained in that box, nor was the common seal for Villacam. It has been approximately three years since I last saw the secretarial file for Villacam in the possession of McDonnell Cuneen & Associates. Despite repeated requests of them, Zaia and McDonnell Cuneen & Associates have not produced the secretarial file and common seal of Villacam. I have obtained a replacement common seal for Villacam. 8. In response to my requests, Zaia told me that I could retrieve Villacam's files from McDonnell Cuneen & Associates. At the time, McDonnell Cuneen & Associates claimed that Villacam owed approximately $80,000 for outstanding fees and that the Villacam files would not be released until payment was made in full. This claim was disputed as at no time have McDonnell Cuneen & Associates ever produced any invoice to Villacam evidencing the amount claimed to be outstanding. I then asked my son-in-law, Robert Moretti and my colleague Bill Jordanou to attend the offices of McDonnell Cuneen & Associates in early 2000 to pick up all of Villacam's files. I am informed by Robert Moretti and Bill Jordanou and verily believe that in early 2000 they went to the offices of McDonnell Cuneen & Associates and were advised by Bruce Holdings that they no longer had any documents in relation to Villacam and that Zaia had the documents in his car. I have asked Zaia on a number of occasions as to whether he had in his possession any documents of Villacam. Zaia has told me that he does not have any documents of Villacam in his possession and that McDonnell Cuneen & Associates are in possession of Villacam's file. I am presently unable to sort out this conflict."

162. Evidence was called from a director of McDonnell Cuneen & Associates which indicated that that the practice does not hold the register or the secretarial file of Villacam, and has not held such documents for in excess of six years.[3]

165. Zaia's own evidence is also that he does not have the register. He says, however, that he saw it in 1997 and that as at 31 December 1997 the Polimenis remained registered as shareholders, but Donna Polimeni was not so registered. He says further that in 1999 he observed that the plaintiff was not registered upon it but that the Morettis had recently been entered upon it. He says that the register took the form of a summary sheet contained in the incorporation file or "secretarial file" of the company which was divided into sections and included a section relating to share transfers in which transfers might be kept together with the summary document.

168. I find it extraordinary that a documentary record which is of potentially central significance in this case is said:

(a) by the company to be in the possession of its accountant; and

(b) by the accountant to have been sighted and utilised in 1999 (at a time when it was known there was a dispute as to shareholdings within the company) and to have since been lost in a manner which is effectively unexplained.

174. As appears above, it is Mr Belmuda's evidence that it was in 1996 that Zaia's employer moved to the Dandenong office. This is corroborated by the annual return of Villacam for the year ending 1995 which states that the registered office of the company (being that of Zaia's employer) changed from 330 South Road, Moorabbin on 27 February 1996 to Clow Street, Dandenong. This renders particularly problematic evidence of Zaia such as that appearing at transcript p.524:

"In that period - we are dealing with October '94 - were you in the practice of making visits to Dandenong? ---Yes, yes, I was - because the practice was physically just down the road. I would visit the premises perhaps once a week, once a fortnight. If we deal with the period October '94 and go backwards in time towards 1990, how many times would you have visited the Dandenong premises in the period from the settlement to say October '94?---I would say - at least it's four years, at least 48 times. Over that period were you always in the employ of the Cuneen company?---Yes. Where are the premises from which that firm carried on practice?---At 6 Clow Street, Dandenong. How close is Clow Street to Thomas Street?---It's about a five minute walk."

"In the period from 1990 to 1997 where was the share register for Villacam?---It was held in our practice's office in Clow Street, Dandenong."

180. These matters must be assessed in part in a context where Zaia has now, and had in 1997, a close relationship with Mr Belmuda although he is not technically his nephew (as Mr Belmuda's first affidavit asserts). I find that Zaia's evidence was in the passages quoted and in other respects exaggerated, unreliable and principally directed to rationalising the production of documents by him (in this case transfer documentation bearing the date 1995).

183. Cross on Evidence (6th Australian ed.) states at paragraph 39060:

"When the original of a document cannot be found after due search, its contents may be proved by secondary evidence. The requirement as to due search will be satisfied in different ways according to the different circumstances of each case: Brewster v Sewell (1820) 3 B & Ald 206."

187. Wigmore on Evidence (Chadbourn Revision 1972) states the following with respect to secondary evidence of lost documents in cases where proof of loss carries with it the implication the thing has ceased to exist:

"In strictness, no doubt, a 'destruction' signifies that the thing no longer exists, while a 'loss' signifies merely that it cannot be discovered. Nevertheless, for practical purposes, the two come together for consideration in this rule. In the first place the moment that the destruction becomes questionable at all (i.e. when not proved by eye witness of a burning or tearing), the inquiry is raised whether the search for it has been sufficient; and in the next place the proof of a loss usually carries the implication that the thing not found has ceased to exist and thus assimilates the case to one of destruction."[4]

191. Wigmore states further with respect to loss or destruction of a document by a proponent:

"The view now generally accepted is that (1) a destruction in the ordinary course of business, and, of course, a destruction by mistake, is sufficient to allow the contents to be shown as in the other cases of loss, and that (2) a destruction otherwise made will equally suffice, provided the proponent first removes, to the satisfaction of the judge, any reasonable suspicion of fraud."[5]

195. In the present case Zaia's evidence as to contents of the lost register was admitted without objection. Nevertheless in my view the principles stated reflect significant considerations affecting the weight which should be given to such evidence. In particular the Court should be cautious in accepting such evidence firstly where the evidence as to "due search" is unsatisfactory, and secondly where there is a reasonable suspicion of fraud having regard to the evidence as a whole. In the present case the evidence as to search is far from satisfactory and on the evidence as a whole, there is a reasonable suspicion of fraud.

