Trustee of the Property of O'Halloran, in the matter of O'Halloran v O'Halloran - [2002] FCA 1305 - FCA 2002 case summary — Zoe

CTHFCA

Trustee of the Property of O'Halloran, in the matter of O'Halloran v O'Halloran

[2002] FCA 1305

Federal Court of Australia|2002-10-25|Before: Allsop J

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Court

Federal Court of Australia

Decision date

2002-10-25

Before

Allsop J

Source

Original judgment source is linked above.

Judgment (3 paragraphs)

[1]

REASONS FOR JUDGMENT 1 The applicant is the trustee in bankruptcy of the estate of James Francis O'Halloran (to whom I will refer as Mr O'Halloran). A sequestration order was made on 14 December 1999. The date of the relevant act of bankruptcy was 24 September 1999, being the day on which a Judge of this Court dismissed an application by Mr O'Halloran to set aside a bankruptcy notice dated 5 February 1999. 2 The proceedings before me are brought by the applicant against Mr O'Halloran's present wife, Carole O'Halloran (to whom I will refer as the respondent). 3 The proceedings concern the purchase on 31 January 1995 and funding of land and a house near Cronulla. I will refer to the land and house as "the Property". On that day, the vendors of the Property transferred the land in question to the respondent for a total consideration of $640,000. Stamp duty on the transaction was $24,294. 4 There is no dispute about the fact that the totality of these two sums came directly from funds produced by the simultaneous sale by Mr O'Halloran of a house owned legally and beneficially by him at Caringbah (the Caringbah house). 5 The applicant says: (a) that the sums of $640,000 and $24,294 were lent to the respondent and should be repaid; and (b) that the Property is charged with the repayment of the above sums plus interest; or (c) that the payments of the two sums were transfers of property void against the applicant under s 120 and/or s 121 of the Bankruptcy Act 1966 (Cth) (the Act); or (d) that the sums were transferred to the respondent in circumstances raising a resulting trust in favour of Mr O'Halloran, to whose interest the applicant succeeds. 6 The applicant also seeks relief in respect of the Property, flowing from pars 5(c) and 5(d) above. 7 On 31 January 1995, Mr O'Halloran, from the proceeds of sale of the Caringbah house, funded the whole of the purchase of the Property by the respondent. The whole of the purchase price and stamp duty was paid by the use of the very funds obtained from the sale of the Caringbah house. The respective claims of the parties as to the proper characterisation of this transaction and as to the correct legal conclusions concerning the claims to it are most easily understood after the setting out of a little factual history and of the context in which the parties found themselves at about this time. 8 On 28 November 1990, orders were made by consent in the Family Court of Australia between Mr O'Halloran and his former wife, Janice Gail O'Halloran (to whom I will refer as Janice O'Halloran). Two aspects of this settlement need be noted. First, Mr O'Halloran retained in his own name, as beneficially belonging to him, the Caringbah house. Secondly, Mr O'Halloran was ordered to pay Janice O'Halloran $180,000 on or before 28 November 1995, and he was ordered to pay $400 per week to her by way of way of maintenance, until that payment of $180,000 was made. 9 Mr O'Halloran is a retired accountant. He was born in 1935. From the mid-1970s, Mr O'Halloran was employed in senior executive positions with a publicly listed company called Jeffries Industries Ltd (Jeffries). By early 1994, Mr O'Halloran was an executive director of Jeffries as well as the chairman of the board of directors. It will be necessary in due course to describe the somewhat unusual events which occurred in 1994. However, at this point, it is only necessary to say that another company called R T Thomas & Family Pty Limited (R T Thomas) had a substantial shareholding in Jeffries, and that Mr O'Halloran was a director of R T Thomas. 10 Mr O'Halloran has been married three times. He has two children from his first marriage. He married his second wife, Janice O'Halloran, in 1973. He has three children from the marriage to Janice O'Halloran. Mr O'Halloran and Janice O'Halloran separated in about 1989. Mr O'Halloran met his present wife, the respondent, in about 1990. 11 Mr O'Halloran and Janice O'Halloran were divorced in 1993. The relevant financial obligations upon Mr O'Halloran arising out of that divorce have been referred to above. 12 In 1993, Mr O'Halloran and the respondent were living in the Caringbah house. The house was large and had, in years gone by, been the home of Mr O'Halloran, Janice O'Halloran and their children. In 1993, the house was unnecessarily large for Mr O'Halloran and the respondent. In that year, Mr O'Halloran listed the Caringbah house for sale with a local real estate agent. The property was listed for sale for a price of $3,250,000, but did not sell at that price. 13 In 1993, Mr O'Halloran took out a mortgage in the sum of approximately $1,300,000 which financed a debt arising out of a personal guarantee given by him in relation to a failed investment in a ski chalet made by a company related to him. Interest payments on the mortgage amounted to approximately $13,000 per month. Until late 1994, Mr O'Halloran's remuneration from Jeffries for his full-time services was in the order of $250,000 per annum. That money was earned not by Mr O'Halloran directly, but by a company, H & J Hotels Pty Limited (H & J Hotels), which provided his services as executive director and chairman to Jeffries. H & J Hotels was at all times wholly beneficially owned by the trustee of the O'Halloran Family Trust, JJDLCP Nominees Pty Limited (JJDLCP). 