Rothmore Farms Pty Ltd v Belgravia Pty Ltd - [1999] FCA 745 - FCA 1999 case summary — Zoe

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Rothmore Farms Pty Ltd v Belgravia Pty Ltd

[1999] FCA 745

Federal Court of Australia|1999-06-04|Before: Mansfield J

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Source facts

Court

Federal Court of Australia

Decision date

1999-06-04

Before

Mansfield J

Source

Original judgment source is linked above.

Judgment (93 paragraphs)

[1]

THE COURT DECLARES THAT: 1. Rothmore Farms Pty Ltd (In Provisional Liquidation) ("Rothmore Farms") is entitled to be indemnified from the assets of the Jill Cooper Family Trust to the extent of its current indebtedness, including accumulated interest, to Commonwealth Bank of Australia and Commonwealth Development Bank of Australia Ltd. 2. Rothmore Farms has an equitable charge or lien over the assets from time to time of the Jill Cooper Family Trust to the full extent of its entitlement to indemnity, which equitable charge or lien is enforceable against Belgravia Pty Ltd, Andrew Charles Cooper, Tennyson Turner and Agri-Steel Pty Ltd as persons from time to time holding title to the assets of the Jill Cooper Family Trust including the monies received in the conduct of the farming business or in the conduct of the engineering business conducted by them from time to time and referred to in pars 4 and 5 of these declarations. 3. Rothmore Farms' equitable charge or lien over the assets of the Jill Cooper Family Trust may be exercised against assets presently held by Tennyson Turner or by Agri-Steel Pty Ltd subject to Rothmore Farms paying to Tennyson Turner or to Agri-Steel Pty Ltd the following amounts: (1) the amounts expended by them, or either of them, directly on the cultivation, maintenance, harvesting and realisation of the 1998/99 crops (2) the amounts expended by them or by either of them directly on the purchase of materials and the provision of labour to operate the engineering business and to produce for sale or repair items of machinery plant or equipment in the conduct of that business (3) the amounts expended by them or either of them to lease payments made in respect of an R72 AGCO Gleaner Harvester 1997 and is further subject to Rothmore Farms returning to Tennyson Turner the black unpolished opal stones presently held in a safety deposit box in the State Bank of South Australia and being the opal stones transferred to Andrew Charles Cooper on 10 August 1998. 4. The farming business and the engineering business conducted by Belgravia Pty Ltd until 22 May 1998 were each businesses conducted by it solely as trustee for the Jill Cooper Family Trust and the assets used and income derived in the conduct of each of those businesses are assets and income of the Jill Cooper Family Trust. 5. The farming business and the engineering business conducted by Andrew Charles Cooper between 22 May 1998 and 7 August 1998 and thereafter conducted by Tennyson Turner and by Agri-Steel Pty Ltd were each conducted solely with assets which were formerly assets of the Jill Cooper Family Trust and the income received in the conduct of each of those businesses is income which, upon its receipt, became an asset subject to the equitable lien or charge of Rothmore Farms declared in par 2 of these declarations. AND THE COURT ORDERS THAT:

[5]

2 The Jill Cooper Family Trust ("the Trust") was established on 6 October 1981 by Deed between the settlor and Rothmore Farms as trustee ("the Trust Deed"). It was varied by a further deed on 25 June 1985, but not in any relevant respect for present purposes. The primary beneficiaries of the Trust included Jillian Helen Cooper (formerly Marshall) ("Mrs Cooper") and her sons the second respondent Andrew Charles Cooper ("Andrew Cooper"), Simon Vincent Cooper ("Simon Cooper"), Richard John Cooper ("Richard Cooper") and Martin James Cooper ("Martin Cooper"). They were not the only beneficiaries of the Trust. In the course of these reasons I will refer to Mrs Cooper and her sons as "the Cooper Family" when it is not necessary to distinguish between them. 3 The directors of Rothmore Farms have been Mrs Cooper from 1981, Richard Cooper from 7 September 1983, Simon Cooper from 14 November 1984 and Andrew Cooper from 1 September 1989. On 20 April 1998, sequestration orders were made against the estates of Mrs Cooper, Richard Cooper and Simon Cooper. Mr Sheahan was appointed as trustee of each of those estates. The only significant indebtedness upon which those orders were made was to Commonwealth Bank of Australia ("CBA") by reason of guarantees given to support advances by CBA to Rothmore Farms referred to below. At that time, Rothmore Farms had ten issued shares, of which seven were held by Mrs Marshall and one each by Richard Cooper and Simon Cooper. The remaining share is held by Andrew Cooper. Mr Sheahan therefore holds as trustee of those three estates 90 per cent of the issued shares in Rothmore Farms. From the date of sequestration, only Andrew Cooper remained eligible to be a director of Rothmore Farms, due to the operation of s 244 of the Corporations Law ("the Law"). 4 Rothmore Farms, as trustee of the Trust, conducted the business of the Trust from its appointment on 6 October 1981 until 10 February 1993. That business was largely, but not exclusively, the conduct of farming operations on a property known as Rothmore Farms. In the course of so acting as trustee, Rothmore Farms incurred liabilities to CBA and to Commonwealth Development Bank of Australia Ltd ("CDB") in respect of advances and financial accommodation to operate that business. Where it is convenient I shall refer to CBA and CDB together as "the Banks". 5 Mrs Cooper, Simon Cooper and Richard Cooper were directors of Rothmore Farms when it granted the first of four registered charges over its assets in favour of CDB on 24 June 1985, and those persons and Andrew Cooper were directors when it granted other registered charges over its assets on 16 June 1989 in favour of CDB, and on 4 July 1991 and 22 September 1992 both in favour of CBA. At 30 June 1992, Rothmore Farms was indebted to the Banks in the sum of $1,012,717. That overall liability had not reduced by 10 February 1993. 6 The assets of Rothmore Farms were all personal assets: plant and equipment, farming stocks and supplies, crops, and entitlement to the proceeds of crops, and the like. The property on which the farming business was carried on was farming land at Moonta in South Australia. That land was separately owned by Rothmore Pty Ltd, Mrs Cooper and her four sons. 7 It is not disputed that in general terms Rothmore Farms had a right of indemnity against the assets of the Trust in respect of its liability to the Banks, both under the Deed and at common law. Clause 16 of the Trust Deed provides:

[9]

10 The first transaction occurred on 10 February 1993. On that date Rothmore Farms ceased to be trustee of the Trust. On 9 February 1993, the first respondent Belgravia Pty Ltd ("Belgravia") was registered. On 10 February 1993, Belgravia was appointed as trustee of the Trust in lieu of Rothmore Farms. It became the legal owner of the assets of the Trust. The directors of Belgravia are the fifth and sixth respondents, Noelene Michelle Cooper ("Noelene Cooper") and Robert John Mills ("Robert Mills") respectively. Noelene Cooper is the wife of Richard Cooper and Robert Mills is the uncle of Noelene Cooper. 11 I shall call that transaction "the first transaction". 12 After the first transaction, Belgravia as trustee of the Trust continued to operate the farming business of the Trust. Then, by resolution of 19 May 1998, the directors of Belgravia first varied the Trust Deed by making 19 May 1998 the vesting day of the Trust, and then vested the Trust in Andrew Cooper. 13 It has been accepted by the parties that, subject to the issues particularly to be determined in this proceeding, it was within the power of Belgravia as trustee of the Trust to vest the whole of the assets of the Trust in Andrew Cooper. 14 I shall call that transaction "the second transaction". 15 Between 19 May and 7 August 1998 Andrew Cooper continued to conduct the farming business in his own name, but in a practical sense it was the farming business previously operated by Belgravia as trustee of the Trust. 16 From about 1990, there was also an engineering business conducted on the property. It was carried on by Rothmore Farms, and from the time of the first transaction, by Belgravia. After the second transaction, Andrew Cooper also continued to operate the engineering business. There is a dispute as to whether the engineering business was carried on by Rothmore Farms and then by Belgravia as trustee for the Trust, or by Rothmore Farms and Belgravia successively as an independent business activity. It will be necessary to make a specific finding on that issue in these reasons. 17 On 7 August 1998, Andrew Cooper entered into a Memorandum of Agreement with the fourth respondent, Tennyson Turner ("Tennyson Turner"), of 2 Edwin Terrace, Gilberton ("the Agreement"). The Agreement is in writing. It provides for Tennyson Turner to sell, and Andrew Cooper to purchase, "70 Carats of genuine Gilson black unpolished opal stones" for $700,000, payable as to $10,000 forthwith, as to $79,000 on or before 10 August 1998, and

[24]