198. The plaintiff relies upon the company's documentation with respect to the question of registration. In particular the annual company returns lodged for the years ending 1995 to 1999, and notice of change in shareholding lodged on behalf of the company in 1997. The following matters can be noted with respect to this documentation:

(a) Prior to the 1996 annual return (lodged in 1997) the Polimenis are recorded as the holders of two shares in the company;

(b) The 1996 return is dated 28 February 1997 but was not lodged until 21 May 1997. The names of the Polimenis are crossed out and Zaia has substituted the name of the plaintiff as a shareholder. The document is signed by Mr Belmuda but his evidence is that he did not date it. There is a strong likelihood that the crossing out occurred between the date stated on the document and its date of lodging. It is further more likely than not that this occurred prior to Mr Belmuda's signature and that he declared its contents as lodged to be correct. By his signature, Mr Belmuda declared that the information contained in the return was correct as at the date of signature and that the declaration was made under a resolution by the company board of directors to adopt the contents of the annual return.

(c) There is no evidence of notice of refusal to register the transfers to the plaintiff being given to the Polimenis in accordance with the predecessor of s.1071E or at all.

(d) Moreover, on 3 September 1997 Mr Belmuda signed a single page document notifying the ASC of the change in shareholding. His signature is a short distance directly below Donna Polimeni's name printed in capital letters upon the document. I find that when Mr Belmuda signed this document the overwhelming probability is that he did understand its character. I note:

* The document has only one quite clear purpose;

* The document is short and clear listing only three members namely the Belmudas and the plaintiff;

* The document was signed and lodged midway between the preparation of the 1996 and 1997 company return documentation, at a time when no other documentation with which it might have been confused has been identified.

(e) On 30 January 1998 the company lodged the 1997 annual return in which Mr Belmuda again declared by signature dated 29 January 1998 that the information contained in the return was correct as at the date of signature and that the declaration was made under a resolution by the company board of directors to adopt the contents of the annual return. This return specifically records that the Polimenis had resigned as directors on 10 October 1997 and that the ASC had been notified of this fact on 3 November 1997. It further records the plaintiff as the holder of two ordinary shares. It would be impossible to glance at the contents of this four page document without adverting to the position of the Polimenis and the related issue of the plaintiff's membership of the company.

204. Mr Belmuda himself said in evidence that he would expect the company's share register to reflect its annual returns.[6]

207. The returns were prepared by Zaia of whom Mr Belmuda says in his first affidavit at paragraph 14:

"14. The secretarial work for Villacam was completed by Zaia. He kept the financial records, prepared tax returns, financial statements, annual returns and other Corporations Law requirements. These documents were, when completed, placed before me for signature. I had no reason to, and did not, check the contents of these documents which looked very formal to me. I have difficulty reading such documents in English and, at that time, trusted my nephew to look after my affairs and those of Villacam. I believed, until the matters referred to in paragraph 13 of this affidavit, that the share transfers had been duly processed by Zaia and that the Morettis had replaced the Polimenis as the holder of two shares in Villacam from 1 July 1995."

211. In evidence before me (but not in an intermediate affidavit sworn on 6 February 2003 in which he sought to clarify his previous affidavit in other respects) Mr Belmuda said the words "in English" should be deleted from the paragraph quoted above. However, I note that Mr Belmuda read and understood a number of documents while in the witness box.

214. As I have noted the evidence was that Zaia had a close relationship with Mr Belmuda and further evidence was given that while working from premises at Dandenong between 1996 and 2000 Zaia called in regularly at the Thomas Street premises to see Mr Belmuda. I find it inherently improbable that Zaia would cause to be prepared returns which did not accord with Mr Belmuda's instructions. I find it doubly improbable that Mr Belmuda would continue to sign and declare such returns to be true if in his view they were untrue.

217. The credibility of Zaia's evidence as to the contents of the register is not assisted by the fact that despite "seeing" the register in 1999, it was not until January 2001 that annual returns were prepared reflecting what he says was the true situation recorded in the register in 1999. Furthermore, no intermediate notice was lodged during this period of the type lodged with respect to change of membership following the transfer of shares to the plaintiff in 1997.

220. Both Mr Belmuda and Zaia said in evidence that to the best of their knowledge the company is presently without a share register.[7]

(a) that Villacam currently has no share register; and

(b) that the plaintiff was (as the company declared to and advised the ASC in 1997) registered as the holder of two ordinary shares in 1997. I further find on the balance of probabilities that the plaintiff was so registered prior to 21 May 1997.

229. In the absence of a share register provisions of the Act that are predicated on the existence of a share register such as s.175 (relating to the correction of the register) are difficult if not impossible to apply in the present case. I shall return to this issue in due course.

233. It follows from the above findings that at the date of the bankruptcy of the Polimenis the plaintiff was already registered as the owner of the shares.

236. Although it is strictly unnecessary to decide in terms of the annexed Outline of Issues, a further subsidiary question which arises is whether despite the fact the Court is satisfied the plaintiff was registered as a shareholder in 1997, it should nevertheless regard the registration as invalid unless it is established that compliance was achieved with the preconditions to registration stated in the constitution of the company.[8] Mr Jones drew my attention to the pre-emptive provisions which would in the absence of preliminary agreement by the directors, apply to the transfer by Mrs Polimeni to the plaintiff; the further procedural provisions which applied to both transfers including the provisions of Article 29 relating to the formalities of registration; and the provisions of Article 30 which provide that the directors may decline to register any transfer of shares in the company to a person of whom they do not approve without assigning any reason therefor and shall so decline if such transfer would involve a breach of the provisions of any of the Articles.