14 Late in 1994, the Caringbah house was once again on the market. There was an issue before me as to whether the events concerning R T Thomas and Jeffries, to which I will come directly, caused Mr O'Halloran to place the property once again on the market, or whether he placed it on the market during the course of 1994 in order that a smaller and more suitable home for himself and the respondent could be purchased. I am prepared to accept that with the departure of Mr O'Halloran's children, a smaller house was more suitable for the respondent and him and, further, that the respondent (as she gave evidence) wished to live in a house which had not been the residence of Mr O'Halloran's previous wife, Janice O'Halloran. However, the loss of the income from Jeffries and the consequent strain of servicing the $1,300,000 borrowing was the motivating factor to sell the Caringbah house in late 1994. Mr O'Halloran conceded that the Caringbah house was put up for sale again in late 1994 because of the loss of income from Jeffries. The respondent gave evidence, which I accept, that she chose the new house. 15 Both Mr O'Halloran and the respondent gave evidence that, prior to 1994, they had discussed the question of a new house. Both deposed to conversations in which Mr O'Halloran had promised the respondent that the house would be in her name and that she would own it. The respondent gave evidence that she had been left in a financially insecure position by her previous husband and that she had made it plain to Mr O'Halloran that in this marriage she wished to obtain some financial security. There would be nothing unusual or surprising if conversations such as these took place. However, I must examine the relevant purposes and intentions of the parties in the light of all the facts. That both Mr O'Halloran and the respondent had a desire to ensure the financial security of the respondent does not necessarily answer the question as to why the particular transaction was entered in the way it was, and when it was, in early 1995. 16 It is appropriate to commence the analysis of the transaction in question in early 1995 by examining, first, Mr O'Halloran's financial position and prospects at that time. 17 An examination of the financial position of Mr O'Halloran in late 1994 and early 1995 is not marked by endemic trading losses; rather, two aspects of the external circumstances affecting him dominated, or could be seen to dominate, what might be called his liability position. First, in November 1995, he was obliged to pay to Janice O'Halloran the sum of $180,000. Secondly, by late 1994 Mr O'Halloran had become entangled in a legal dispute of a somewhat bizarre character. I do not propose to examine the facts of the R T Thomas and Jeffries saga in any great detail. I am not confident that I have before me all the relevant material. However, I am confident that I have before me all the material I need to draw conclusions about the precariousness of Mr O'Halloran's position by the end of 1994. 18 In late 1993, R T Thomas had agreed with a company called Bowes & Brown Pty Limited (Bowes & Brown) to sell to that company its shareholding in Jeffries. The sale was the last portion of the selling by R T Thomas of its shareholding in Jeffries. In 1993 and 1994, R T Thomas wanted to sell all its shares in Jeffries. Mr O'Halloran was aware of these matters. Bowes & Brown had agreed to pay $3 per share for 225,000 shares. As I indicated earlier, the shares in Jeffries were publicly listed. Until their delisting in about September 1994, they were trading at about $3 per share, though in a thinly traded market. For reasons and in circumstances which are less than clear, it appears that Bowes & Brown became the registered holder of the shares without paying the contracted consideration. Mr O'Halloran became aware of this during the first half of 1994. For reasons which are also less than clear, Mr O'Halloran deliberately and knowingly misled his fellow board members in R T Thomas about these matters. By July 1994, the board of R T Thomas had become aware of the registration of Bowes & Brown and the failure of that company to pay for the shares. A resolution was passed at a board meeting of R T Thomas (at which Mr O'Halloran attended and voted) to sue anyone who acted negligently in relation to the transfer of R T Thomas shares in Jeffries. Mr O'Halloran, in fact, seconded a further motion that the liability of any person who had acted negligently in relation to the transfer of the shares be investigated and that legal action be instigated against such persons. (Mr O'Halloran, unbeknownst to his fellow directors, at least at this time, had acted in a deliberately deceptive manner in connection with the matter, hindering his fellow directors from finding out what had happened and hindering the correction of what had happened.) 19 Up until 15 September 1994, it is clear that, for reasons best known to himself, Mr O'Halloran deliberately misled his fellow board members in R T Thomas and hindered steps which might have been taken by R T Thomas either to recover the shares (which might then have been sold, on market or otherwise, as was the desire of R T Thomas, known to Mr O'Halloran) or to extract the price from Bowes & Brown. On 15 September 1994, the shares in Jeffries were suspended from trading on the Australian Stock Exchange. Not long afterwards, certainly by November 1994, the shares were once again trading, but this time at well under $1 per share. 20 In November 1994, there was some appreciation by the directors of R T Thomas that Mr O'Halloran had played some part in the debacle in relation to the sale of the shares in Jeffries to Bowes & Brown. In late 1994, Mr O'Halloran was already a party to a suit in the Commercial Division of the Supreme Court of New South Wales in which R T Thomas was the plaintiff. Mr O'Halloran was the fourth defendant. No monetary relief was sought against him initially. The primary relief sought in the original application was for rectification of the register. It was not until March 1995 that the claim was amended to sue Mr O'Halloran for damages and compensation for breach of his fiduciary obligations to R T Thomas and for breach of his common law and statutory duties to R T Thomas. 21 Also, in late 1994, Mr O'Halloran lost his position at Jeffries. This led to the loss to H & J Hotels of $250,000 of income for the provision of Mr O'Halloran's services. He began to work for another company at a much lower contracted fee or salary. 22 I infer from the allegations in the above mentioned amendments in the R T Thomas proceedings made in March 1995, as reflected in the amended summons in the Commercial Division, that the facts which were pleaded only in 1995 would in all likelihood have been pleaded in late 1994 had the solicitors acting for R T Thomas been aware of them. I do not set out all the matters contained in the amendments to the summons. The amended summons is exhibit F in the present proceedings. Serious allegations were made against Mr O'Halloran and there was a claim for monetary relief. 