Anscor Pty Ltd & Anor v Clout

[2005] HCATrans 447

[2005] HCATrans 447

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B20 of 2004

B e t w e e n -

ANSCOR PTY LTD

First Applicant

WKF ASSET MANAGEMENT LTD

Second Applicant

and

DAVID LEWIS CLOUT (AS TRUSTEE IN BANKRUPTCY OF THE ESTATE OF GEOFFREY ROBERT DEXTER)

First Respondent

DAVID JOHN CRANSTOUN (AS TRUSTEE IN BANKRUPTCY OF THE ESTATE OF ANNE SHIRLEY CORBETT)

Second Respondent

THORNVILLE PTY LTD (IN LIQ)

Third Respondent

ANSCOR INVESTMENTS PTY LTD

Fourth Respondent

Application for special leave to appeal

GLEESON CJ
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON THURSDAY, 23 JUNE 2005, AT 10.30 AM

Copyright in the High Court of Australia

__________________

MR G.T. BIGMORE, QC:   May it please the Court, I appear on behalf of the applicants.  (instructed by Shand Taylor)

MR H.B. FRASER, QC:   May it please the Court, I appear with my learned friend, MR D.A. QUALE, for the first respondent, Mr Clout, the trustee.  (instructed by Mallesons Stephen Jaques)

GLEESON CJ:   There is a certificate from the Deputy Registrar saying that the solicitors for the second respondent have written advising that the second respondent will not appear at the hearing of the application and will submit to the order of the Court save as to costs.

MR FRASER:   Yes, that is a separate party, your Honour.

GLEESON CJ:   Yes.  Yes, Mr Bigmore.

MR BIGMORE:   If the Court pleases, I announced an appearance on behalf of the first applicant, Anscor.  My instructor had instructions late yesterday from the liquidators of Anscor to appear on its behalf and say only this, that the applicant Anscor would discontinue the application.  My instructor is content to give an undertaking to lodge a notice of discontinuance – he has not had time yet – or, alternatively, the Court may dispose of Anscor’s application by dismissing it.

As far as the second applicant is concerned, I press the application for special leave to appeal.  A point is taken against us in a recent submission from our learned friends to the effect that this would not be a proper vehicle given the fact that the Full Court found that the relationship between the second applicant, now known as WKF Asset Management, previously known as Pacific International Asset Management, was that of a sham.  However, in my respectful submission, that would not make any difference. 

The bastion of the trustee in bankruptcy’s claim, including the claim against WKF Asset Management, was that the transfers of effectively $26 million to Anscor was void under section 120 of the Bankruptcy Act as it now stands since 1996.  Indeed, the orders by the learned primary judge, Justice Drummond, at page 160 of the application book, if I could take the Court to that, show that the thirteenth respondent, which was WKF, the second applicant today, was one of the respondents against whom the declaration about the avoidance of the $26 million was made. 

In consequential orders which affected the thirteenth respondent, over on page 165 at line 20 – I should not perhaps say consequential.  It is certainly the case that the orders at page 165 declaring that the various securities should be undone resulted as much from the finding of sham as from the primary finding, but without the primary finding about the application of section 120 to the facts and the payments of $26 million to Anscor there would have been no basis for relief against the second applicant today.

So the second applicant is just as interested in prosecuting the application for special leave and, if leave be granted, the appeal as the first applicant might have been, its liquidators plainly not maintaining that interest.  It is certainly my contention today, your Honours, that the Court should take this opportunity to consider section 120 of the Bankruptcy Act as it now stands.  As I understand it, the Court has not considered that provision since its significant amendment in December 1996 and I am not aware, although I could not say I have done an exhaustive search of any grant or refusal of special leave in relation to section 120 as it now stands – that of course is still subject to the criticism from our learned friends that this would not be a proper vehicle, but we say that this is indeed an excellent vehicle.

There is one apology we should make.  The application book for some reason, I think simply a practical error, omitted the joint reasons for judgment of Justices Wilcox and Moore.  We have provided a list of authorities and statutory material and annexed to that at item 5 are those reasons.  I would ask the Court to go to those.

GLEESON CJ:   This is your list of authorities and statutory material?

MR BIGMORE:   It is the list of authorities, your Honour, yes, and attached to that are a number of documents.

GLEESON CJ:   Yes.

MR BIGMORE:   It is hardly correct to describe it as an authority I suppose, but it seems to have been conveniently included along with several copies of the relevant ‑ ‑ ‑

GLEESON CJ:   No 5.

MR BIGMORE: No 5. It is a brief joint judgment. Substantially their Honours agreed with Justice Lindgren’s judgment, which is the extensive judgment which is set out in the application book, but the qualification that their Honours refer to in paragraph 1, their Honours say:

With one qualification, we agree with his Honour’s reasons.  The qualification concerns his Honour’s eleven –

I think in fact there were seven, but nothing turns on that –

propositions concerning the operation of s 120 of the Bankruptcy Act 1996 (Cth).  We do not consider it is necessary to propound principles of general application to resolve these appeals.  We would not wish to determine, in the absence of full argument and it being a point required to be determined, whether the amendments to the section which enable a payment of money to be treated as a transfer of property were intended to result in money paid being treated as property for the purposes of applying principles developed in authorities concerning the “settlement of property” decided before the amendment.