(a) No minutes of directors' meetings or other record of the internal affairs of the company is before the court. No documentary evidence is before the Court demonstrating procedural irregularity;

(b) In the absence of any such documentary evidence the company returns and the notice lodged with the ASC evidence the consensus of the directors to the registration;[9]

(c) It is self-evident that the Polimenis approved the transfers as directors and I do not accept the evidence of Mr Belmuda that the Belmudas did not agree to such transfers having regard to the notice and annual returns signed by him;

(d) The fact of registration is itself prima facie evidence of compliance with the preconditions to registration stated in the constitution (see s.176 and the definition of "books" in s.9 of the Act and the provisions of s.1305 of the Act).

(e) There is no basis for holding that the registration of the plaintiff's shares was invalid for procedural reasons.

245. Insofar as it may be relevant, I further find that the Morettis were not registered as holders of ordinary shares in Villacam until on or about the date of the lodging of the first annual return of Villacam in which they are identified as shareholders. It follows I am not satisfied that they were registered prior to 7 February 2001.

The Effect of the Provisions of the Bankruptcy Act

249. The transfers of the shares of the Polimenis to the plaintiff were voidable at the option of the trustee in bankruptcy either:

(a) under s.120 of the Bankruptcy Act as transactions entered into within the two year period prior to the bankruptcy; or

(b) under s.121 as transactions entered into with the intention of defrauding the Commonwealth Bank as creditor of the Polimenis.

255. The Polimenis gave evidence that they transferred the shares to the plaintiff "for the good of the company". The plaintiff's evidence is that she entered into the transfers to look after her brother and also for the good of the company.

258. These statements must be understood in conjunction with:

(a) the backdating of the transfers to 1 July 1995; and

(b) the simultaneous execution of transfers back to the Polimenis by the plaintiff.

The only conclusion which can be drawn is that these steps were deliberately undertaken with the intention of defrauding the creditor.

264. In these circumstances, the transfers were "void as against the trustee in bankruptcy". The effect of the provisions of the Bankruptcy Act 1966 was that the trustee could challenge the transfers and if successful the transfers would be set aside. The provisions of s.172 of the Property Law Act 1958 had a like effect. The transactions were voidable at the instance of the trustee as from the time title accrued to the trustee.[10] Nevertheless, while the cause of action to avoid the transaction accrued at the date of bankruptcy the transaction was not affected unless the trustee took action to avoid it.

267. In the present case the trustee in bankruptcy asserted by letter to the plaintiff dated 3 February 1999:

"I understand that during July 1996, the bankrupts transferred one share in Villacam Pty Ltd to you for consideration of one dollar. I am yet to ascertain the value of the shares at the time of the transfer however it appears that the transfer of these shares may be void as against the trustee pursuant to s.120 or alternatively, s.121 of the Bankruptcy Act. As such on the basis there was some significant value attaching to the value of the shares I may be able to proceed with their recovery for the benefit of creditors. I am prepared to considered an offer from you of the sum of $50,000 payable within 30 days to purchase my interest in the Clayton property and the shares in Villacam Pty Ltd. ... Should you wish to make such an offer, I should be pleased if you could execute the enclosed letter of offer and return same to my office within 14 days."

271. The plaintiff accepted the offer and purchased the trustee's interest in the shares for value in 1999. Such transaction is properly understood as a payment in discharge of the trustee's right to avoid the transfer of the shares.

274. In summary, the provisions of the Bankruptcy Act do not render the transfers void or voidable by parties other than the trustee in bankruptcy and the trustee did not avoid the transfers, in consideration of moneys paid to him by the plaintiff.

277. Contracts and trusts not directly contrary to the provisions of a statute but which are "associated with or in furtherance of illegal purposes" may not be enforceable as being contrary to public policy.[11] The phrase is that of Jacobs J in Yango Pastoral Co v First Chicago Australia Ltd[12] adopted by Deane and Gummow JJ in Nelson v Nelson at p.552.

280. In the present case, however, the transfers to the plaintiff have been completed and property has passed with them. The principle referred to may render the arrangement evidenced by the incomplete transfers back which were executed by the plaintiff unenforceable by the Polimenis, but it does not allow the defendants to avoid the effect of the registration of the plaintiff's shares.

283. The question of whether the plaintiff should, however, be denied relief on a discretionary basis for lack of clean hands raises further considerations which I will discuss further below.

287. It is clear that a court may set aside a transaction where the court is of the opinion that the transaction is a "sham". Generally the concept of a sham transaction has been understood to refer to the situation in which the transaction entered into does not reflect the "true" intention or transaction of the parties. The classic formulation of the test comes from Scott v Commissioner of Taxation[13] where Windeyer J said:

"A disguise is a real thing: it may be an elaborate and carefully prepared thing but it is nevertheless a disguise. The difficult and debateable philosophic questions of the meaning and relationship of reality, substance and form are for the purposes of our law generally resolved by asking did the parties who entered into the ostensible transaction mean it to be in truth their transaction, or did they mean it to be, and in fact use it as, merely a disguise, a facade, a sham, a false front - all these words have been metaphorically used - concealing their real transaction."[14] (citations omitted)

291. In Sharrment Pty Ltd v Trustee in Bankruptcy[15] it was argued, as here, that the transactions entered into were for the purpose of defeating the Trustee in Bankruptcy and thus should be set aside as a sham. In that case the Full Court of the Federal Court declined to set aside the transaction as a sham. The Court made clear that the lack of a commercial purpose behind a transaction will not of itself be enough to make a transaction a sham. Neither, of itself, is the intention to defeat a Trustee in Bankruptcy sufficient to result in a transaction being treated as a sham. Beaumont J stated that a relevant consideration is whether the parties genuinely intended that their transaction take the form it did and operate according to its tenor.[16]

294. The defendants here contend that the transfers to the plaintiff were a sham and should not be given effect by the Court. I reject this submission. The transfers to the plaintiff were clearly intended by the parties to pass property in the shares to her for the time being. That is, they were intended to do exactly what they appeared to do. Further, the execution of the transfers back by her which remained unexecuted by the Polimenis[17] did not result in a passing of property back to the Polimenis because:

(a) the Polimenis have not agreed to again become members of the company as required by s.231 of the Act;

(b) the transfers back were not delivered to the company in registrable form but in a form which was incomplete, undated and unstamped;

(c) the procedural provisions of the constitution have not been complied with and in particular whereas the directors reached consensus with respect to the transfers to the plaintiff, no consensus has been reached with respect to the transfers back;

(d) the plaintiff has been registered as holder of the two shares.