23 In late 1994, Mr O'Halloran must have appreciated that when those controlling R T Thomas became aware of his deliberately deceitful conduct during 1994, which conduct had hindered R T Thomas in unravelling the matter at a time when the shares in question were trading at $3 per share, they would seek to make him financially responsible for the consequences of his conduct. In cross-examination, Mr O'Halloran conceded that in January 1995 he knew that the truth about what he had told the board would come out. As an experienced accountant and man of business, he could not have but thought that sooner or later, in all probability sooner, he would be sued by R T Thomas, and that R T Thomas would seek to hold him responsible for any loss it had suffered by the delay in selling the Jeffries shares. With a total purchase price of $675,000 and a current stock exchange value significantly reduced, Mr O'Halloran must have understood that he was liable to be sued for a sum in all likelihood in the order of $600,000 plus legal costs plus any interest foregone. In addition to these sums, he must have also appreciated that if he was going to defend his own position, he would have to fund his own legal defence. 24 Thus, in addition to the loss of a $250,000 per annum to the "family company", H & J Hotels, Mr O'Halloran was facing the payment of a capital sum of $180,000 to his former wife, by the end of 1995, and the prospect, which could not have been seen as other than real, of paying legal bills and a legal judgment over and within the next few years of sums exceeding $600,000. In fact, in due course, it was more. However, it suffices to say at this point, that Mr O'Halloran must have been very concerned that there would come upon him demands in the order of $800,000 to $900,000 in the next few years. Mr O'Halloran gave evidence that he was not aware in late 1994 and early 1995 of any serious monetary position faced by him in relation to the R T Thomas affair. He denied that he knew that damages would be sought against him. He also said (without any real elaboration) that he thought that he had acted correctly in 1994. I do not accept any of this evidence. Mr O'Halloran was and is an experienced and intelligent man. During the course of 1994, he had knowingly deceived his fellow board members of R T Thomas and he must have appreciated that the loss of the opportunity to sell the shares in Jeffries at $3 per share would be the subject of personal complaint against him when the full story of his behaviour in 1994 became evident. 25 On 30 January 1996, judgment was given against Mr O'Halloran in favour of R T Thomas in the sum of $789,750 plus costs. On 13 October 1998, the New South Wales Court of Appeal dismissed Mr O'Halloran's appeal, allowed the cross-appeal of R T Thomas and increased the judgment sum to $1,045,761. On 6 August 1999, an application made by Mr O'Halloran for special leave to appeal to the High Court was dismissed. 26 These two liabilities - the $180,000 payable to his former wife in November 1995 and the very real and probable liability to R T Thomas in a sum likely to be significantly above $600,000 in nominal terms - dominate any assessment of Mr O'Halloran's financial position in late 1994 or early 1995. 27 In addition to these two large outgoings, the evidence discloses: (a) that Mr O'Halloran had a $400 per week obligation to Janice O'Halloran until he paid her the $180,000; (b) that as at January 1995, he owed $10,000 in solicitor's fees and $2,200 in credit card debt; and (c) that as at January 1995, he had lost the indirect benefit of the $250,000 per annum fee from Jeffries to H & J Hotels and was working for a much smaller salary. 28 The evidence does not disclose the amount of weekly or monthly remuneration, if any, being earned by Mr O'Halloran in January 1995. 29 The respondent submitted that the contingent liability to R T Thomas should not be brought to account because of its remoteness. I disagree. It was far from remote. It was likely, and, after January 1995, it fell in. 30 Alternatively, the respondent submits that if the liability is to be taken into account, it should be valued by reference to the share price of Jeffries' ordinary shares on the Australian Stock Exchange on 31 January 1995, 52 cents. This would value the claim, it was said, at $675,000 less $117,000, or $558,000. Even using this calculation, there should be added interest and costs. However, I do not see why the valuation of the liability should be limited by reference to the then existing facts. Even if 52 cents accurately reflected the value of a parcel of this size on 31 January 1995, the assessment of Mr O'Halloran's then liability would not necessarily be fixed by reference only to facts existing at that point in time: Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211; Nestle v National Westminster Bank plc [1993] 1 WLR 1260; Jaffray v Marshall [1993] 1 WLR 1285; Target Holdings Ltd v Redferns [1994] 2 All ER 337; and O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262. 31 Thus, I see no reason to assess the contingent liability of the liability to R T Thomas as less than that which was later ordered, or, at the least, $600,000, plus interest, plus costs (his own and those of R T Thomas). 