"Property which is an asset of a trading estate carried on by a trustee is properly described as trust property: Dowse v. Gorton [1891] A.C. 190; Jennings v. Mather [1901] 1 Q.B., at p. 111. However, as we have already indicated, that does not mean that the cestuis que trust are necessarily entitled to call for the delivery of the property. If the trustee has incurred liabilities in the performance of the trust then he is entitled to be indemnified against those liabilities out of the trust property and for that purpose he is entitled to retain possession of the property as against the beneficiaries. The trustee's interest in the trust property amounts to a proprietary interest, and is sufficient to render the bald description of the property as "trust property" inadequate. It is no longer property held solely in the interests of the beneficiaries of the trust …" Octavo supports Rothmore Farms' claims to the indemnity, and to the equitable charge or lien over the assets of the Trust in support of it. 36 The next issue to address is whether the removal of Rothmore Farms as trustee, so that it relinquished its possession of the assets of the Trust, resulted in that lien or charge being lost. In my judgment, it did not. It would be a strange result if that equitable interest were capable of being lost by a transaction such as the first transaction. The persons controlling Rothmore Farms and the main beneficiaries under the Trust were the Cooper Family. Mrs Cooper alone under the Trust Deed had power to change trustees. The transfer of assets in many cases (as in this case) could be effected by a notional change in possession or by book entries. The ease with which that equitable interest could thus be lost if the respondents are correct tends to suggest that the proposition urged by the respondents should be carefully scrutinised. 37 Authority also indicates that the equitable interest of the trustee in trust assets, to the extent of the trustee's right of indemnity against the trust assets, is not lost by a change of trustee or by the giving up of possession of the trust assets by that former trustee. Jennings v Mather (above) recognised that the trustee's right of access to the trust assets for that purpose was not lost by the trustee's bankruptcy; it was maintainable by his trustee in bankruptcy. That position is also recognised in In Re Suco Gold Pty Ltd (1982) 33 SASR 99 where the trustee had been placed in liquidation. King CJ at 109 said:

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Overdraft $ 90,000.00 Advance $435,000.00 Bill discount facility $190,000.00 Term Loan $168,415.00 Residual on Lease $ 40,000.00 Total $923,415.00 That level of indebtedness is recognised in the financial accounts of Rothmore Farms and of the Trust at 30 June 1992. 47 Those various advances were secured by a registered mortgage granted by Rothmore Pty Ltd over part of the land on which the farming operations were carried out, a registered second mortgage granted by Rothmore Pty Ltd over an undivided moiety in certain further land also used for that purpose, and by registered second mortgages granted by Mrs Cooper over an undivided moiety in certain further land also used for that purpose. 48 In 1991, a registered second equitable mortgage over the whole of the assets and undertakings of Rothmore Farms was granted to further secure the Banks' debt, and further registered second mortgages over undivided moieties in further farming property were also granted. 49 In addition, by deed dated 1 September 1986, Mrs Cooper, Richard Cooper, Simon Cooper and Rothmore Pty Ltd each guaranteed that indebtedness to CBA to better secure the advances to and the financial accommodation provided to Rothmore Farms. Those guarantees were upheld as against Mrs Cooper, Richard Cooper and Simon Cooper and Rothmore Pty Ltd in proceedings in the Supreme Court of South Australia. The principal, but unsuccessful, line of attack in those proceedings seems to have been that Richard Cooper and Simon Cooper were co-guarantors with Andrew Cooper and Martin Cooper and the guarantee was generally unenforceable because Andrew Cooper and Martin Cooper were minors at the time the guarantee was executed by them. So far as the reasons for judgment of the Full Court of the Supreme Court reveal, it was not alleged in those proceedings that Rothmore Farms had no indebtedness to the Banks. 50 Furthermore, Mrs Cooper, Richard Cooper and Simon Cooper have each acknowledged that substantial indebtedness to those levels (or thereabouts) in their proofs of debt filed in their respective bankruptcies. 51 On 16 June 1998, the CBA applied for Rothmore Farms to be wound up. It alleged a failure to comply with a statutory demand served on Rothmore Farms in respect of the then indebtedness. Rothmore Farms opposed the application on the technical ground that the notice of demand had not in fact been served upon it, and on the substantive ground that there was a genuine dispute as to the alleged indebtedness which was being litigated in the Supreme Court of South Australia. In fact, the asserted genuine dispute only related to the fact that proceedings in the Supreme Court of South Australia had been commenced against Belgravia, rather than against Rothmore Farms, to recover the debt. It did not suggest there was no indebtedness. CBA had in fact commenced proceedings against Belgravia in the Supreme Court of South Australia at the same time as the proceedings against Mrs Cooper, Simon Cooper and Richard Cooper, but it did not pursue those proceedings. 52 One searches in vain for any cogent evidence that there was by the time of the first transaction no existing indebtedness of Rothmore Farms to the Banks. 53 The respondents called only two witnesses, namely Mrs Cooper and a valuer James Frederick Baines Bruce ("Mr Bruce"). Mrs Cooper's evidence-in-chief touched only upon the first transaction. The respondents led no evidence from any of the persons involved in the second transaction, or in the third transaction. Mr Bruce's evidence dealt only with the value of the opals which were transferred in the third transaction and is separately considered. 54 No evidence was called from Andrew Cooper, Simon Cooper, Richard Cooper, Noelene Cooper, Robert Mills or Tennyson Turner. In my view, they were each persons from whom it was natural for the respondents to adduce evidence. Andrew Cooper, Simon Cooper and Richard Cooper were directors of Rothmore Farms, and Noelene Cooper and Robert Mills were directors of Belgravia. In obvious ways, they were variously directly involved in the first transaction and in the second transaction. As is plain from Jones v Dunkel (1959) 101 CLR 298 per Menzies J at 312-313, the fact that none of them gave evidence cannot prove any fact in issue if there is no other evidence which tends to do so. If the evidence supports an inference on a fact or matter in issue, the absence of witnesses who might naturally have been called by the respondents means that that inference might be more readily drawn from the admissible evidence. 55 The only evidence that there was no debt to the Banks by the time of the first transaction was the assertion of Mrs Cooper to that effect. For reasons which appear below, I did not find Mrs Cooper to be a reliable witness. I reject her evidence on this particular topic. It is inconsistent with her acknowledgment of that indebtedness in her statement of affairs. It is inconsistent with a mass of contemporaneous documentary evidence. It is inconsistent with the financial accounts of Rothmore Farms, and later of Belgravia. 56 I find that Rothmore Farms was indebted to the Banks in the amounts specified above as at the time of the first transaction. I also find that Rothmore Farms incurred that debt only as trustee for the Trust. 57 The second ground upon which the respondents submitted that Rothmore Farms' indemnity had been lost was, in the circumstances, a remarkable one. It was that Rothmore Farms had lost that right of indemnity by 10 February 1993 because it had not managed the business of the Trust properly, and because it had acted outside its powers as trustee for a number of years including in its financial, accounting and taxation arrangements all of which "led to the large debts". They also submitted that those matters were the reason for the first transaction. 58 That submission is remarkable because: · the issue was not pleaded. · the respondents led no evidence to support the claim. Their only witness of fact on matters relating to that period was Mrs Cooper. She did not touch on the issue. The short cross-examination of Mr Bartholomaeus, the then accountant for Rothmore Farms, did not explore the issue except to allege unsuccessfully that he had failed to give sound accounting advice to Rothmore Farms. · the directors of Rothmore Farms were the Cooper Family. On the evidence it was Mrs Cooper and her sons who ran the farming activities of the Trust through Rothmore Farms, and (it seems) continued to do so until the third transaction. Consequently, the submission is in reality the Cooper Family alleging that the corporate trustee of the Trust of which they were among the principal eligible beneficiaries cannot assert or enforce its right of indemnity because they, as directors of that corporate trustee, failed to act in their own proper interests. To state the proposition is to demonstrate that it is flawed. 59 I reject it for those reasons. 60 I also reject the contention that somehow Rothmore Farms' entitlement has been lost by laches on the part of the Banks. 61 That question was not pleaded, nor litigated in the proceeding. It was only advanced in submissions. The evidence does not support the assertion in submissions that the Banks "slept" on their rights as against Rothmore Farms until 10 August 1998 when CBA issued a statutory demand upon Rothmore Farms for recovery of its debt. 62 The evidence indicates that the Banks continued to assert to the Cooper Family their entitlement to recover their debts at material times. It was that pressure which led to the first transaction. I find that it was not until 22 August 1994 that CBA was informed of the first transaction. In February 1995, it instituted various proceedings in the Supreme Court of South Australia to enforce its securities, including to recover under the guarantees given by Mrs Cooper, Simon Cooper and Richard Cooper. I have referred to the detail of those claims elsewhere in these reasons. Judgments were ultimately obtained in certain of those proceedings on 22 August 1997. They were affirmed on appeal on 20 March 1998. It was shortly after that date that the sequestration orders were obtained against the estates of Mrs Cooper, Richard Cooper and Simon Cooper. Also, following the resolution of the proceedings in the Supreme Court, in May 1998 CBA proceeded to serve a statutory demand in respect of the then indebtedness upon Rothmore Farms. 63 In addition, in my view, the relevant conduct is not that of the Banks but of Rothmore Farms itself. In the period of time up to the appointment of Mr Sheahan as trustee of the bankrupt estates of Mrs Cooper, Simon Cooper and Richard Cooper, Rothmore Farms remained in the control of the Cooper Family. They were its sole directors and shareholders. It is not, in my view, correct that the Cooper Family could now effectively complain that the company of which they were sole directors and shareholders lost its rights against them by any inactivity in enforcing those rights whilst they had that control. Following the appointment of Mr Sheahan as provisional liquidator, Rothmore Farms has acted promptly to enforce its rights. 64 Finally, I do not think that the claimed detriment by any delay is made out. In Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221 at 239-240, the Judicial Committee of the Privy Council said:

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"Now the doctrine of laches in Courts of Equity is not an arbitrary or a technical doctrine. Where it would be practically unjust to give a remedy, either because the party has, by his conduct, done that which might fairly be regarded as equivalent to a waiver of it, or where by his conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted, in either of these cases, lapse of time and delay are most material." In my judgment, the evidence does not show that either Rothmore Farms or the Banks intended to, or did, abandon their respective claims, or that any delay has in any relevant sense prejudiced the respondents (cp Allcard v Skinner (1887) 36 Ch D 145). It does not show that, in the period between the first transaction and the present, the respondents or any of them have altered their position upon the basis that those claims would not be pursued. On the contrary, as these reasons record, the first transaction and the second transaction were each clearly prompted by the awareness of the liability of Rothmore Farms to the Banks and of the prospect of Rothmore Farms exercising its right against the assets of the Trust so as to meet that liability. 65 It was submitted for the respondents that the deficiency of assets against liabilities of Rothmore Farms at 30 June 1992 was only $166,721 and that the delay has led to that shortfall now exceeding some $2.5 million. That level of indebtedness is the consequence of two things. First, the fact that the assets of the Trust were transferred in the first transaction to Belgravia, so that Rothmore Farms was left with its indebtedness to the Banks but (subject to the outcome of this action) no value in its right of indemnity against the Trust assets increased its apparent level of irrecoverable debt. Second, interest has continued to accumulate on that indebtedness to the present time. The assets of the Trust at 30 June 1992 were reported as $845,996 and the shortfall of assets against liabilities was $166,721. That shortfall was almost entirely due to the indebtedness to the Banks. The removal of those assets from the reach of Rothmore Farms' right of indemnity (if that occurred) would mean that the shortfall of assets in Rothmore Farms was then, in effect, its total indebtedness to the Banks. Rothmore Farms has not traded since the first transaction. The increase to its present level of indebtedness to the Banks is solely due to interest accumulating on that indebtedness. In the meantime, the assets of the Trust have been used to support the continued operation of the farming activities of the Trust, including the procuring of financial accommodation from another financial institution. The indebtedness to CBA as at 1 April 1999 is $1,948,370 and to the CDB is $356,170 at the same date, making a total of $2,304,540. 66 I note also that that indebtedness to the Banks was recognised in the financial accounts of Belgravia from 30 June 1993 to 30 June 1997. That is the date of the last Belgravia accounts in evidence. The financial accounts of Rothmore Farms in that period also erroneously disclosed that it had no assets and no liabilities. Whilst it was correct to recognise the debt, it was erroneous following the first transaction to treat it as a debt of Belgravia. There is now no issue that such indebtedness to the Banks as does exist has at all times remained with Rothmore Farms. (e) The claim under s 565 of the Law

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73 In respect of the period up to 30 June 1992, Rothmore Farms' accounts show that its principal current asset was the right of indemnity from the Trust, and its current liabilities principally but not exclusively were financial facilities owing to CBA. 74 The Trust financial accounts to 30 June 1992 show a net trading profit from farming of $85,843, but an excess of liabilities over assets of $166,721. The farming wages were minimal. It appears that the profit was achieved because none of the Cooper Family were paid wages, although Simon Cooper, Andrew Cooper and Richard Cooper worked on the farm (and in the agricultural equipment engineering business, to which I shall refer below). During 1991/1992, they each took drawings by way of loans from Rothmore Farms of about $18,000, so that the Trust assets included the entitlement to recover that increased indebtedness. The indebtedness of the Cooper Family to Rothmore Farms increased over the 1991/1992 financial year by $95,692 to a total of $513,205. There is no evidence to indicate whether those advances in fact were recoverable. If they were not, there was a very significant shortfall of assets against liabilities in the Trust. 75 As noted earlier in these reasons, the security net of the Banks was progressively tightened. It is also clear that in the later part of 1992, the Banks had concerns about Rothmore Farms exceeding its overdraft limit. On 22 September 1992, a crop lien security was taken and registered, and notified to the Australian Wheat Board and to the Australian Barley Board. 76 In early January 1993, Rothmore Farms had exceeded its overdraft limit with the CBA. The CBA was concerned about that, and conveyed that concern by its local branch manager Mr Riley to a member of the Cooper Family, who I find on the basis of Mrs Cooper's evidence to have been Richard Cooper. Mr Riley told Richard Cooper that Rothmore Farms should not draw further cheques, and that if CBA were not kept informed of the cropping progress and of Rothmore Farms' financial position, then CBA would dishonour its cheques. 77 On 10 February 1993, CBA was notified by the Australian Wheat Board that Richard Cooper on behalf of Rothmore Farms disputed the entitlement of the CBA to receive the proceeds from a crop delivered to the Australian Wheat Board under the crop lien. On the same day CBA cancelled Rothmore Farms' overdraft facility. It indicated that no further cheques would be met on presentation to the CBA. Rothmore Farms obviously had a serious cash crisis. Its assets were heavily secured. There is nothing to suggest it had other resources to enable it to continue the farming operations for the Trust. 78 The only evidence led by the respondents to explain the circumstances of, and the reasons for, the first transaction was from Mrs Cooper. 79 I did not find Mrs Cooper to be a reliable witness. I do not know whether it was the passage of time, or some other reason, but her evidence was a curious and unsatisfactory mix of dogmatic assertions or denials on significant issues and of a lack of any real knowledge on other issues of much the same significance. Those dogmatic assertions or denials in a number of cases were clearly erroneous, but she would not be swayed from them nor, when pressed, did she provide any real reason for those views. 80 Her evidence in chief asserted, without any explanation, that in the early 1990's she and her family were of the view that there were no longer monies owing to the CBA, and that the advances and facilities had all been repaid with interest. That is simply not so. The documentary evidence is clearly to the contrary. She acknowledged the debt, as guarantor, in her statement of affairs. The accounts of Rothmore Farms of which she was a director recorded the increasing level of bank indebtedness up to 1992 and thereafter Belgravia's accounts acknowledged the fact of that indebtedness. The granting of the securities by Rothmore Farms, when she was a director, to support the ongoing financing from the Banks also contradicts her assertion. Her own evidence-in-chief then later contradicted that statement. 81 Her evidence was that the first transaction occurred solely on the express advice of Rothmore Farms' former accountant, Rodney Bartholomaeus ("Mr Bartholomaeus"), and that Tennyson Turner played no role in relation to the first transaction. That evidence provides an illustration of her specific recall of some matters and her inability to recall anything of other matters occurring more or less contemporaneously. It also provides an illustration of the specific recall being apparently unreliable. She had known Tennyson Turner for many years. She said that, on the basis of Mr Bartholomaeus' advice, she went with Richard Cooper and Simon Cooper to Tennyson Turner's office to have Belgravia formed. She had no recollection of what transpired at that meeting. How or why she and her sons went to see Tennyson Turner to form Belgravia, especially when (as she said) they did not attend by any appointment was not explained. Her detailed recollection of the advice said to have been given by Mr Bartholomaeus at the time contrasts sharply with a total inability to recall any matter upon which Tennyson Turner gave advice or even commented. She advanced no reason for Mr Bartholomaeus being unable to arrange for another person to register Belgravia (or a new corporate trustee), or to refer them to another person to do so. 82 The Cooper Family had the practice of meeting Mr Bartholomaeus on an annual basis, about October or November of each year, when he would go through the financial records they brought with them to clarify any issues and to obtain any relevant information for the preparation of financial accounts. From 1988, the primary financial records were maintained by Richard Cooper. Mr Bartholomaeus would then prepare financial accounts for the previous financial year and send them to the Cooper Family to consider and, subject to any queries, to sign them. Initially, in her cross-examination, Mrs Cooper said that after the annual meeting in about October 1992 with Mr Bartholomaeus, the next meeting with Mr Bartholomaeus was in about October or November 1993. She only recalled another meeting with Mr Bartholomaeus when it became clear that the annual meeting in 1992 could not have been the occasion of any discussion about the first transaction, because the financial pressure from the CBA which gave rise to it had not then occurred. She then said that there was a meeting with Mr Bartholomaeus prompted by CBA's notice of "foreclosure" ie. termination of the overdraft facility. She identified CBA's letter to Rothmore Farms of 10 February 1993 as being that notice. When it was pointed out that that notice was given only by letter of 10 February 1993, and the first transaction itself occurred on that date, so there was no time to have seen Mr Bartholomaeus, she asserted that the notice of foreclosure was received in December 1992, by hearing it from one of her sons who had been told it by Mr Riley. Apart from what I regarded as her inappropriate flexibility in the course of her evidence to meet the independently verifiable facts, there is no evidence of any such conversation between Mr Riley and any of her sons. The CBA's records in evidence do not disclose, as must have been the case if she is correct, a decision to "foreclose" made in December 1992. 83 I have given weight to her evidence only where it is corroborated by other documentary or oral evidence, or where it relates to matters of apparently uncontentious history. 84 Her evidence confirms that she and Richard Cooper received advice in early 1993 that Rothmore Farms should retire as trustee of the Trust and that a new company should be appointed as trustee "so that the new trustee could keep the farm going" in the face of the debt of Rothmore Farms to the Banks, and in the face of CBA's claimed crop lien over the 1992/1993 summer harvest. It was CBA's position that the receipts from that harvest be appropriated to debt reduction, and not be available for working capital. Rothmore Farms had no other capacity to borrow further working capital. The advice also was that the new trustee should have directors who were not members of her immediate family. She asserted that the removal of Rothmore Farms as trustee, and its replacement by Belgravia, was not to defeat or delay any liability to the Banks, but "to help the whole position" including repaying the Banks. 85 I accept that the first transaction was done in part at least on advice from some other person. It is of a degree of complexity which I suspect Mrs Cooper and her family would not have employed without that advice. As I noted, she said that the advice was given by the accountant for Rothmore Farms and the Trust, Mr Bartholomaeus. Mr Bartholomaeus denied that. It is the applicant's case that it was given by Tennyson Turner. 86 I accept Mr Bartholomaeus' evidence that he did not advise the Cooper Family to undertake the first transaction. He impressed me as a straightforward and honest witness, with a sound recollection of events and a readiness to acknowledge limitations in his memory of events. His firm had been the accountants for Rothmore Farms, and for members of the Cooper Family, for many years. He had undertaken that role from and including the 1988/1989 financial year. He completed the Rothmore Farms' accounts, and also the Belgravia accounts, as well as the Trust financial accounts to 30 June 1996, but thereafter has not received instructions. In April 1998, he forwarded the financial records, other than his personal records, to Tennyson Turner on instructions from Richard Cooper. 87 Apart from being impressed by Mr Bartholomaeus as a reliable witness, his evidence is confirmed by the tenor of the correspondence and communications between himself and CBA, Rothmore Farms, and Richard Cooper on 18 and 19 March 1993, and by Rothmore Farms' letter of 22 March 1993 to CBA. 88 A stalemate in communications with the Banks apparently followed CBA's letter of 10 February 1993 to Rothmore Farms. On 18 March 1993, CBA contacted Mr Bartholomaeus and asked him to intervene with the Cooper Family and to participate in a meeting between CBA's officers and members of the Cooper Family to address the financial circumstances then applying to Rothmore Farms. CBA notified Rothmore Farms of that suggestion. Mr Bartholomaeus also wrote to Mrs Cooper, and Richard Cooper, Simon Cooper and Andrew Cooper on the same date concerning that suggestion. He concluded his letter as follows:

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94 That course of communications strongly tends to confirm Mr Bartholomaeus' evidence that he was not aware of the first transaction at the time it took place, and did not advise with respect to it. His notes of the annual consultation with the Cooper Family towards the end of 1993 record that he was then told of the first transaction, and should contact Tennyson Turner in relation to it. Those notes provide the context for his letter to Tennyson Turner of 21 January 1994, and also support his oral evidence. 95 In the meantime, Belgravia on 1 July 1993 had applied to the Australian Taxation Office for a tax file number. The contact person was identified as Tennyson Turner. 96 I reject Mrs Cooper's evidence that the first transaction occurred on the advice of Mr Bartholomaeus. I accept his evidence that he did not know of the first transaction until after it had occurred. I also find that CBA was first told of the first transaction by letter from Rothmore Farms of 22 August 1994, and then in response to a specific request by CBA as to the then trustee of the Trust. 97 Why, then, was the first transaction undertaken? It is obvious that Rothmore Farms was under considerable pressure from CBA by the time of the first transaction. The CBA had claimed the proceeds of the 1992/93 harvest to reduce the indebtedness, pursuant to a crop lien. Those monies would otherwise probably have provided Rothmore Farms with its working funds to operate into the next financial year. The overdraft facility had been cancelled. Its assets were considerably less than its liabilities. There is also no evidence to suggest that the members of the Cooper Family who were indebted to Rothmore Farms had the capacity in the short term to repay that indebtedness. The progressively increasing level of indebtedness to the Banks, and the spectrum of securities which they had procured, tend to support the inference that there were no other ready sources of funds available to Rothmore Farms, including from members of the Cooper Family. 98 The intent to which s 121(1)(b) of the Bankruptcy Act refers does not necessarily connote deceit or dishonesty. Ryan J in Re World Expo Park Pty Ltd (1994) 12 ACSR 759 at 768 referred with approval to the following passage from Lewis' Australian Bankruptcy Law (4ed, 1955) at 45-46:

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That passage is also cited in Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515 at 523. 99 In Grellman, the Full Court (Wilcox, Gummow and von Doussa JJ) discussed the circumstances in which "an intention to defraud creditors" (a shorthand expression used to convey the purpose to which s 121(1)(b) of the Bankruptcy Act refers) may be inferred (at 523-524). It is not necessary to repeat the authorities to which their Honours had regard. Regard should be had to all the surrounding circumstances, including the effect of the transaction (or, in the present circumstances, the intended effect of the transaction). 100 I am satisfied that the intent of Rothmore Farms, together with that of its directors, by the first transaction was to deal with the assets of the Trust with the object of putting them beyond the reach of the Banks, as creditors of Rothmore Farms. The above considerations explain why I have reached that conclusion. The first transaction was undertaken against the background of the CBA's intense financial pressure on Rothmore Farms to reduce its level of indebtedness. Mrs Cooper confirmed that the decisions taken to effect the first transaction were taken by herself, her sons and Noelene Cooper and Robert Mills. They were all the directors of Rothmore Farms and of Belgravia. They all took part in the "family discussion" (as she described it) when it was decided to pass the Trust assets in the name of Rothmore Farms to Belgravia. That was done by notional physical transfer of the assets, and by book entries, as the assets did not include any real estate. Mrs Cooper said that, in those discussions, they were all aware as almost inevitably they must have been that · no further advances would be forthcoming from the Banks and that they were pressing for reduction of their debts · if they could not somehow procure funds from the proceeds of the crops, the farming operations of the Trust could not continue · Belgravia was part of their restructuring to get access to funds so that the farming operations of the Trust could continue, and · they were therefore trying to preserve the assets and the trading operations of the Trust. 101 What she did not acknowledge was that the purpose of the transaction was to preserve the Trust assets and the farming operations of the Trust from further claims upon them by the Banks. However, in my judgment, that is the purpose which underlies the first transaction. The Cooper Family and Rothmore Farms were faced with the very real prospect that the Banks' actions would lead to their claims against Rothmore Farms being directly enforced, and Rothmore Farms then exercising its right of indemnity against the Trust assets. The point had been reached where Rothmore Farms, due to the level of its obligations to the Banks and its dealings with the Banks through its directors, was likely to be unable to continue trading as it had no further cash resources to do so. Another entity was perceived as the means by which the Trust's trading activities could continue. Although it may not then have been directly addressed that the process was to put the Trust assets beyond the reach of Rothmore Farms' creditors, namely the Banks, so as to "defraud" the Banks, that was the intended effect of the transaction. It may have been the expectation that, in time, the farming operations of the Trust would have generated sufficient profits to enable the Banks to be repaid. Indeed, in the longer term, the Cooper Family may have hoped that by putting the Trust assets beyond the reach of Rothmore Farms, and the Banks, they could continue to trade and ultimately to repay the Banks. It may have been the intention that the debt to the Banks would somehow continue to be recognised. In fact, erroneously, the accounts of Belgravia at 30 June 1993 and thereafter recognised the ongoing indebtedness to the Banks as a debt of Belgravia (but not by any arrangement with the Banks). 102 However, applying the test which s 121(1)(b) dictates, in my judgment it is clear that at the time of the first transaction, its purpose was to put the assets of the Trust beyond the reach of Rothmore Farms so that its creditors, namely the Banks, could not preclude or prevent the Trust from continuing to trade by seizing those assets. 103 Accordingly, if the equitable lien or charge of Rothmore Farms over the Trust assets did not survive the first transaction, in my judgment the first transaction would be void against the trustee in bankruptcy of Rothmore Farms (if it were a natural person) and so is void under s 565 of the Law as against the liquidator of Rothmore Farms. 104 For reasons already given, however, the first transaction did not have that effect. The second transaction