Did the Morettis Obtain an Interest as Transferees of the Shares

Prior to the Plaintiff?

300. The defendants' case is that the shares were transferred to the Morettis in 1995. They produce share transfers executed by the Polimenis, bearing the date 1 July 1995 and purporting to transfer the respective shares of the Polimenis to Robert and Elvira Moretti respectively in consideration of $1.00.

303. I am not satisfied the Polimenis executed transfers of their shares to the Morettis in 1995 or indeed prior to the registration of the plaintiff as owner of the shares. In reaching this conclusion I have had regard to the following in part competing factors, each of which I shall elaborate further:

(a) The existence of an obvious explanation for backdating the transfers;

(b) The illiteracy of the Polimenis;

(c) The circumstances in which it is said the transfers were signed;

(d) The underlying circumstances of the relationship between the Polimenis and the Belmudas at the date of the alleged transfers;

(e) The lack of consideration for the transfers;

(f) The subsequent actions of the parties;

(g) The lack of company documentation corroborating such transfers; and

(h) The credibility of the principal witnesses.

309. First, it is apparent that there was in 1997 (at the time that the impending bankruptcy of the Polimenis was apprehended) an obvious reason for backdating share transfers by them to 1995.

312. Second, the fact that the Polimenis have signed transfers bearing a date in 1995 is to be weighed up taking into account the fact that the Polimenis are, on the evidence, illiterate. This illiteracy was asserted by the plaintiff's witnesses and despite the relatively long relationship between the Polimenis and the Belmudas, no contrary evidence of literacy was adduced on behalf of the defendants. Further, the oral evidence of the Polimenis was entirely consistent with such illiteracy both in the substance and form of their answers to questions directed to them. The major matters relied upon by the defendants with respect to this issue were the conduct of the Polimenis in swearing initial affidavits in this matter in English and the changing explanations given by them for the appearance of their signatures upon the transfers. I am satisfied that these matters were adequately explained and do not establish that they are capable of reading English.

315. Third, I note that the evidence as to the signing of the transfers comes from Mr Belmuda who says that after prior discussion with Mr Polimeni he took the transfers out to the Polimenis' home. He further says that he explained the content of the transfers to them before they signed them and that after they were signed he took them home to the Morettis who, at that time, lived with the Belmudas. There is nothing other than the dates on the transfer documents in the nature of the transaction itself which allows this account to be circumstantially corroborated. Mr Belmuda's evidence is, however, corroborated by evidence as to surrounding circumstances and in particular the recollection of the Morettis as to the date at which they signed the transfers and by the evidence of Zaia as to conversations with Mr Polimeni prior to the preparation of the transfers and as to the date of the preparation of such transfers. I shall return to these conversations in addressing the credibility of the witnesses.

318. Fourth, I reject the suggestions made and implied by Mr Belmuda in his evidence that at the time of the alleged transfers in 1995:

(a) The Polimenis had failed to contribute their fair share to Villacam; and

(b) The Polimenis could not provide ongoing funds when called upon to do so.

For reasons I have already stated it is apparent that the Polimenis made a substantial contribution to Villacam; that the Belmudas derived a double benefit from Villacam's business and that the financial position of the company in 1994 and 1995 was materially affected by the failure of Belmuda International Receptions Pty Ltd. Further, the evidence demonstrates that when called on in 1994 and 1995, the Polimenis did procure further funds and that it was not until after this period that they ceased to do so.

324. Fifth, I find further that there was in fact no consideration given for the transfer to the Morettis. Whilst the amount of $1 is recorded on the transfers, there is no evidence from any witness that $1 was ever paid. Mr Moretti unequivocally described the transfer as a gift. Mrs Moretti maintained such a gift was not unreasonable having regard to the money advanced to Villacam by the Morettis previously. On the evidence, this money amounted to some $20,000. Such moneys were substantially less than the moneys advanced by the Polimenis to the company and by the plaintiff to the company. In his first affidavit Mr Belmuda deposed that the transfer was made in consideration of him paying $120,000 to the Commonwealth Bank in reduction of the Polimenis' loan (reflecting the terms of the solicitor's letter quoted at paragraph 18 above).

327. In evidence before me, Mr Belmuda said that what in fact occurred was that the Polimenis' loan account was reduced by this amount, when the operating company controlled by the Belmudas (by this date Grand International Receptions Pty Ltd) paid the sum to the bank. Mr Polimeni asserts that the moneys were paid by Villacam as proceeds due to the Polimenis from the operation of the business. It is apparent that the operating company did incur ongoing liabilities and make ongoing payments to Villacam. No company accounts were produced by Mr Belmuda or Zaia to demonstrate that the moneys paid out to the Commonwealth Bank were other than in the ordinary course of trading. Further, the evidence of Mr Belmuda that consequent upon the payment the Polimenis' loan account was debited demonstrates that the payment was in substance made from funds held to the credit of the Polimenis with the company. In his evidence, Mr Belmuda further suggested that the loan was made in consideration of the Morettis agreeing that they would make further advances to the company. There is no evidence of any enforceable agreement to this effect. Indeed, Mr Moretti's evidence does not substantiate any informal understanding to this effect. Furthermore, the evidence does not establish that there were subsequent advances by the Morettis to the company.