32 The asset position of Mr O'Halloran as disclosed by the evidence was as follows. After the payment of the $640,000 towards the purchase of the property and the discharge of various debts, there was the sum of $728,207.07 available to be paid by cheque to Mr O'Halloran. He apparently immediately lent this to JJDLCP. Mr O'Halloran swore an affidavit in the Supreme Court proceedings which included a paragraph as follows: On settlement of the sale of 58 Fernleigh Road Caringbah I received a bank cheque in the amount of $728,207.07. This money was paid to a fixed deposit with National Australia Bank for JJDLCP Nominees Pty Ltd to discharge loan accounts. That company in June 1995 adjusted intercompany loan accounts with H & J Hotels Pty Ltd so that I did not owe this last company any loan and the credit balance with JJDLCP Nominees Pty Ltd was reduced leaving the balance owing to me as shown in my earlier affidavit. JJDLCP Nominees Pty Ltd acts as the Trustee of the O'Halloran Family Trust. I have no beneficial interest in that trust. [emphasis added] 33 The above paragraph makes clear that the loan was to discharge loan accounts. Immediately before 31 January 1995, as can be inferred from the balance sheets of H & J Hotels as at 30 June 1994 and 30 June 1995, Mr O'Halloran owed H & J Hotels a large sum of money. The adjustment of loan accounts with H & J Hotels took place in June 1995, leaving Mr O'Halloran with a credit balance in JJDLCP of $55,824.49. (The last figure comes from another affidavit in the Supreme Court proceedings. It is inconsistent with the accounts of the O'Halloran Family Trust put into evidence and Mr O'Halloran's evidence before me showing and referring to a debt to Mr O'Halloran of $88,951 - see below.) 34 It is not clear from the above as to how much, as at 31 January 1995, Mr O'Halloran owed H & J Hotels, but I would infer from the amount owed in June 1995, which left only $55,824.49, or $88,951, as a credit to him in JJDLCP (on behalf of the trust), that the indebtedness of Mr O'Halloran as at 31 January 1995 was significant. As at 30 June 1994 it was $442,563.36. There is no evidence that by 31 January 1995 it had declined. The above evidence as to the adjustment of the loan accounts in June 1995 would indicate that by that time it had probably substantially increased. 35 Mr O'Halloran also had available to him: (a) $75,418 by way of the balance of the deposit on the sale of the Caringbah house; (b) a 1986 Mercedes Benz 380 SEL Sedan with an agreed insured value of $55,000; (c) 12,487 shares in Jeffries worth 52c each on the Australian Stock Exchange ($6,493.24); and (d) $1,852 as a half share in a bank account. 36 The respondent submits that Mr O'Halloran had available to him the resources of a company called Fame Decorator Agencies Pty Limited (Fame). Fame was the trustee of the O'Halloran Superannuation Trust Fund. It was not submitted by the respondent that Mr O'Halloran was legally entitled to draw the full value of Fame's assets as at 31 January 1995. 37 A statement of net assets of the superannuation fund as at 30 June 1995 was in evidence. It revealed a deficit of $29,142.41. However, it was said that the amount adjacent to "shares in public listed company at market value" in the balance sheet as at 30 June 1995 (Ex JFOH 12) should be $652,772, as at 31 January 1995,by reference to Australian Stock Exchange stock prices for ordinary and preference shares in Jeffries on that latter date. This adjustment would give a net balance of $285,580, as at 31 January 1995. 38 As the applicant submitted, no submission was put that all these funds could have been liquidated and made available to Mr O'Halloran. Certainly no submission was put that all these funds could have been made available with little or no taxation consequences if paid as a lump sum. 39 There was evidence of a payment in December 1994 of $60,955.32 from an external superannuation fund manager to Mr O'Halloran. This was paid to Fame to be held by it. So, this sum may well have been immediately available to Mr O'Halloran. I will include it as an asset at 31 January 1995 available to Mr O'Halloran on 31 January 1995. 40 It was submitted by the respondent that JJDLCP was a company controlled by Mr O'Halloran and "so a resource available to him". It was the trustee of the family trust. Mr O'Halloran said in his Supreme Court affidavit that he had no beneficial interest in the trust. I take this to mean that he was at no time placed within the class of beneficiaries of the discretionary trust. Apart from repayment of loans to him, it has not been shown that Mr O'Halloran could have had access to the funds of the trust lawfully, that is without breach of trust, in particular considering his financial position. Thus, he might have had access to his loan account, of $88,951 as per the trust accounts of JJDLCP as at 30 June 1995, or $55,824.49 as referred to in his Supreme Court affidavits, but not the trust equity said, in the accounts, to be $114,920. In his evidence, Mr O'Halloran said that he had not borrowed from the trust. He said it in a way which reflected an appreciation of his inability to do so. 41 The respondent also called in aid of the financial solvency of Mr O'Halloran the financial position and assets of H & J Hotels. The balance sheet of H & J Hotels as at 30 June 1995 disclosed net assets of $430,557.48. 42 The evidence disclosed that Mr O'Halloran did not own any shares in H & J Hotels beneficially as at 31 January 1995. Thus, other than by loans from H & J Hotels, he could only access H & J Hotels' wealth via the O'Halloran Family Trust (in which he had no beneficial interest). In submissions, the respondent only relied on the profit generating capacity of H & J Hotels, as a "valuable resource" available to Mr O'Halloran. The H & J Hotels net profit recorded for the year ended 30 June 1995 was $246,052.01. There were said to be accumulated profits of $218,661. Given that the totality of what had previously been received from Jeffries in respect of Mr O'Halloran's services ($250,000 per annum gross) would no longer fall in, without an analysis of the earning capacity of H & J Hotels' assets, which analysis is not able to be conducted on the evidence, the asset backing or recurrent worth of H & J Hotels to Mr O'Halloran (even if H & J Hotels' assets could, somehow, without breach of duty, be made available to him) after late 1994, is unclear and doubtful. 