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113 By reason of my earlier findings, I find that Andrew Cooper was aware of the first transaction. I have found that as a director of Rothmore Farms, he participated in that transaction to remove the assets of the Trust from the reach of the creditors of Rothmore Farms. I have also noted earlier that the accounts of Belgravia erroneously reflected that the ongoing indebtedness of Rothmore Farms to the Banks was an indebtedness of Belgravia. During each of the years 1993 to 1997, in about October or November of each year, the Cooper Family made their annual visit to Mr Bartholomaeus. He prepared accounts following those visits. 114 In my judgment, Andrew Cooper was aware of the continued substantial (and increasing) indebtedness to the Banks up to the time of the second transaction. It is very likely that he was aware of the ongoing proceedings against members of his family up to 20 March 1998. His absence from the witness box enables me to draw that conclusion more confidently from the evidence. 115 It is also clear that he took the assets of the Trust by the second transaction without consideration on his part. He took them in a transaction which enabled him at law to assume those assets without having to assume the liabilities to the Banks. Even if, as counsel for Andrew Cooper contended, the second transaction was a lawful transaction, it does not follow that the equitable interest of Rothmore Farms in the Trust assets was thereby lost. 116 Counsel for Andrew Cooper did not put any submissions that that equitable interest did not survive the second transaction, apart from the contentions which I have rejected earlier in these reasons that there was no ongoing debt to the Banks and that no right of indemnity existed or equitable interest arose because of the wrongful conduct of Rothmore Farms as trustee. 117 There is, in my judgment, no reason in equity why Andrew Cooper's title to the Trust assets as a result of the second transaction was not subject to the equitable interest of Rothmore Farms in those assets. (c) The Law of Property Act 1936 (SA)

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"(1) Every conveyance of property made with intent to defraud creditors shall be voidable at the instance of the party prejudiced thereby. (2) This section shall not extend to any estate or interest in property conveyed for valuable consideration and in good faith or upon good consideration and in good faith to any person not having, at the time of the conveyance, notice of the intent to defraud creditors." "Property" is defined in that Act to include any interest in real or personal property. It clearly encompasses the Trust assets. 120 The onus is upon Rothmore Farms to establish that the second transaction occurred with intent to defraud creditors: Williams v Lloyd (1934) 50 CLR 341 at 372. 121 The second transaction was undertaken by Belgravia through its directors Noelene Cooper and Robert Mills. Neither gave evidence. Nor was any evidence given by any members of the Cooper Family about the circumstances in which, or the reasons for which, the second transaction occurred. Mrs Cooper did not give evidence touching on those matters. The finding contended for by Rothmore Farms must be inferred from the facts proved in evidence, if it is to be established. 122 The evidence shows, as I have found elsewhere, that members of the Cooper Family, including Noelene Cooper and Robert Mills, were party to the consultations leading to the first transaction. Thereafter, in a practical sense, Mrs Cooper's sons continued to undertake the farming operations for the Trust in much the same way as they had previously done. The Cooper Family maintained their annual visits to Mr Bartholomaeus up to about November 1997. There was nothing to indicate that Noelene Cooper and Robert Mills operated Belgravia at arms length from the Cooper Family. What little evidence there is tends to point to the contrary. Shortly before the second transaction, on 20 April 1998, sequestration orders were made against the estates of Mrs Cooper, Simon Cooper and Richard Cooper. Also, a statutory notice of demand was given by CBA to Rothmore Farms on 14 May 1998 for the outstanding indebtedness. I find that Noelene Cooper and Robert Mills were aware of those matters. The fact that Andrew Cooper was the beneficiary of the second transaction, and was the only director of Rothmore Farms who was not bankrupt tends to support that conclusion. No other reason for selecting him as the person in whom the Trust should vest is apparent. 123 What was the intention of Belgravia through Noelene Cooper and Robert Mills in undertaking the second transaction? I conclude from those same facts, and the timing of the second transaction, that their general intention was to defeat or delay creditors of Rothmore Farms, and to defeat or delay Rothmore Farms in any claim it might have against Belgravia or the assets of the Trust, and also to defeat or delay creditors of Mrs Cooper, Simon Cooper and Richard Cooper: Glegg v Bromley [1912] 3 KB 474 at 492. It is difficult to conceive of some other reason why the second transaction occurred when it did. The coincidence of timing to the events referred to above speaks loudly. Furthermore, the fact that the vesting of Trust assets was in favour of Andrew Cooper speaks loudly as to its motivation. Counsel for the respondents did not suggest any other reason for the second transaction occurring as and when it did. The fact that they did not give evidence enables me more confidently to draw that inference. 124 Rothmore Farms was not, in my judgment, prejudiced by the second transaction because the second transaction did not then have the effect of impairing or otherwise reducing Rothmore Farms' equitable interest in the Trust assets. Andrew Cooper held his interest in the Trust assets subject to that interest. However, if the contrary were the case, then Rothmore Farms would clearly be prejudiced by the second transaction by the loss of that equitable interest. In that event I would find that the second transaction was avoidable by Rothmore Farms (subject to the operation of s 86(2) of the Law of Property Act 1936 (SA)) because it was undertaken by Belgravia in breach of s 86(1), and has been avoided by Rothmore Farms. I will address the impact of s 86(2) when considering the third transaction. The third transaction

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128 Tennyson Turner received the Trust assets and the right to the crops then sown on the property known as Rothmore Farms apparently by Andrew Cooper. There was some suggestion that those assets were not all assets of the Trust, but there was no evidence to support that suggestion. The farming operations of the Trust were carried on by Rothmore Farms, and then by Belgravia. Neither entity carried on any activity other than as trustee of the Trust. Nothing is shown to rebut the inference that, after the second transaction, Andrew Cooper carried on the same business in much the same way. There is one asset, namely an R72 AGCO Gleaner Harvester 1997 ("the leased harvester") to which it will be necessary to refer separately. 129 The consideration payable by Andrew Cooper for the opal sold to him by Tennyson Turner was $89,000 plus the transfer to Tennyson Turner of all the farming and engineering machinery plant and equipment, the work in progress in the engineering business, the assignment of grain payments standing to the credit of Andrew Cooper, and the crops growing on the land. Tennyson Turner was to assume responsibility for the three remaining lease payments each of $57,000 due in respect of the leased harvester, and to pay the costs of maintaining, harvesting and selling the crop. 130 Not all those assets were valued. The anticipated value of the crop was valued by John Prentice Clark ("Mr Clark"). Mr Clark is a licensed and experienced valuer. He gave his evidence in a straightforward way and I have no reason to reject it. He was not seriously challenged in cross-examination. There was no contrary evidence on those matters. 131 Mr Clark valued the crop comprising wheat, barley, peas, triticale, canola and chick peas, including a portion being share farmed following an inspection on 10 November 1998. He valued the crop then farmed by Andrew Cooper or Tennyson Turner alone as likely to realise $534,023, and the crop share farmed (full value) as likely to realise $111,788. He was told that the crops had been sown between 20 June and 12 July 1998. The crop's appearance was consistent with that information. Harvesting was due to commence on about 17 November 1998. His estimate was as to the gross value of crops delivered to Wallaroo, but as he indicated, the estimates of yields could vary depending upon weather conditions. On 4 January 1999, he again inspected the property. He observed that all crops had then been harvested, "with some crops yielding more, some less." He indicated that the overall value for crops could vary slightly because of the reduction in price per tonne of some varieties, and that certain of the crops had been delivered to Roseworthy. 132 Rothmore Farms also called Lindsay Walter Wapper ("Mr Wapper"), Rural Consultant and Valuer. He had been retained to consider whether the expenses incurred according to the schedules of expenditure on crops prepared by Tennyson Turner for the period 19 June to 14 December 1998 were reasonable, and whether the returns and profits reported were in accordance with normal expectations. His expertise both generally and in relation to the particular area is long standing. It was not really challenged. 133 The result of his analysis is demonstrated by the summary which he provided in the following terms: Rothmore Costs