330. Sixth, I find that transfers to the Morettis in 1995 of the shares would have constituted inherently improvident actions. The company had refurbished the premises and the Polimenis had made a substantial contribution both to the initial purchase and subsequent refurbishment of the premises. They had also worked in the business. It does not accord with my judgment of them that they would divest themselves of ownership of the property in which they had made this investment without receiving any consideration. There is no evidence as to the market value of the Thomas Street property in 1995. Nevertheless Mr Belmuda was content to declare in each of the annual company returns during this period and subsequently that the company would be able to pay its debts when they fell due. Furthermore, his evidence was that the Thomas Street premises generated $15,000 to $16,000 per month with greater potential after renovation. Such premises are unlikely to have been regarded as worthless by the Polimenis.

333. Seventh, there is no internal company documentation whatsoever reflecting the transfers to the Morettis between the years 1995 and 2001. Moreover, Zaia gave evidence that if transfers to the Morettis were received by his office the normal practice would be to place them in a secretarial file. He looked in the file in 1998 and no transfers to the Morettis were there.[18]

336. Eighth, the subsequent actions of the parties do not corroborate such transfers. The Polimenis continued working at the premises (up to 12 hours a day for no monetary recompense in the case of Mrs Polimeni) and in 1997 signed share transfers in favour of the plaintiff. They further dealt with the trustee in bankruptcy on the basis that their shares had been transferred to the plaintiff when an effective 1995 transfer to the Morettis would have taken the shares out of his consideration. They further allowed the plaintiff to pay $50,000 to the trustee, inter alia, in consideration of her interest in the shares.

339. Zaia and Mr Belmuda respectively prepared, signed and lodged company returns from 1996 until 2001 on a basis totally inconsistent with the alleged transfers.

342. The Morettis took no steps evidenced before the Court in reliance upon the 1995 transfers, other than (they say) to deliver up the transfers to Zaia's office and to attend family meetings. The alleged delivery up of the transfers did not come to Zaia's attention (on his evidence) although it is Mr Belmuda's evidence that he subsequently found the transfers in a company archive box in 1999 after Zaia returned the box to him. Zaia's evidence is that a strict search for records of relevant shares transfers within his office had not produced such transfers prior to this date. Coincidentally Mr Moretti's evidence is that a licensed gaming venue was approved at the Thomas Street premises in 1999, suggesting that at this time the value of the premises and the earning capacity of Villacam may have increased materially.

345. Ninth, when the above matters are set out it is apparent that only one material aspect of the evidence substantially favours the defendants' case and that is the oral evidence of Mr Belmuda, Zaia and the Morettis as to the circumstances surrounding the alleged transfers in 1995. It is necessary to make some observations as to the oral evidence of each of the relevant witnesses but for the reasons I shall set out I do not regard this evidence as outweighing the countervailing factors which I have mentioned.

348. I make the following observations concerning the Polimenis as witnesses. They are both relatively naive, uneducated and simple people. English is not their first language and although Mr Polimeni in particular is able to converse in simple English, I place greater reliance generally on the answers given by them through the interpreter, particularly where such answers involved questions of detail or conceptual difficulties. The Polimenis are, as I have said, illiterate. They are not particularly articulate and are unsophisticated in their understanding and expression of commercial and legal concepts. They have no contemporaneous notes or records which they can use to refresh their memories as to details of the events in issue in this case. They were cross-examined at substantial length and their evidence was not without contradictions and in some instances convenient lapses of memory. In evaluating these contradictions and memory lapses, I have reached the view that answers which simply assented to propositions put in cross-examination or failed to actively respond to them, must be treated with caution. This is particularly so with respect to questions asked by reference to documents, because it was quite apparent that neither of the Polimenis could sensibly respond to the contents of documents in a satisfactory way as a result of their illiteracy. Despite a number of contradictions in the affidavit material sworn by the Polimenis and individual pieces of oral evidence given by each of the Polimenis, if greater weight is placed upon those answers given in evidence in which they expressed coherent statements as to what they did, the core of the Polimenis' evidence was, in my view, fundamentally consistent and in itself credible as to the essential facts.

* that they did not knowingly execute transfers of their shares to the Morettis in 1995 or at any other time; and

* they did knowingly and intentionally transfer their shares to the plaintiff in 1997.

356. I make the following observations concerning the evidence of the plaintiff:

(a) the plaintiff did not give direct evidence of events in 1995; but

(b) her conduct in 1997 and thereafter is totally inconsistent with any belief the Polimenis had previously transferred their shares to the Morettis; and

(c) her evidence as to communications with other witnesses including Zaia in 1997 was entirely credible and matter of fact. This evidence included evidence of a conversation in which Zaia (and it appears Mr Belmuda) acknowledged that the shares had been transferred to her[19] (in respect of which conversation she was not directly cross-examined).

362. I reach these conclusions despite the attacks made upon the plaintiff's honesty by reference to the following matters:

(a) the plaintiff's initial affidavit in this proceeding asserts the share transfers to her occurred in 1996 (a matter she sought to explain in cross-examination as arising from reliance upon the 1996 annual return of the company);

(b) the plaintiff's acknowledged participation in a transaction which amounted in substance to an attempted fraud on the Polimenis' principal creditor;

(c) the plaintiff's initial denial (in solicitors' correspondence) that she had signed the transfers back produced by Mr Belmuda; and

(d) the late production of copy transfer documents found by her at the Polimenis' house on the eve of the case.