43 Neither party (in particular, the respondent, who, through Mr O'Halloran, had the information available to her) sought to assist me with the following details which might have enabled me to make some kind of assessment of the worth of the various balance sheets and profit and loss accounts placed into evidence: (a) As to the balance sheet and profit and loss account of the O'Halloran Family Trust (of which JJDLCP was trustee) as at, and for the year ended, 30 June 1995 (Ex R1): (i) There was no identity given, or assessment of the worth of the $955,873.78 of debtors described as "loan to companies". Nor was there any attempt to identify and substantiate the value of the $66,000 of "shares in companies". These assets comprised over 70% of total assets of $1,359,969.85. (ii) The source of the dividend of $100,000 was not identified. I assume it was largely from H & J Hotels. There was no basis shown for assuming that the trust would continue to receive similar sums. (iii) It was not clear whether the interest and imputation credits were accrued, or reflective of disposable assets. (b) As to the balance sheet and profit and loss account of H & J Hotels as at, and for the year ended, 30 June 1995 (Ex R5), a significant asset ($508,410.51 out of total assets of $1,038,672.31) was a loan to JJDLCP. I assume this to be in JJDLCP's capacity as trustee. The lack of information about the worth of the trust therefore affects H & J Hotels. The other receivables are of unknown worth (except that owed by Mr O'Halloran in the sum of $15,310, which must be characterised as doubtful). Nothing is known of "Dale Developments Pty Limited" which owed H & J Hotels $254,164.74. 44 Thus, I view with some scepticism the real worth and income generating capacity of the assets of JJDLCP and H & J Hotels, as at 31 January 1995. 45 Without more information and analysis, it cannot be safely concluded that the directors of H & J Hotels or JJDLCP could make available substantive funds to Mr O'Halloran, even if they could attempt to do so conformably with their fiduciary duties. 46 Thus, Mr O'Halloran's liabilities as at 31 January 1995 were: (a) $400 per week until November 1995; (b) $180,000 in November 1995; (c) $12,200 in debts; and (d) a real obligation, in one sense contingent, but likely to fall in, and appreciated as such, to R T Thomas, in the order of $600,000, plus interest, plus costs, and which did fall in with interest at more than $1 million, plus costs. 47 These liabilities amounted to about $800,000 plus solicitors costs (of R T Thomas and himself) plus interest on the $600,000 liability to R T Thomas. 48 Set off against this was: (a) no appreciable or identified income to replace the indirect benefit from the Jeffries employment; (b) $138,763.24 being the total of the amounts in [35] (a) to (d) above; (c) $55,824.49 or $88,951 being the loan account balances in JJDLCP depending upon whether one uses Mr O'Halloran's Supreme Court affidavits or the taxation balance sheet of the O'Halloran Family Trust in evidence, or $285,643.71 if one subtracts from the sale proceeds ($728,207.07) what Mr O'Halloran owed H & J Hotels as at 30 June 1994 ($442,563.63); (d) a net balance of $285,580 in the superannuation fund, in respect of which it is unclear (apart from the $60,955.32) how much would have been available to Mr O'Halloran after tax; (e) no net assets of the trust company JJDLCP which could be shown to be available to him absent a breach of trust; and (f) the net assets and income of H & J Hotels which it has not been shown would have been otherwise available to Mr O'Holloran personally, conformably with those in control of H & J Hotels and JJDLCP complying with their statutory and fiduciary obligations. 49 Thus, even giving the most generous estimate of the loan accounts set off as at 31 January 1995 and giving Mr O'Halloran access to the whole superannuation fund, he had at most available to him $709,986.95 if he could not access JJDLCP's and H & J Hotels' assets ($138,763.24 plus $285,643.71 plus $285,580). 50 Using less charitable assessments, based on his Supreme Court affidavits or the O'Halloran Family Trust accounts, he had available to him as at 31 January 1995 $480,167.73 or $513,294.24 if he could not access JJDLCP's and H & J Hotels' assets, but still assuming that he had full access to the superannuation assets of Fame. 51 If he could not access all the superannuation funds in full he was, obviously, in a worse position. 52 As to ss 120 and 121 of the Act, the following can be said as to the questions of solvency raised by par 120(3)(b) and subs 121(2). 53 As to par 120(3)(b) in the above circumstances, looking forward appropriately from January 1995 into the reasonably foreseeable future to liabilities which would arise in the near to medium term, and putting to one side the $640,000 paid on account of the purchase, the respondent has not shown (the onus being hers for the purposes of s 120) that at the time of the transfer of these funds Mr O'Halloran was solvent. 54 As to subs 121(2), in the light of the Full Court decision in Re Jury; Ashton v Prentice (1999) 92 FCR 68, especially at [55], the trustee is obliged to prove, not that the transferor was insolvent, but that the inference of insolvency was reasonably open. The circumstances set out above display, in my view, that it could be reasonably inferred that at the time of the transfer of the $640,000, Mr O'Halloran was, or was about to become, insolvent for the purposes of subs 121(2). 55 These conclusions are reinforced by Mr O'Halloran's evidence that in September 1995, he told Janice O'Halloran that he did not have available the funds to meet his obligations to her and that that was true. 56 With that background, it is now necessary to return to the transaction in question and deal with its proper characterisation as a matter of substance and as affected by ss 120 and 121 of the Act. 57 In the light of the financial position of Mr O'Halloran, I must decide what the parties intended by what they did in January 1995. 58 On 17 January 1995, the respondent and Mr O'Halloran attended the office of their solicitor Mr Nagel. Mr Nagel acted for Mr O'Halloran on the sale of the Caringbah house and for the respondent on the purchase of the Property. In the presence of the respondent, Mr O'Halloran signed and amended two short documents which had been prepared by Mr Nagel. The documents had apparently been prepared by Mr Nagel beforehand. The two documents were as follows. The handwritten amendments that were initialled by Mr O'Halloran are emphasised in bold: RE: PURCHASE BY CAROL [sic] O'HALLORAN OF PROPERTY - 1 MATTHEW FLINDERS PLACE, CRONULLA I confirm my advice to you that I am lending my wife, Carol [sic] O'Halloran some of the purchase monies and any other monies necessary to complete the purchase of the above property. Such monies will be provided by me from the sale of my property at 58-60 Fernleigh Road, Caringbah. DATED this 17 day of January 1995.