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134 PIRSA is an acronym for Primary Industries and Resources South Australia and EconSearch is a reference to data published by an entity called EconSearch which provides on an area by area basis gross margin analysis and statistics for various forms of crop on an annual basis. The data is used in the rural industry as a benchmark against which performance is measured by experts. EconSearch published for 1998 a Farm Business Planner through Rural Press (SA) Limited. The PIRSA statistics were taken from its 1998 publication entitled Crop and Livestock Gross Margin Estimates. The documents are in evidence. Mr Wapper assumed that the share farm expenses were all expenses incurred without separate allocation by the land owner, that the cropping was conducted in a manner usual for farmers in the area, that there were no special circumstances or difficulties with the crops which would result in significant differences in levels of expenses between farmers in the area, and that each of the items of expenditure were apportioned at an equal rate per hectare. 135 He acknowledged in his evidence-in-chief certain additional relevant reservations. The actual seed cost for the crop was less than those provided by the publications referred to but, as he noted, it is not uncommon for farmers to carry over seed from a previous years' crop. He did not make allowance for that. Also, he added to the fertiliser costs the sum of $173,745 paid for fertiliser in January 1998. He regarded that as a purchase of fertiliser on some form of "early bird" discount. He was unable to think of any other reason why that fertiliser would have been bought at that time other than for the 1998 crop. On the other hand, he did not include chemicals costing $75,540.60 acquired by Belgravia in December 1997 and April 1998. They were expenses included in Tennyson Turner's schedule of expenditure on cropping, and Mr Wapper could think of no reason why those chemicals would have been acquired other than for the crop, but they were not expenses incurred by Tennyson Turner. 136 His conclusion was that, allowing as much as he thought reasonable on the high side, the total expenses of the particular crops in the area should have been in the vicinity of $465,732 or $180 per hectare, rather than $232 per hectare as was reported by Tennyson Turner. He was prepared to accept the PIRSA estimates as a guide even though he considered that they are based on higher rainfall. He identified costs for fertiliser, fuel, repairs and chemicals as extremely high compared to standard costs. 137 Tennyson Turner had provided a schedule of cropping expenses. Mr Wapper did not himself attempt to verify those expenses by reference to invoices. He was unable to reconcile the schedule of expenses to the invoices actually presented because of lack of information. Mr Wapper was not aware of, and had not inquired into any extraordinary problems such as crop disease. He was generally aware of Rothmore Farms, but had not visited it or inspected it for many years. He regarded it as typical of land in that area. The cross-examination highlighted that his views were dependent upon the reliability of the statistical data to which he referred, but did not otherwise seek to demonstrate flaws in his process of reasoning. 138 I am unable to determine with accuracy the total receipts for the 1998/99 crop. It is likely to be in excess of $600,000. I am also unable to determine the expenses incurred by Tennyson Turner in maintaining, harvesting and selling that crop. The documentary evidence provided by Tennyson Turner to Mr Sheahan does not demonstrate that those expenses totalled as much as $600,000 as he claimed. If area standards are applied, according to Mr Wapper's evidence, the profits from the crop would be well in excess of $100,000. It is not necessary to make any finding on those matters, save to find that there is a significant net profit from the 1998/99 crop. 139 On 4 January 1999, Mr Clark in conjunction with Richard Cooper inspected the plant and equipment on the property. He valued it in total at $655,500.00 for plant, machinery, motor vehicles and sundries. The basis of his valuation was fair market value, based upon comparative sales and on the basis that there was a willing but not anxious seller and a willing but not anxious buyer. His valuation included the leased harvester, which he valued at $160,000. He treated it as owned by the Trust or Andrew Cooper or Tennyson Turner. He did not inquire as to its true ownership, or into the leasing arrangements. Subject to that qualification, I accept his evidence on that topic also. I find that Tennyson Turner had to meet the remaining lease obligations in respect of the leased harvester, and to pay the costs of maintaining, harvesting and realising the crops. The net value of the plant, equipment and machinery was thus about $500,000. 140 I am also unable to determine the net value of the work in progress in the engineering business at the time of the third transaction. Tennyson Turner has no doubt incurred expense since then in having that work in progress completed, and in any event would be entitled to be given credit for monies so expended. 141 In determining the value of the consideration received by Tennyson Turner, I have made no specific allowance for the value of the crop or the value of the work in progress of the machinery business. Nevertheless, the consideration was substantial. 142 I assume from the fact of performance of the third transaction that Andrew Cooper paid the $89,000. The evidence does not show the source of the $89,000 paid by Andrew Cooper. Additionally, Tennyson Turner received as consideration for the sale of the opals, the plant, equipment, and machinery, to the net value of about $500,000 and the right to the crop. The total consideration was therefore likely to be at least in the order of $600,000. (c) The engineering business