368. I make the following observations concerning the evidence of Mr Belmuda.

(a) He is considerably more articulate than the Polimenis and considerably more sophisticated in commercial matters;

(b) He was less than frank as to the financial history of Villacam and the respective contributions of the Belmudas and the Polimenis;

(c) He was a director and secretary of the company at all relevant times and has failed to satisfactorily explain the company documentation signed by him which is totally inconsistent with his case;

(d) In 1998 Mr Belmuda's solicitor made an offer to purchase the plaintiff's shares. This offer was formulated by way of a deed which firstly, recited the fact of the plaintiff's ownership of the shares and secondly, required a formal transfer of such shares by provisions formulated in a way consistent only with a registered shareholding (cls.3.3, 3.4, 4.1);

(e) Mr Belmuda's account of his instructions to Zaia with respect to the negotiations which preceded this offer was inconsistent with that contained in paragraph 12 of his own first affidavit and inconsistent with the evidence of Zaia which is also inconsistent with the affidavit referred to;

(f) The reason for the failure to call the third named defendant who was said by Mr Belmuda to assist in the decision making of Villacam and who might have corroborated him was not properly evidenced;

(g) Mr Belmuda's evidence as a whole contained a number of inconsistencies but he remained adamant:

(i) that the Polimenis knowingly signed share transfers to the Morettis in his presence at their home in 1995; and

(ii) he did not find out Donna Polimeni claimed an interest in the company shares until 1998.

374. Zaia gave evidence that he prepared the share transfer to the Morettis in 1995 in the following circumstances following discussion with Mr Polimeni:

"What did he say to you in this conversation?---He called me over to the side because there was building works and things going on at the time and he seemed quite anxious and worried and he said to me that he was extremely concerned about the loan account with the Commonwealth Bank still not being serviced and that he was looking down the barrel of perhaps losing everything. He was also upset that - at the recent settlement with (indistinct) mortgages group that he wasn't able to put in certain moneys that people such as the Morettis had to put in and that he was basically sick and tired and I remember the phrase that --he said that the stress was killing him about having to continuously find money, month in, month out. What did he say to you about the shares in Villacam?---He said to me that he had decided that he would rather transfer the shares to Robert and Elvira Moretti. Did he say why he wanted to do that?---He went on to say - I replied, 'What happened to Donna?' because that was initially what he wanted and he said, no, he said, 'I can't trust Donna and she doesn't deserve my shares anyway.' I went on and Tony said to me, he said that Robert and Elvira had contributed funds to the company, that they had the capacity to contribute further funds, he was questioning whether it was all worth it as to why he should have to keep on putting money in and he compared the value of the building to what he and Santino had contributed over and above National Mutual as to whether it was all worth it. And what did he say to you about that?---Well, that's what he was saying to me, that was the discussion, that he was, like he was alleviating the pressure of - and the burden of having to find further moneys by off-loading the shares. What did you say to him?---I said to him that that's fine if that's what he wanted. I said, you know, I said, well, it's a matter of judgment as to whether it's all worth it because of the value of the building to the loans that are outstanding on the building but he was quite - quite frazzled about the pressure that he just couldn't take any more because he had run out of sources of funds to seek money from friends and family to contribute towards Villacam. What happened after you replied to him?---He asked me whether I could do him a favour and prepare what share transfers were necessary to facilitate the transfer to the Morettis. And what did you say to him?---I said 'That's fine', I said, 'I'll do that for you' and he asked how soon he could have them and I said, well, he could take them the next week or so and I'll come back with them. What did you do after that?---On my next visit I came back with two filled out share transfer forms. About how long after this conversation was that next visit?---Approximately a fortnight."

(a) Zaia's evidence that these events took place in the course of regular visits by him to the Thomas Street premises from his office in Dandenong is to be rejected. The evidence of Mr Belmuda corroborated by the annual return of the company dated 29 February 1996 is that up until February 1996, the office of McDonnell Cuneen & Associates were located in South Road, Moorabbin.

(b) Zaia's alleged conversation with Mr Polimeni concerning transfers to the Morettis was not put to Mr Polimeni in cross-examination. It is difficult to accord weight to the circumstantial detail of the alleged conversation in these circumstances. There are a number of alleged statements to which Mr Polimeni may have been able to respond cogently, e.g. the allegation that he stated that he did not trust his sister.[20]

(c) Much of Zaia's evidence seems essentially directed to explaining away his part in the production of various documentation with different dates. Zaia's evidence is problematic not just because of the terms of the account which he gives as to what was said at particular points in time but because of the unexplained gaps which his evidence would suggest occurred in the continuity and accuracy of the company's records. This is particularly so during the period between 1996 and 1999 when he worked at an office a short distance from the Thomas Street premises in Dandenong and was accustomed to call in at the premises regularly. It is his evidence that Mr Belmuda did not tell him between 1995 and 1998 that transfers had been executed by the Polimenis to the Morettis. If such transfers were executed it is unlikely Zaia would not have been told of this fact given that Zaia and Belmuda were close, they saw each other regularly, and the transaction was a significant change to the basic structure of Villacam. The ongoing financial pressures on Villacam were also such that it is extremely unlikely no discussions were held between Belmuda and Zaia as to the position of the Polimenis in relation to the company between 1995 and 1998.

(d) Zaia maintained (but I do not accept) that he did not learn of the Polimenis' bankruptcy until 1998[21]. Zaia's statement that Mr Belmuda told him he was unaware of the bankruptcy until Zaia learnt of and mentioned it in 1998 is inconsistent with Belmuda's evidence that he knew of the bankruptcy in 1997. It was Zaia who prepared and dated the transfers to the plaintiff and the transfers back to the Polimenis. Zaia himself is an undischarged bankrupt and in his evidence was concerned to distance himself from any suggestion of complicity in fraud.