RE: PURCHASE BY CAROL [sic] HALLORAN OF PROPERTY - 1 MATTHEW FLINDERS PLACE, CRONULLA - RE ADVANCE TO CAROL [sic] O'HALLORAN Further to my confirmation of my intention to repay loans received and advance the balance [of] the purchase monies and other monies necessary for my wife to complete the purchase of the above property I hereby confirm that I do not require you to prepare any documents securing those monies to me. DATED this 17 day of January 1995. [emphasis added] 59 The respondent's evidence was to the effect that she heard Mr O'Halloran and Mr Nagel discussing the lending of money. She said nothing then, but taxed her husband about the matter that evening. She said that the following exchange with Mr O'Halloran then took place: Mrs O'Halloran: I did not understand the documents that you signed in Brian's office. I thought that I was to be the owner of the new property free of debt. Mr O'Halloran: Yes that is the case. I am not making a loan to you. Do not worry about the documents that I signed. The new place will be yours. You will own it absolutely. I want you to have it for your financial security. 60 Mr O'Halloran gave similar evidence. 61 In July 2000, the respondent was examined under oath by counsel on behalf of the applicant trustee. She gave evidence before me that she was so unwell on that day that whatever she said cannot be relied on. I have examined the transcript of her examination and it does not disclose someone unable to understand what was being put. Counsel asked about contributions that the respondent said she had made to the Caringbah house and mortgage on it. He then asked about the Caringbah sale and the purchase of the Property. The following exchange occurred: Mr Angyal: When you came to purchase the Cronulla property where you, Ms O'Halloran and your partner now live, it was your understand[ing] wasn't it that Mr O'Halloran was lending you the money to purchase the property apart from funds which you regarded as yours that were coming out of the Caringbah property, is that correct? Mrs O'Halloran: I think he was lending me some but exactly what amount I'm not sure. Once again, I'd have to go back through records and check. Mr Angyal: Again, could Mr Cass please note that I am asking you to provide to Mr O'Halloran's Trustee, information about the extent to which Mr O'Halloran was lending you funds to purchase the Cronulla property. Do you understand what I am asking you? Mrs O'Halloran: Yes. Mr Angyal: Is this an accurate summary of your understanding when you purchased the Cronulla property that some funds which you were entitled to were coming out of sale of the Caringbah property and going into the Cronulla property, correct? Mrs O'Halloran: Yes Mr Angyal: And that Mr O'Halloran was lending you the rest of the money you needed to buy the Cronulla property? Mrs O'Halloran: I think it was something like that, but once again, I'd have to check my records. Mr Angyal: If Mr O'Halloran wasn't lending you the balance of the money, where else was it coming from Ms O'Halloran? Mrs O'Halloran: I would've approached the bank or something. But I mean as far as --- Mr Angyal: You didn't approach a bank, did you? Mrs O'Halloran: No, I didn't approach a bank at that stage, no. Mr Angyal: You have agreed with me in your evidence to the Registrar this morning that all the funds to purchase Cronulla came out of Caringbah, correct? Mrs O'Halloran: Yes. Mr Angyal: So, either there was some funds coming out of Caringbah that you were entitled to or Mr O'Halloran was lending you the funds to buy Cronulla, correct? Mrs O'Halloran: But then as I understood it, the fair chunk of it was my money anyway. Mr Angyal: We've talked about that but I am asking you about the rest that you needed to buy Cronulla? Mrs O'Halloran: Well then you'd probably say yes but once again, I would have to go back and check all the records. Mr Angyal: Did you have anything like a formal loan agreement between yourself and Mr O'Halloran with respect to funds coming out of Caringbah and going into the purchase of the Cronulla home? Mrs O'Halloran: Not written that I know of. Mr Angyal: But it's your understanding as I understand your evidence, that over and above funds you were entitled to that came out of Caringbah, Mr O'Halloran was lending you the balance, correct? Mrs O'Halloran: Once again, I'd have to go and check all my records. Mr Angyal: I am asking Mr Cass please to note that I am asking you to check those records and provide the information you have to Mr O'Halloran's Trustee. Do you understand what it is that I am asking you? Mrs O'Halloran: Yes, I understand. Mr Angyal: What is your understanding of when you are required to re-pay any amounts to Mr O'Halloran that he lent to you for the purchase of the Cronulla property? Mrs O'Halloran: Not sure. Mr Angyal: Do you have any understanding about that? Mrs O'Halloran: I understand that it's my house. Mr Angyal: And what's the basis of that understanding? Mrs O'Halloran: Well let's say that I've been diddled enough by men in the past that I like to run my own life. Mr Angyal: Now Mr O'Halloran gave evidence to the Registrar in these proceedings yesterday, did he discuss that evidence with you? Mrs O'Halloran: No he did not. 62 The above answers are substantially inconsistent with the claims by the respondent and Mr O'Halloran before me, with the exception of the last two answers. 