Argyle Building Services Pty Ltd v Franek

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2020 0037

ARGYLE BUILDING SERVICES PTY LTD (ACN 151 322 520)	Applicant
v
MARK FRANEK & ORS (according to the Schedule)	Respondents

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JUDGES:	KYROU, McLEISH and NIALL JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	11 June 2020
DATE OF JUDGMENT:	4 August 2020
MEDIUM NEUTRAL CITATION:	[2020] VSCA 196
JUDGMENT APPEALED FROM:	[2020] VSC 166 (Digby J)

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PRACTICE AND PROCEDURE – Freezing order – Whether good arguable case for continuation of ex parte freezing order – Indorsement of claim relied on causes of action of conspiracy by lawful means, conspiracy by unlawful means, equitable fraud, knowing assistance and receipt, alienation of property to defraud creditors contrary to s 172(1) Property Law Act 1958 – Judge correct to discharge freezing order – Leave to appeal refused.

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APPEARANCES:	Counsel	Solicitors
For the Applicant	Mr A Herskope with Mr S L Freire	Kalus Kenny Intelex
For the First, Second and Fifth to Eighth Respondents	Mr I D Martindale QC	NOH Legal Pty Ltd
For the Third and Fourth Respondents	Mr A T Schlicht	Mark J Halse

KYROU JA
McLEISH JA
NIALL JA:

Introduction and summary

On 10 November 2017, the applicant, Argyle Building Services Pty Ltd (‘Argyle’), entered into a simple works contract with One Three Wilson Pty Ltd (‘OTW’) for the construction of a six apartment residential development (‘Development’) at 13 Wilson Street, Brighton (‘Contract’). The land at that location (‘Land’) comprised six lots, one for each of the apartments. The Land was owned by OTW and subject to a registered mortgage in favour of National Australia Bank (‘NAB’) and equitable mortgages pursuant to four general security deeds in favour of entities associated with OTW’s directors.

On 9 September 2019, Argyle commenced a proceeding in the Victorian Civil and Administrative Tribunal (‘VCAT’) against OTW seeking outstanding payment for work performed pursuant to the Contract (‘VCAT proceeding’). On 3 October 2019, VCAT made an order preventing OTW from dealing with the unsold lots, including Lots 1, 5 and 6 (‘VCAT freezing order’).

On 23 December 2019, the fourth respondent, Lightning Canon Pty Ltd (‘Lightning Canon’) became the assignee of the registered and equitable mortgages.

Between 10 and 13 January 2020, in the exercise of its mortgagee power of sale, Lightning Canon transferred Lots 1, 5 and 6 to the sixth respondent, Created by Mark Franek Pty Ltd (‘Created by Mark’), the fifth respondent, Natcorp Property Holdings Pty Ltd (‘Natcorp Property Holdings’) and the seventh respondent, Made Iconic Pty Ltd (‘Made Iconic’), respectively. We will refer to the three transferee companies collectively as ‘the Transferees’.

On 7 February 2020, Argyle commenced a proceeding in the Trial Division against the respondents and OTW in respect of the transfers of Lots 1, 5 and 6. Argyle claimed that the respondents had engaged in a conspiracy and equitable fraud in relation to the transfers and that the transfers were voidable pursuant to s 172(1) of the Property Law Act 1958 (‘PLA’) because they constituted alienations of property made with intent to defraud OTW’s creditors. They also claimed that the transfer of Lot 2 by OTW to the eighth respondent, Natcorp Developments Pty Ltd (‘Natcorp Developments’), on 2 August 2019, was voidable pursuant to s 172(1) of the PLA. Argyle also relied on the knowing assistance and knowing receipt of trust property equitable principles in Barnes v Addy.[1] The causes of action on which Argyle relied are described in detail at [46]–[65] below.
[1](1874) LR 9 Ch App 244. See [58]–[60] below.

On 11 February 2020, a judge granted an ex parte freezing order against the respondents. On 23 April 2020, after a contested hearing on 12 and 13 March 2020, the judge made an order discharging his freezing order (‘discharge order’).[2]
[2]The judge’s reasons for making the discharge order were published on 17 April 2020: Argyle Building Services Pty Ltd v Franek [2020] VSC 166 (‘Reasons’).

Argyle seeks leave to appeal against the discharge order on 15 grounds which are set out at [113] below. Those grounds include allegations that the judge erred in concluding that Argyle did not have a good arguable case in relation to each of its causes of action.