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146 Evidence as to their value was given by Mr Alan Bartram ("Mr Bartram"), an opal dealer of long experience, and a retailer of opals. He has had considerable experience in valuing opals for insurers, auctioneers, Australian Customs and for other purposes. 147 The opals the subject of the Agreement are presently in storage at the State Bank of South Australia in a safety deposit box. Mr Bartram inspected those opals on 29 January 1999, for the purposes of valuing them. He examined and weighed them and prepared a description and valuation. His valuation dated 23 February 1999 described the opals as a parcel of synthetic opal comprising thirty-seven pieces of unfinished synthetic dark opal sawn rough, free form in shape and weighing in total 70.20 carats. He valued the opal at "wholesale replacement value" at $2,000. 148 His cross-examination tested his expertise and experience. It is sufficient to note that I was impressed with his expertise and his experience, his apparent ability to confront and respond to questions in a straightforward and laconic manner, and to answer questions honestly and without prevarication. Where it was appropriate to do so, he gave appropriate acknowledgments. He did not have any particular barrow to push. I accept him as an independent and reliable expert. 149 His business is essentially in dealing and retailing in natural opal. He is well aware of chemically produced or synthetic opal, including black opal, which has been on the market for a considerable time. It has not produced a threat to his business, although it is chemically similar to natural opal. Tennyson Turner cross-examined him at length, obviously with a perspective of a considerable working knowledge of opal. Mr Bartram acquiesced in a number of matters concerning the value of opal generally, including synthetic opal where it was sufficiently unique and special. He acknowledged that he had himself never dealt in Gilson opal (the type of synthetic opal involved), although he had had experience in relation to it a long time ago. One matter touching his expertise was said to be his acknowledged unawareness of the "PRW Index" for valuing opals derived from the O'Leary "Field Guide to Australian Opals". He was aware of the book and had read parts of it. He did not value pursuant to the PRW Index. He strongly disputed that that is an accepted method of valuation. He was challenged, but unsuccessfully in my view, that he had an inappropriate level of lighting to do the valuation. He was also careful to be fair in acknowledging that Gilson black opal which he had obtained some fifteen years ago appeared to have lost a little brightness of colour, but had not otherwise become unstable. 150 He was also strongly challenged that he had had regard to a valuation prepared by Mr Bruce for the purposes of his valuation. The suggestion was that he was not independent. He was adamant that his valuation was arrived at independently of Mr Bruce's valuation, and that he received Mr Bruce's valuation as a matter of interest only, after his own valuation had been completed and handed over. He was not prompted as to the valuation which he should procure. I accept that he arrived at an independent valuation. 151 He was also frank in accepting that the re-selling mark up for opal from wholesale cost varied substantially from dealer to dealer, and was sometimes a very high percentage mark up depending upon the quality and uniqueness of the opal in question. He was questioned particularly about a photographed opal and a valuation of it provided by Harlequin Opal on 27 March 1997 (a document marked for identification only). He was not prepared to comment without seeing the piece himself. He was also presented with another piece of opal which he identified as black synthetic opal on the back of a piece of coloured opal so as to constitute a bonded doublet. Again, he was not adamant where it was inappropriate to be so. In the light of his relative lack of particular experience in relation to Gilson opal, he had made enquiries for the purposes both of his valuation and for the purposes of giving evidence to confirm that, as a manufactured item, it could be obtained readily from a distributor with reasonably rapid delivery. He pointed out that labelling standards in South Australia imposed by the Department of Consumer Affairs, Standards Branch, obliged that synthetic opal be so labelled, and that such standards make its market a different market. Although he deposed to some synthetic opals being subject to fading, he indicated that the opal which he had inspected did not evidence fading. 152 The only other expert witness as to the value of the opal was Mr Bruce, auctioneer and valuer, who had also inspected the opal in question. He was called by counsel for the respondents other than Tennyson Turner and Agri-Steel. He is an auctioneer and valuer of considerable experience. He acknowledged that he was not a qualified gemmologist. For the purposes of his valuation, he procured an opal expert, a Mr Max Elphick, to assess and categorise the opal which he was asked to value. His evidence was that, once he had been able to ascertain from an appropriate expert what the opal was, he was an expert in indicating what realisable value that opal would have at public auction. 153 He initially provided a written valuation of the opal at $35,000 - $45,000 realisable value at public auction based upon Mr Elphick's evaluation of the opal. Mr Bruce's then view was on the basis that the opal was natural opal. He relied upon Mr Elphick's description as thirty-seven pieces of semi-black "created" opal stone of various sizes and weights totalling 70.28 carats, cut but not polished, but due to certain comments of Mr Elphick, Mr Bruce had deleted the word "created" and handwritten the word 'natural' on the document he had received from Mr Elphick. He then thought Mr Elphick was mistaken about the opal being synthetic or manufactured. I find that the opal is synthetic opal. The only evidence as to its character is to that effect. The respondents did not contend otherwise. On that basis, Mr Bruce's view is that it would fetch about $10,000 on the market by selling it by retail. Neither Mr Bruce's written valuation, nor the document which he received from Mr Elphick were put into evidence. Mr Elphick was not called to give evidence. 154 Mr Bruce was cross-examined at length by Mr Turner. Mr Turner sought to discredit him. I accept his evidence that he altered Mr Elphick's description of the opal in the way described in the preceding paragraph without any intention to mislead. That conduct does not cause me to doubt his evidence. Even if I were to do so, the only evidence of the value of the opal would then be that of Mr Bartram. 155 Mr Bruce had recently offered for sale for Mr Elphick a particular 10 carat Astra Australis created black opal pendant with a view to assessing the created opal market. He had, in accordance with his normal practice, accepted a pre-sale estimate of $8,000 - $10,000 when he received it from Mr Elphick on 15 September 1998. That opal did sell at auction for $10,700, but Mr Bruce was suspicious of the circumstances in which it sold. He acknowledged that he had no particular piece of information giving rise to that suspicion. He was mindful of the experience that artificial opal rarely came on to the market, and that he got "a feel" in respect of the sale. His suspicion as to the nature of the sale of that opal was compounded to some degree by the occasion of that sale being rather flat, with a very significant proportion of product offered for sale not being sold. He also had regard to the pre-auction arrangement with Mr Elphick: he had indicated that he did not think that the opal would sell for anywhere near Mr Elphick's estimated realisable price, and he had arranged with Mr Elphick to take the highest bid from the floor to him for his consideration. He further had regard to the fact that there were two vigorous bidders for the opal who were unknown to him, although the only advertising for the sale had been by catalogue which was circulated to the normal customers of Mr Bruce's business rather than being advertised generally. I accept his evidence that that particular sale does not provide any reliable indication of the value of manufactured black opal. Nor do I think that his independence as a valuer or the correctness of his views were effectively challenged by him having accepted the Astra Australis opal pendant for sale, by him having accepted Mr Elphick's pre-sale estimate of $8,000 - $10,000, or by that amount having been put into the catalogue as an indicative expected realisation value for bidders, nor by reason of the insurance arrangements (which he described) enabling stock deposited with his company for the purposes of auction to be insured at the estimated pre-sale realisable price. 156 I accept that Mr Bruce is not an expert in identifying, classifying, weighing and assessing opal. I find however that, given a description of opal, he is an expert in providing evidence of what value that opal would realise by public or retail auction. In forming his views, because of the relative rarity of synthetic black opal in the market in which he operates, he made enquiries within the trade of other auction houses. I accept his view that the opal would realise about $10,000 on the open market, although he did not think there was a real market for synthetic opal. 157 I do not think that there is any real inconsistency between the evidence of Mr Bartram and the evidence of Mr Bruce. One is speaking of a wholesale value or trade value and the other is speaking of a retail value. In either event, the value of the opal in question is relatively small. 158 In my judgment, on the evidence, the value of the opal relative to the consideration promised to be paid by Andrew Cooper was minimal. It did, however, have a value. 159 The disproportion between the value of the opal and the value of the consideration moving from Andrew Cooper may be relevant to the motives of, or the good faith of, the parties to the third transaction. (e) Agri-Steel

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164 Mrs Cooper confirmed that Belgravia was procured as a corporate trustee for the Trust by Tennyson Turner. I have rejected her evidence that it was Mr Bartholomaeus who advised that the first transaction be undertaken. However the plan for the first transaction arose, Tennyson Turner on the evidence was involved in its implementation. Mr Bartholomaeus was directed in late 1993 by the Cooper Family to seek from Tennyson Turner information as to how the first transaction was to be reflected in the accounts of Rothmore Farms and Belgravia, and he pursued those inquiries through Tennyson Turner. 165 The role of Tennyson Turner at the time of the second transaction was more explicit. The meeting at which Belgravia resolved to undertake the second transaction occurred at Tennyson Turner's premises. During April and May 1998, Tennyson Turner had frequent contact with members of the Cooper Family by telephone, as well as in the following months. Immediately after being appointed as trustee of the bankrupt estates of Mrs Cooper and of Simon Cooper and Richard Cooper, Mr Sheahan sought to confer with them. He was told by them that Tennyson Turner was their adviser, and should be party to the consultation. When Mr Sheahan sought information from Mr Bartholomaeus about the same time, Mr Bartholomaeus referred that inquiry to Tennyson Turner for his comments and direction. Immediately after the second transaction, Mr Bartholomaeus was told of its detail by Tennyson Turner and Richard Cooper together. In July 1998, he was requested to send his working files to Tennyson Turner for further accounting purposes. 166 The above material, in my judgment, leads to the inference that Tennyson Turner was aware of the nature of the first transaction, and of the financial pressure which gave rise to it. His absence from the witness box enables me to draw that inference with more confidence. It does not lead me to conclude that the first transaction was undertaken on his advice. There is some evidence from Mrs Cooper that there was another person consulted at about that time who also had been a professional adviser to the Cooper Family for some years. I find however that Tennyson Turner was aware in general terms of the poor relationship between the Banks and Rothmore Farms, and of Rothmore Farms' claim against and upon the assets of the Trust to the extent of its entitlement to indemnity by the time of the first transaction. 167 That material also leads me to conclude that Tennyson Turner played some part in advising on the second transaction. He was clearly by then an adviser more generally, at least to members of the Cooper Family. I find that he was aware of the nature and proposed effect of the second transaction. I also find that he was aware of and, in the sense of being involved in advice concerning it, a party to the reasons for it being undertaken. (g) Was the third transaction a sham?

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169 There is no evidence to suggest that Andrew Cooper had any genuine reason for undertaking the third transaction. What was the use to him of the opals, whatever their value? The Cooper Family strategy to that point had been to keep the farming operations going. No reason for the sale was ventured on his behalf, or on behalf of any of the respondents, in submissions. 170 Tennyson Turner was, and had been, an adviser to the Cooper Family and Belgravia. He could not, in conscience, enter into such a transaction with those to whom he owed an obligation of loyalty with such a disproportion of consideration. It would be a breach of his fiduciary duty to Andrew Cooper, and to members of the Cooper Family to have done so: Boardman v Phipps [1967] 2 AC 46; Furs Ltd v Tomkies (1936) 54 CLR 583 at 590. He would clearly, in those circumstances, be obliged to account for all benefits he derived from that transaction. Given his relationship to the Cooper Family, I think that it is most unlikely that an adviser in Tennyson Turner's position would have put himself in that position. That matter, in my view, tends to point to the fact that the third transaction involved Tennyson Turner endeavouring with the Cooper Family to help them rather than to take a benefit at their expense. That help, I find, was to participate in the third transaction not for his own benefit but for theirs. It is more likely that he did not execute the Agreement as reflecting the real nature and extent of the then arrangement between them. 171 The disproportion in the consideration proffered by Tennyson Turner, together with those considerations, leads me to the conclusion that the third transaction was not a genuine transaction at all. In my judgment, the third transaction was undertaken to provide a screen which it was hoped that Rothmore Farms would be unable to penetrate. In reality, it was not a bona fide transaction at all. I suspect that behind that screen there is some understanding as to what would happen in the future if the screen which it created as against Rothmore Farms proved to be effective.