384. The Morettis gave internally consistent evidence but contradict Mr Belmuda's account as to what was said within the family at the time of the alleged transfers in 1995. Mr Moretti gave the impression (much like Mrs Polimeni) that the business transactions in issue were ones in which another person was the principal actor (Mr Belmuda in one case, Mr Polimeni in the other). Moreover, the Morettis have an obvious self-interest in maintaining that they did receive the shares in 1995 and their evidence must accordingly be treated with some caution.

387. Putting all of the above matters together, I find that on the balance of probabilities the Polimenis did not execute transfers of their shares to the Morettis in 1995.

390. Although this finding is sufficient to dispose of the claim that the Morettis acquired an equitable interest in the shares owned by the Polimenis prior to the transfer of those shares to the plaintiff, it is desirable for the sake of completeness to rule upon the core dispute between the parties as to the effect of such transfers in any event.

393. It is asserted on behalf of the plaintiff that such transfers were void by reason of the principle of non est factum. In Petelin v Cullen[23] the High Court stated:

"The class of persons who can avail themselves of the defence is limited. It is available to those who are unable to read owing to blindness or illiteracy and who must rely on others for advice as to what they are signing; it is also available to those who through no fault of their own are unable to have any understanding of the purport of a particular document. To make out the defence a defendant must show that he signed the document in the belief that it was radically different from what it was in fact and that, at least as against innocent persons, his failure to read and understand it was not due to carelessness on his part. Finally, it is accepted that there is a heavy onus on a defendant who seeks to establish the defence. All this is made clear by the recent decision of the House of Lords in Saunders v Anglia Building Society (Gallie v Lee) [1970] UKHL 5; [1971] AC 1004 esp. at p.1019."[24]

(a) the Polimenis were illiterate;

(b) they did not sign the documents knowing them to be transfers of shares to the Morettis and at no time intended to sign such documents;

(c) it is a necessary inference that at the time they signed such transfers they believed the documents had a character which was radically different from what it was in fact;

(d) the transfers were signed in reliance on the advice of Mr Belmuda and in the circumstances the failure of the Polimenis to understand what it was they were signing was not due to carelessness on their part.

403. Mr Belmuda says that he speaks both Italian and English. He says further that leaving aside the transfer to the Morettis, he did not request the Polimenis to sign a document relating to Villacam between 1990 and 1997.[25] He says that in about March or April 1995 Mr Polimeni advised him that Mr Polimeni had had discussions with Zaia in which it was suggested the Polimenis might transfer their shares to the Morettis. Mr Belmuda says he agreed to this proposal.

406. Subsequently Zaia called at the office at the premises in Thomas Street, Dandenong and handed Mr Polimeni share transfers in favour of the Morettis. Mr Polimeni left these at the office and Mr Belmuda subsequently asked him what he wanted to do. Mr Polimeni initially indicated he had not discussed the matter with his wife but a few days later arrangements were made for Mr Belmuda to call in and see the Polimenis to discuss the transfers further. Mr Belmuda says that when he arrived Mrs Polimeni wanted to know what she was signing and he

"made her aware what the documentation was ... by reading it and explaining to her that it was a share transfer to Elvira and Robert ... There was some sort of discussion going on, you could see that there was a bit of a problem between the two of them, and at the end of it, I think she probably meant to ask Tony but she mentioned my name, 'Is it okay to sign?' and I replied by saying, 'Yes, your husband is here, so you ask him.' But apart from that the signatures were plain, I left a few minutes after that ..."[26]

410. In his first affidavit Mr Belmuda says at paragraph 10:

"I specifically recall that prior to Gennarina and Antonio signing the share transfer, Gennarina asked me if the documents were 'okay' to sign. I said yes."

414. I make the following observations concerning Mr Belmuda's evidence:

(a) Alleged discussions prior to the visit at which the transfers were signed, were not fully put to Mr Polimeni in cross-examination.[27] In these circumstances it is difficult to give them weight.

(b) For the reasons I have already stated I do not accept the transfers were signed in 1995.

(c) Accordingly I regard Mr Belmuda's evidence as to events antecedent to the signing of the transfers as having no weight.

(d) The account given by Mr Belmuda of what occurred at the time of the signing of the transfers is essentially consistent with the evidence of the Polimenis as to what may have occurred at the time of signing save in one critical aspect. The proposition that Mr Belmuda took the transfers to the Polimenis' house and in their presence alone was asked by Mrs Polimeni if the documents were okay to sign is entirely credible. The critical question is whether he did in fact explain the character of the documents or not.

420. I find that it is more probable than not that Mr Belmuda did not explain the content of the documents and that the Polimenis signed them under a fundamental misapprehension as to their nature as a result of his failure to do so.

(a) I do not accept that the underlying circumstances of the company were such as to create a situation in which the Polimenis effectively had an obligation to the Belmudas justifying such transfers.

(b) I do not accept that it is likely the Polimenis would wish to divest themselves of their shares for no consideration and I find that this would have been the effect of the transaction which the defendants seek to rely upon.

(c) I do not accept the transfers to the Morettis were executed in 1995 in the circumstances asserted by the defendants for the reasons I have already set out.

(d) The company documentation signed and declared to be true by Mr Belmuda from 1996 to 1999 is entirely inconsistent with his case.

(e) There is no company documentation corroborating the alleged transfer to the Morettis until the annual return lodged in 2001.

(f) It is not credible that Zaia having prepared the documentation in 1995 and remaining in close contact with Belmuda thereafter would remain unaware of the alleged execution of the transfers to the Morettis until 1998 (as he maintains).

(g) For the reasons I have already stated, I find the evidence of the Polimenis more credible than that of Mr Belmuda.

(h) I make this last finding as to credibility despite detailed submissions put to me by Mr Northrop with respect to the evidence of the Polimenis including those in particular directed to their understanding of documents generally. In my view the inadequacies of their evidence in this regard are explicable in large part because of their illiteracy.