The judgment of Justice Drummond at first instance and the judgment of Justice Lindgren connect those authorities on the old section with the new section and its application to the facts of these cases.  It may well be that there is disconnection because of the wording of the section.

Now, the section is set out conveniently at page 87 of the application book, at least those parts that are presently relevantly.  It starts at line 25 on page 87 and goes across to page 88.  The concept since December 1996 has been of a transfer rather than a settlement.  Your Honours may recall that the section that this replaced spoke of settlement including any disposition of property.  However, there is now a definition of “transfer” and it includes a payment of money.  Of course it is void if:

(a)      the transfer took place in the period beginning 5 years before the commencement of the bankruptcy; and

(b)      the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.

Now, in formulating in reply the revised special leave point we paid particular attention to the requirement, firstly, to assess the market value of the property transferred.  In this case that is $26 million or so.  That is how much was paid by Dexter to Anscor.  One then has to assess the value of the consideration to see whether it was less than the market value of the property.  So the judges, we say, fell into error in this case by looking for equivalents in the way of a market in the community for services such as those that were provided, it was said, by Anscor to Mr Dexter, the now bankrupt gaoled operator of the Ponzi scheme.  So it does not seem to have been said that the consideration that was given by Anscor was the $52 million that it raised from the various investors.  What seems to have been focused on was a finance broker type of market.

Now, we say that the learned primary judge and Justice Lindgren and other judges in single-judge cases so far have fallen into error in excluding any real consideration of the exact market, the real market, in which the transaction occurred, because in this case one had in reality a market where Mr Dexter was desperate to get $52 million and other sums of money in order, he said publicly, to invest in an apparently very profitable short-term money market that existed at the time.  It is not suggested that Anscor was aware of the impropriety and the criminality in Mr Dexter’s conduct; rather, it saw itself as having an opportunity, without negotiation of a price in fact, to maximise its return for procuring those investment funds. 

It would not be to the point in considering section 120 to wonder whether or not Anscor was an opportunist or, indeed, party to some criminal activity.  The section focuses attention on value, and that value we say must be assessed in the market.

Now, the introduction of market value is novel in 1996.  It had not previously been used in bankruptcy cases.  In assessing the value of the consideration as against the market value of the property transferred, in this case $26 million, one, in our respectful submission, should look very closely at the relevant market, and that has not been done in this case.  Neither the trial judge nor the Full Court on appeal gave any credit for the fact that this was an extraordinary one-off market in which it was possible for parties at arm’s length – Dexter and Anscor – to end up in a situation where an extraordinary $26 million was paid for $52 million. 

One could not imagine a more extreme case against which these new provisions could be tested in order to determine whether or not the present logic that has infected the judgments at first instance and in several appeals so far should go forward.  It cannot be cured by any further litigation at intermediate appellate level. 

I can demonstrate that proposition this way, your Honours.  Sutherland v Brien is one of the cases in our list of materials, at item 4.  That was a judgment of Justice Austin in the New South Wales Supreme Court.  It is not the traditional proving ground for consideration of bankruptcy provisions, but his Honour dealt with a presently irrelevant preliminary point about the Supreme Court’s jurisdiction and found it was appropriate to deal with the matter.  What his Honour had was a deed of guarantee given by Mr and Mrs Roberts, who were the very, very optimistic directors of a failed company of which Mr Sutherland was administrator of a deed of company arrangement.  In order to procure the consent of the creditors, the former directors, Mr and Mrs Roberts, had given this guarantee very, very optimistically and when they subsequently became bankrupt his Honour Justice Austin found that the consideration which appeared to have been given for this guarantee was significantly less, or in fact immeasurable against the ‑ ‑ ‑

CALLINAN J:   Mr Bigmore, your submission is really, is it, at page 260, paragraphs 13 and 14?

MR BIGMORE:   No, your Honour.  We resiled from that in our reply.

CALLINAN J:   Well, how do you put it precisely now?  What do you say the market is?

MR BIGMORE:   The market in that case was ‑ ‑ ‑

CALLINAN J:   No, you define the market in this case.

MR BIGMORE:   Yes.  There are perhaps a couple of alternatives for that.  There is the market for procuration of funds for a Ponzi scheme.  That is one way of looking at it and, indeed, one could imagine a case, if not this one, where there are criminals on both sides of the equation.  It would still be, if section 120 were to apply, a market for procuration of funds in a Ponzi scheme.  It was indeed a market where Anscor, apparently, believed that Dexter was prepared to pay what was necessary for Dexter to have access to these funds for the profitable short‑term loan investments that he manifested an intention to invest in.

So whether one looks at it as an extremely narrow one-off market for funds in an extraordinary factual situation or a slightly wider proposition, we would say that it is nowhere near as wide as the propositions, or the definitions of “market”, that were adopted at trial and on appeal where analogies were sought in finance broker markets.

CALLINAN J:   You said you had alternative markets.  What are the others?