63 I was, and am, troubled by the evidence of the respondent and Mr O'Halloran in this regard. The darkening financial storm clouds around Mr O'Halloran in late 1994 and early 1995 and what must have been his awareness of the potential for financial disaster flowing out of his conduct in connection with the Jeffries shares, might have made it logical that he make a loan to the respondent if he could expect there to be a case able to be made for contra loans from the respondent to him. There have been attempts made to say as much in the evidence. However, despite being given the opportunity, no meaningful or admissible evidence was led substantiating any proposition that, as at 31 January 1995, the respondent was owed any money by Mr O'Halloran. Though, I accept that the respondent had sought some financial security from Mr O'Halloran in the marriage. Thus, it is perhaps not to be thought curious or sinister, of itself, that Mr O'Halloran would give $640,000 to the respondent. 64 However, Mr O'Halloran must have appreciated the fragility, and indeed peril, of the circumstances facing him. The passages from the examination of the respondent reveal that the status of the transfer of funds as a loan must have been discussed at some point. To the extent that it was contemplated by Mr O'Halloran, or by him and the respondent, that the transfer be treated as a loan, it was likely to have been in the context of the best way to insulate the transaction from access by creditors. 65 On the basis of his financial position, as I have said, Mr O'Halloran must have appreciated his position. I accept that there had been, in the past, discussions between him and the respondent about her financial security. I think he probably permitted the loan documentation to remain signed on the solicitor's file to allow for some protection should contra loans be able to be shown. It was a means of obscuring the real intent, which was to give the respondent the funds. I do not think that he or the respondent ever intended that she repay the funds. 66 Thus, despite the contemporaneous documentation, I think that a permanent transfer of funds was probably intended. There was no consideration. Subsection 120(1) is therefore satisfied. Given the failure of the respondent to prove the matters in par 120(3)(b), the transfer of the funds was void against the trustee under s 120. 67 As to s 121, the respondent opposed the application on the basis that: ...the bankrupt did not have the main purposes described in s 121(1)(a) or (b). 68 I take the reference to the "main purposes described in s 121(1)(a) or (b)" to be a reference to pars 121(1)(b)(i) or (ii). 69 I have already found, for the purposes of subs 121(3), that it can reasonably be inferred from all the circumstances that at the time of the transfer Mr O'Halloran was, or was about to become, insolvent. 70 Thus, s 121 is satisfied and the transfer of the funds was void against the trustee for this reason also. 71 If I am wrong about my conclusions that relate to par 120(3)(b) and subs 121(2), I would, in any event, have found that Mr O'Halloran's main purpose, though not perhaps his sole purpose, was to remove from the reach of possible future creditors the funds necessary to buy the family home. Leaving an uncorrected trail of documents supporting a loan argument was an aspect of this. He appreciated the potential for financial disaster in his conduct concerning R T Thomas. That, together with the looming payment of $180,000 to Janice O'Halloran, must have been primary considerations in his conduct. I do not accept Mr O'Halloran's evidence of his then confidence in his financial position. 72 The funds transferred totalled $640,000. $24,294 in stamp duty was also paid. That latter sum is claimed as void against the trustee also. However, it was uncontested that a house was to be purchased for the respondent and Mr O'Halloran to live in. The stamp duty would have had to have been paid in any event, even if the property was to be in Mr O'Halloran's name. The funds to pay the stamp duty were never going to be available to creditors for the purposes of par 121(1)(a). 73 Declarations are sought that the payment of $640,000 was void against the trustee. It is appropriate that such declarations be made. 74 There is no dispute that the funds were transformed immediately and directly into the form of ownership of the Property. The whole purchase price was provided by funds paid in circumstances whereby the transfer has been declared to be void against the trustee. 75 The trustee was appointed pursuant to a sequestration order made on 14 December 1999. The bankruptcy commenced on 24 September 1999. The trustee made demand on the respondent on 18 April 2001 in the following terms: We advise we act for Andrew Wily as Trustee of the property of James Francis O'Halloran, a bankrupt. We enclose a copy of a Caveat which has now been lodged over your property at 1 Matthew Flinders Place, Burraneer by the Trustee. Schedule 1 on page 2 sets out the claim by the Trustee. His claim is three fold being:-