Should the Court Grant Relief to the Plaintiff

426. It follows from the above conclusions that the plaintiff is entitled to a declaration as to her shareholding in Villacam unless some supervening discretionary consideration renders a declaration inappropriate. The plaintiff's claim is not one for purely equitable relief and the right in respect of which she seeks a declaration is enforceable other than by way of injunction. In these circumstances considerations of "clean hands" do not inhibit the granting of a declaration.[28] The jurisdiction in the Court is a wide one.[29] Further, it is strongly arguable that the plaintiff has "washed her hands clean" by the payment made to the Trustee in Bankruptcy subsequent to the attempted fraud upon him.

429. The plaintiff is further entitled to declarations that the fourth and fifth defendants do not hold shares in Villacam consequent upon the purported transfers to them by Antonio and Gennarina Polimeni respectively of one ordinary share each dated 1 July 1995.

432. Section 1071(F) of the Act applies where there is a refusal or failure to register a transfer or transmission of securities. Having regard to my findings on the facts and in particular my finding that the plaintiff was in fact registered as the holder of two ordinary shares in Villacam, this section does not form an appropriate basis for relief.

435. The plaintiff is entitled by s.234 of the Act to seek orders pursuant to s.233 in that she is a member of Villacam.

438. Section 232 of the Act enables the Court to make an order under s.233 if the conduct of a company's affairs is either:

"(d) contrary to the interests of the members as a whole; or (e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity."

442. It is apparent that the plaintiff has satisfied these conditions. The conduct of the company's affairs has been contrary to the interests of the members as a whole and unfairly prejudicial to the plaintiff. It is not disputed that the defendants have denied her membership in Villacam and refused to allow her to participate in the affairs of the company. Further, they have caused shares to be issued to the Morettis to the plaintiff's prejudice.

445. The Court has wide powers under s.233 of the Act. In the circumstances of this case I propose to order pursuant to s.233(1)(j):

1. The company prepare and maintain a share register in accordance with the company's constitution and the provisions of the Act.

2. The company issue to the plaintiff a share certificate in respect of the two ordinary shares held by the plaintiff in the company.

450. I will hear counsel as to the further conduct of the matter with respect to the outstanding issues.

(2) If yes to 1, is the plaintiff registered as the holder of two ordinary shares?

(3) If no to 1 or 2 (or incapable of answer), was the plaintiff registered as the holder of two ordinary shares in 1997?

(4) If no to 2 and 3, can the transfers to the plaintiff be regarded as complete having regard to the provisions of the constitution of the company?

(5) If as at 3 September 1997 the Polimenis were registered as owner of the shares did title of the shares pass to the trustee in bankruptcy and, if so, has title to the shares passed from the trustee in bankruptcy to the plaintiff?

(6) If yes to 3, 4 or 5, is the plaintiff entitled to be registered as a shareholder under s.1017F and is the refusal and failure of the company to register the plaintiff without "just cause"?

A. Were the transfers to the plaintiff from the Polimenis a sham?

B. Did the Morettis obtain a prior equity or equitable interest in the shares:

(a) were the transfers of the shares to the Morettis executed prior to the transfers to the plaintiff?

(c) if yes to (a) and (b), should effect be given to such transfers having regard to:

(d) if yes to (a) and no to (b), should effect be given to such transfers having regard to:

(ii) alleged mistake as to fundamental terms of the transfers?; or

C. Should the plaintiff in any event be denied an order in the Court's discretion:

(a) because of the alleged illegal purpose of the transfers?

(7) If yes to 2, 3, 4 or 5, is the plaintiff entitled to a declaration that she is the holder of two ordinary shares in Villacam, having regard to the considerations set out respectively in paragraphs _6_A, B, and C? And can such a declaration be made in these proceedings if the interests of the Morettis are found to have been procured by undue influence?

(8) If yes to 3. 4 or 5, is the plaintiff entitled to orders under s.233 that Villacam register her as a shareholder having regard to the matters respectively set out in paragraph _6_A, B and C?

(9) Should the Court make an order under s.233 of the Act that shares in Villacam issued to and/or registered in the names of the Morettis be cancelled having regard to the matters set out respectively in paragraphs _6_A, B and C?

[8] Grant & Ors v John Grant & Sons Pty Ltd & Ors [1950] HCA 54; (1950) 82 CLR 1; Carew Reid v Public Trustee & Ors (1996) 2 ALJR 443; Winthrop Investments Ltd & Anor v Winns Ltd & Ors [1975] 2 NSWLR 666

[9] MYT Engineering Pty Ltd v Mulcan (1997) 25 ALJR 79; H.L. Bolton (Engineering) Co Ltd v T.J. Graham & Sons Ltd [1957] 1 QB 159

[10] Williams v Lloyd [1934] HCA 1; (1934) 50 CLR 341 at 374

[11] See Nelson v Nelson [1995] HCA 25; (1995) 184 CLR 538

[12] [1978] HCA 42; (1978) 139 CLR 410 at 432

[13] (1966) 40 ALJR 265

[15] [1988] FCA 179; (1988) 18 FCR 449

[20] See Bulstrode v Trimble [1970] VicRp 104; [1970] VR 840 as to the rule in Browne v Dunn (1893) 6 R.67

[28] Lodge v National Union Investment Co (1907) 1 Ch 300; Langman v Hanover [1929] HCA 42; (1929) 43 CLR 334; Chapman v Michaelson (1909) 1 Ch 238; Mayfair Trading Co v Dreyer [1958] HCA 55; (1958) 101 CLR 428

[29] Forster v Jododex [1972] HCA 61; (1972) 127 CLR 421; Rogers v Resi-Statewide Corporation Ltd [1991] FCA 535; (1991) 105 ALR 145 at 151