MR BIGMORE:   Well, the alternatives were really the procuration of funds in a Ponzi scheme or a market where Dexter and Anscor believed that what Dexter was prepared to pay to get hold of the money was fair and reasonable, having regard to the short-term money market that he had professed to have an interest in.

CALLINAN J:   So the premise was false but you can still have a market, you say.

MR BIGMORE:   Yes.  Now, where we say Justice Austin fell into error, which has infected the subsequent decisions, including two Full Federal Court decisions including this one – the other one being the Lopatinsky Case – is his Honour was considering a forbearance to sue case.  They have traditionally, even under the old section 120, provided difficult fact situations.  Often, the consideration for the giving of a guarantee by a person who has hitherto had no contractual relationship with the other parties is the forbearance to sue one party or another. 

The value of that forbearance can be subsequently assessed with the usual wisdom of hindsight in these cases.  Quite often the consideration could be seen to be illusory because doing an analysis with hindsight of what would have happened if the creditor had sued the debtor before the guarantor came along, the creditor would have got one cent in the dollar.  The guarantee having been given two months later when the creditor does sue the debtor and the guarantor, the creditor still gets one cent in the dollar from the debtor and looks to the other 99 cents from the guarantor.  The trustee of the guarantor’s bankruptcy, which was Justice Austin’s case in Sutherland v Brien, is able to say the guarantor has given 99 cents in the dollar for nothing.  The forbearance made no difference; it was not of any value.

Now, those cases, with respect, are interesting in themselves and they can go either way of course.  It will depend on an analysis of whether or not the forbearance did make a difference in that the creditor’s recovery from the debtor might have depreciated as a result of the forbearance for perhaps many months or years from 100 cents in the dollar to nothing, but of course that can be done as a valuation exercise.  The market for the guarantee in that case again is a peculiar one, but it is one where an optimist might come along in that market and give away something of great value for very little benefit, and that benefit going to someone else in any event.

So the forbearance cases do not greatly assist.  It is at page 332 of the report of Justice Austin’s judgment that the relevant passage that has been quoted by the judges in our case appears.  The relevant facts, which I have outlined I hope accurately, are set out succinctly on page 322 in paragraphs 2 and 3.  So we say that not a great deal of comfort should have been drawn in the present case from forbearance cases because, having been picked up by Justice Austin when considering this new section 120, they tended to inspire the judges that have dealt with this case and other Federal Court judges to go down the path of looking to exclude any possible subjective elements, and that may be correct, but in excluding subjective elements they have, with the greatest respect, lost their focus and the focus should have been on the true value of the consideration as given, viewed in the very market in which the transaction occurred, no matter how narrow.

When one has regard to the origins of section 120 as it used to be before December 1996, the focus was always on settlements designed, either colourable dispositions of property to relatives and friends in order to place property beyond the reach of creditors, or valueless settlements upon, again, family members or close friends, again, having the effect of placing property beyond the reach of creditors.

Now, I wanted to point out that Justice Merkel’s decision, the Victorian Producers’ Case, which is quoted from by Justice Drummond at page 188 of the application book – and I will not delay the Court because of the time – that decision faithfully follows Justice Austin in relation to this rejection of subjective factors and, again, we would say, falls into error in that the market is not sufficiently identified.  The same error infected the Lopatinsky judgment, which was a family law type of settlement case which was challenged by the trustee in bankruptcy.  Again, without analysis, the rejection of subjective values was picked up by the Full Court of the Federal Court in that case, and the same thing has occurred here.

We would say that it is appropriate to use this vehicle because it highlights the thing that Justice Wilcox and Justice Moore were addressing in their qualification in their joint judgment, namely, the perhaps peculiarity now under this new section of a straight‑out payment of money.  Perhaps their Honours were concerned about the fact that the expression “market value of the property transferred” does not equate all that easily with a simple payment of money.  It is very easy to work out the market value of

money in any market.  The problem of course is focusing on the consideration given for that property. 

Our primary contention of course, and would be on appeal, is that the relevant market for the whole transaction must be looked at.  In many of these bankruptcy cases, preference cases and these sorts of cases, the courts have been at pains to identify the entire transaction and discern what really happened in the way of value on either side of the transaction by looking at the whole picture and not just part of the picture.

So in this particular case we look to see what was the alternative.  Was this an arm’s length transaction where $26 million was given for the access to $52 million and was that extremely narrow and very unusual Ponzi market the market that should have been considered by the court so far rather than the finance broker type of markets, equivalent markets or analogous markets, that were looked at and relied upon in the findings of the trial judge?  His Honour found, for example, that an appropriate commission would be a much smaller rate than the rate, of course, that Anscor was earning.  Now, if Anscor had been competing in the same sort of finance broker market, then it would not have won any business because it was charging too much.

GLEESON CJ:   Thank you, Mr Bigmore.  We do not need to hear you, Mr Fraser.

We are of the view that on the findings of fact made by the Federal Court, the case does not raise an issue of law appropriate to a grant of special leave to appeal and we are not persuaded that the interests of justice require such a grant.  The application is dismissed with costs.

AT 10.52 AM THE MATTER WAS CONCLUDED