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177 Apart from monies received or receivable for the items completed in the engineering business since 7 August 1998, and monies received for crops, there are likely to be further sums for the proceeds of realisation of crops not just for the 1998/99 season but for earlier seasons. There is insufficient evidence to quantify those sums, but they are capable of quantification. 178 Rothmore Farms has provided a list of further items which it claims to be other assets of the Trust. That list comes from a list of items for which Rothmore Farms procured insurance (as at May 1996), from searches at the Registry of Motor Vehicles, and from the depreciation schedule attached to the Trust financial statements to 30 June 1996. I do not know whether all the items on that list existed at the time of the second transaction or of the third transaction. There are four motor vehicles on the list still registered, so I am satisfied that they do exist. I am unable to make a positive finding on all those matters. I do not regard it as necessary to do so. The appropriate declaratory orders can be implemented in respect of the uncontested items, and an inquiry and account conducted in relation to the balance. 179 Tennyson Turner submitted that any equitable charge or lien over the assets of the Trust could exist only in respect of the assets of the Trust as at the time of the first transaction. He contended that that interest could not exist in respect of after acquired assets, or in respect of income earned by Belgravia or by Andrew Cooper or by him in using the assets of the Trust (or formerly of the Trust) since the first transaction. He also submitted that the extent of Rothmore Farms' indemnity, and therefore of its equitable interest in the assets of the Trust, was also fixed at the time of the first transaction. Even though Rothmore Farms has not undertaken any activities since 10 February 1993, he contended that its indemnity did not extend to the interest liability which has accumulated since 10 February 1993. 180 In my judgment, the interest of Rothmore Farms is in the assets of the Trust for the time being and is not frozen so as to be available only over the assets of the Trust at the time of the first transaction, that is to the time when it ceased to be trustee. Nor do I consider that its indemnity claim is limited to the indebtedness as at 10 February 1993, so that it has no such claim in respect of the interest liability which has accumulated since then. 181 For reasons expressed earlier, I consider that the entitlement to indemnity under the Trust Deed, or at common law, is an ongoing one. Of course, it is limited to the liability incurred by Rothmore Farms in its capacity as trustee of the Trust. But that was Rothmore Farms' only activity. The evidence, and in particular its financial accounts for the period after the first transaction, shows that Rothmore Farms has not engaged in any activity since the first transaction. I can see no reason why its indemnity against the assets of the Trust should not extend to the interest liability which has continued to accumulate in respect of its debt to the Banks since that time. 182 In my judgment, so long as the Trust continued, that indemnity entitlement was secured by the assets of the Trust from time to time. Again, I can see no reason why that should not be so. The position subsequent to, and consequent upon, the second transaction does present different considerations. Thereafter, there was in my view an equitable entitlement against the then assets of the Trust even after they had been transferred to Andrew Cooper by the vesting of the Trust. Andrew Cooper, and later Tennyson Turner, have dealt with those assets. They may have disposed of some of those assets, and acquired others in replacement. They have farmed the property, and have operated the engineering business. They have received income, and incurred expenditure. 183 In respect of the Trust assets used by Andrew Cooper until the time of the third transaction, I do not consider that there was any intermingling of non-Trust assets with assets of the Trust nor any application of funds from resources of Andrew Cooper. Any expenditure by Andrew Cooper was, I find, from funds available from the day to day farming operations or engineering business. It was not from funds made available by Andrew Cooper from his own resources. Consequently, up to the time of the third transaction, there is no need to balance the interests of Andrew Cooper against the interests of Rothmore Farms. 184 After the third transaction, the position is different. Tennyson Turner apparently contributed his own funds to maintaining, harvesting and selling the 1998/99 crop. He appears also, either directly or through Agri-Steel, to have contributed funds toward the ongoing expenses of the engineering business. Those contributions were, I conclude, towards labour and material costs, rather than to the purchase of plant, equipment and machinery. The evidence indicates that Tennyson Turner or Agri-Steel paid some $261,590.53 towards the crop and $185,148.17 towards the engineering business up to about 21 March 1999. It does not show the current figures, and it may also be that the amounts referred to are incomplete. In my judgment, Rothmore Farms has the right to trace the assets of the Trust through Andrew Cooper and into the hands of Tennyson Turner. I also consider that it is entitled to the proceeds from realisation of the crop, and to the proceeds from realisation of the engineering business completing items of machinery: In re Diplock; Diplock v Wintle [1948] Ch 465. However, I consider that Tennyson Turner is entitled to be repaid the sums of money provided by him to enable the assets of the Trust to be used so as to produce after 7 August 1998 the revenue from the crop and from the operations of the engineering business. The joinder application

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186 In the case of the proposed amended application, no relief was sought by Mr Sheahan which was not to be sought by Rothmore Farms in any event. The proposed further amended application added specific claims for relief which had been foreshadowed in the course of the hearing, and which the Court could grant in any event under O 35 r 1 of the Federal Court Rules were it appropriate to do so. Those additional claims for relief were based upon causes of action already pleaded and upon the evidence already given. They were not such as to take the respondents by surprise, or to cause the respondents any prejudice. 187 In the case of the proposed amended statement of claim, again the proposed amendments were simply to reflect the fact that there were two applicants. No allegation of substance was to be added, or was to be altered. 188 That application was strongly opposed by the respondents. They contended that it gave rise to a "whole new case", but in my view it did not. I have identified above the nature and extent of the additional matters proposed to be pleaded. They also contended that Mr Sheahan should not be joined as an applicant as he had a conflict between his position as trustee of the bankrupt estates of Mrs Cooper, Simon Cooper and Richard Cooper on the one hand and as the provisional liquidator of Rothmore Farms on the other. I do not accept that contention. No particular reason for the alleged conflict was identified. If it were that, as trustee of the three bankrupt estates, Mr Sheahan should not be supporting this action because there was no debt to the Banks, then I have determined that issue adversely to the respondents. If it were that he should be endeavouring to avoid the bankrupts' liability under their guarantees, then that issue has already been decided adversely to the bankrupts in the proceedings in the Supreme Court of South Australia to which I have already referred. In any event, given Mr Sheahan's role as provisional liquidator, any conflict by reason of him occupying those two offices existed before, and independently of, his proposed joinder as an applicant but the respondents have made no application to remove him as trustee or as provisional liquidator before or during the hearing. 189 It was further contended that, if Mr Sheahan had been a party to the action, the course of evidence would have been different in two ways. First, the respondents said that Mr Sheahan would not be a party "with clean hands", and that he would therefore have been ineligible for the relief in equity which Rothmore Farms presently seeks. The respondents would have cross-examined him to demonstrate that he should not be granted equitable relief. Tennyson Turner also submitted that he would have chosen to give evidence himself had Mr Sheahan then been a party. Although I am not persuaded that the course of the evidence would have been different had Mr Sheahan then been a party to the proceeding, I am not confident that the respondents would not have conducted the hearing differently had Mr Sheahan been a party. That is so, notwithstanding that Mr Sheahan gave evidence, and was cross-examined. It is clear from the respondents' submissions that they had strong views about Mr Sheahan's role and conduct, and it is also apparent that the decisions made by them as to how to cross-examine him, and whether to give evidence, were finely balanced ones. The Court is not privy to the thought processes leading to those decisions. It is not necessarily appropriate to weigh the contentions about the course of the hearing being different from the Court's measure of what is, or might have been, the appropriate decisions on those matters for that reason. I am therefore not prepared to reject those contentions on the part of the respondents. 190 If the joinder of Mr Sheahan were critical to Rothmore Farms getting the relief which it seeks, it would be necessary to balance the respective considerations on whether he should be joined, and to address how any unfairness to the respondents could be addressed, in determining where the interests of justice lay on the application. However, I have noted earlier that there is no particular reason for Mr Sheahan's joinder as a party in the interests of justice. 191 In those circumstances, I decline the application to join Mr Sheahan as an applicant. It is unnecessary to address further the application to amend the application and the statement of claim in the terms proposed. I am satisfied that the relief sought, as identified in that proposed further amended application, may be granted under O 35 r 1 without that amendment, if it is appropriate to grant it in the light of my findings. Relief

Rothmore Farms Pty Ltd v Belgravia Pty Ltd

At a glance

Court

Decision date

Before

Source

Judgment (93 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (7)

Cited By (8)