The whole of the proceeds of sale of your property at 1 Matthew Flinders Place, Burraneer was provided by the bankrupt and the Trustee claims a resulting trust in that property for the whole of that property for the benefit of the bankrupt's creditors.
Alternatively, that the bankrupt lent to you the $640,000.00 from the sale of his property to enable you to purchase 1 Matthew Flinders Place, Burraneer, which money has not been repaid and the Trustee requires repayment to him of that sum together with interest.
The transfer of $640,000.00 in money to you was property within Sections 120 and/or 121 of the Bankruptcy Act and that transfer is void against the Trustee and he claims repayment of that sum together with interest. We enclose a Transfer for you to sign and return to the Trustee. The Trustee will allow you two months in which to vacate the premises. 76 The continued use of the phrase "void against the trustee" in ss 120 and 121 after the amendments to the Act in 1996 makes relevant the well-known learning on that phrase. The word "void" means voidable, and, in the case of bankruptcy, the transfer is avoided as and from the date of the accrual of the trustee's title - the commencement of the bankruptcy (in the case of the operation of the Statute of Elizabeth (13 Elizabeth c.5) and its modern equivalents, the avoidance is prospective from the date of the avoidance). See generally, but not exhaustively: Brady v Stapleton (1952) 88 CLR 322, 332-35, esp 334; Williams v Lloyd (1934) 50 CLR 341, 374; Fiorino v Woodgate [1994] FCA 181 at 18-21; Barton v Official Receiver (1984) 4 FCR 380, 393; Re Cummins; Richardson v Cummins (1951) 15 ABC 185, 188 (per Clyne J); Re Fitzgerald; Ex parte Burns (1986) 10 FCR 261, 262-63; Price v Parsons (1936) 54 CLR 332, 347, 351-52; Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372, 426-27; Baker v Official Trustee in Bankruptcy [1995] FCA 565; Noakes v Harvy Holmes & Son (1979) 37 FLR 5; and Electrical Enterprises Retail Pty Ltd v Rodgers (1988) 15 NSWLR 473. 77 The transformation of the funds into the form of the Property raises an issue of remedy. It is important to appreciate that until the avoidance of the transfer (and up to the point of its operation) the Property was owned by the transferee - legally and beneficially: Brady v Stapleton, supra. 78 If the property the subject of the transfer was in the hands of the transferee at the time of the commencement of the bankruptcy, the transferee will be taken thereafter to hold the property to which the trustee is thenceforth entitled: Fiorino, supra. 79 If, prior to the commencement of the bankruptcy, the property transferred has been paid away or sold, no personal remedy lies against the transferee, even one with notice of a fraud by the transferor: Brady v Stapleton, supra. This is so because up to the commencement of the bankruptcy (even after avoidance) the transferee is taken to have had full right and title to deal with the property. 80 Here, the subject matter of the transfer, the funds totalling $640,000, were paid away immediately to the vendors of the Property. However, there is no dispute but that the very moneys obtained from the sale of the Caringbah house funded the purchase of the Property. The Property is still held by the respondent. In such circumstances, where the avoidance of the transfer was made, but where the Property, the transfer of which is avoided, has been identifiably changed in form, equity will give relief, in its auxiliary jurisdiction: May The Law of Fraudulent and Voluntary Conveyances (3rd Ed) p 307; and Kerr The Law of Fraud and Mistake (7th Ed) p 305. 81 If the proceeds of the transfer can be identified in different property (as they can be here), that property can be claimed, at least so far as to represent the funds the subject of the transfer void against the trustee: In re Mouat; Kingston Cotton Mills Company v Mouat [1899] 1 Ch 831; Halfey v Tait (1875) 1 VLR (E) 8; Brady v Stapleton, supra at 332-33; Official Trustee in Bankruptcy v Alvaro, supra; and Fodare Pty Ltd v Official Trustee in Bankruptcy [2000] FCA 1721. 82 Given the clarity of, and lack of dispute about, the identification here, it is unnecessary to say anything about the principles by which such identification is made. 83 The applicant claims a declaration that the whole of the Property is held for the trustee. That assumes that any increase in value in the property since 31 January 1995 is to be for the account and benefit of the trustee. It does not follow at all. From 31 January 1995 to the date of the commencement of the bankruptcy, the Property was that of the respondent; notwithstanding avoidance, that still can be seen as the position. From the commencement of the bankruptcy, the identified transformed property is to be taken as held for the benefit of the trustee. 84 According to the Full Court in Ferrier and Knight (As liquidators of Compass Airlines Pty Ltd) v Civil Aviation Authority (1994) 55 FCR 28, 92-93 andthe majority of the New South Wales Court of Appeal in Star v O'Brien (1996) 40 NSWLR 695, interest does not begin to run upon a preference until the date of avoidance by the liquidator. 85 Thus, there may be a real issue about who is entitled to any increase in value of the Property between 31 January 1995 and 24 September 1999. 86 I will hear the parties on the form of the orders and as to whether any further evidence is necessary or appropriate. I will make a declaration and an order to reflect the claims in pars 1, 2 and 3 and 10 of the application (that is, as relating only to the $640,000). 87 Though I will hear argument from the parties about those matters, it seems to me that, depending upon the appropriate way to approach the question of identification of assets and in particular the effect of the avoidance of the transfer from the commencement of the bankruptcy (see Brady v Stapleton, supra, thoughcf Noakes, supra at 11-12), the applicant may only be entitled to the proportion of the Property as $640,000 bears to the value of the property as at 24 September 1999 or a charge on the property for the sum of $640,000 with interest from the appropriate date - whether as identified in Ferrier, supra and Star v O'Brien, supra or some other date; alternatively, the applicant may be entitled to an ownership interest in the whole Property by reason of the whole purchase price being paid on 31 January 1995 by use of funds the transfer of which has been avoided under ss 120 and 121. I certify that the preceding eighty seven (87) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Allsop