For the reasons that follow, the application for leave to appeal will be refused.

Facts

The facts set out below are not in dispute. They are based on the affidavit evidence before the judge and findings by the judge which have not been challenged. Where evidence before the judge was in dispute, further reference will be made to it below under the heading ‘Contentious evidence before the judge’.

Relevant individuals and entities; events prior to July 2018

Argyle is a commercial and residential building company. Peter Paritsi is its construction manager.

OTW was incorporated on 29 July 2016 for the purpose of purchasing the Land, undertaking the Development and making a profit from the sale of the apartments upon their completion. The price for the Development under the Contract was $4,100,000 exclusive of GST. As a special purpose company, OTW did not have its own source of income but relied on external funding for the Development.

The first respondent, Mark Franek (‘Franek’), and the second respondent, Robert Natoli (‘Natoli’), are directors of OTW.

Franek is the sole director and 50 per cent shareholder of Created by Mark, which is a 50 per cent shareholder in OTW. The other 50 per cent shareholder of Created by Mark is Franek’s wife, Renee Franek. Franek is also the sole director and shareholder of Made Iconic.

Natoli is the sole director and shareholder of Natcorp Developments. Natcorp Developments is the other 50 per cent shareholder in OTW. Natoli is also the sole director and shareholder of Natcorp Property Holdings.

On 1 August 2016, shortly after OTW was incorporated, a general security deed was entered into between Franek, in his own capacity and as trustee of the Mark Franek Family Trust, and OTW. Created by Mark was the successor trustee of the Mark Franek Family Trust (‘Created by Mark General Security Deed’).[3] The initial loan amount that was recorded in that deed was $341,750. This amount corresponded to the deposit paid by OTW for the purchase of the Land.
[3]For convenience, we will refer to the security holder as Created by Mark rather than Franek and Created by Mark jointly.

Also on 1 August 2016, a general security deed was entered into between Natcorp Developments and OTW (‘Natcorp Developments General Security Deed’). The initial loan amount that was recorded in that deed was $170,875.

On 26 August 2016, OTW granted a mortgage to NAB over the Land. The mortgage secured amounts totalling $7,179,500. Clause 15 of the Memorandum of Common Provisions accompanying the mortgage set out events of default which enlivened the mortgagee’s power of sale. Those events included failure by OTW to pay on time any amount owing, OTW becoming insolvent, and the Land becoming subject to a freezing or confiscation order. Clause 19 empowered NAB to assign its rights under the mortgage. Clause 24 empowered NAB to give a certificate about an amount payable under the mortgage and provided that such a certificate constituted conclusive evidence of the amount ‘unless it [was] proved to be incorrect’.

On 16 December 2017, a general security deed was entered into between Robert Natoli Super Pty Ltd (‘Robert Natoli Super’), in its capacity as trustee of the Robert Natoli Super Fund, and OTW (‘Robert Natoli Super General Security Deed’). The initial loan amount that was recorded in that deed was $240,000.

On 2 May 2018, a general security deed was entered into between Radle-Natoli Super Fund Pty Ltd (‘Radle-Natoli Super’), in its capacity as trustee of the Radle-Natoli Super Fund, and OTW (‘Radle-Natoli General Security Deed’). The initial loan amount that was recorded in that deed was $260,000.

Broadly speaking, except for the parties, dates and amounts secured, the four general security deeds referred to above contained similar terms. Relevantly, they contained the following provisions:

(a)They specified that the purpose of the secured loans was to fund the Development (cl 1.1 definitions of ‘Approved Purpose’, ‘Project’ and ‘Property’; sch 1, items 11, 13).
(b)They required OTW to pay monthly interest at the rate of 15 per cent per annum and provided that if OTW defaulted in making a payment, on demand, a default interest rate of 20 per cent per annum applied (cls 4.1(b), 10.1, 11; sch 1 items 6, 7).
(c)They set out events of default, which included failure to pay any amount owed under the deed within seven days and failure to pay a judgment against OTW for an amount exceeding $20,000 within seven days (cl 21).
(d)They included a charge over all of OTW’s assets as security for its obligations to the security holder under the deed (cls 3, 16).

The respondents allege that the four general security deeds constituted equitable mortgages (‘Equitable Mortgages’) in favour of the security holders, namely Created by Mark, Natcorp Developments, Robert Natoli Super and Radle-Natoli Super (collectively, ‘Equitable Mortgagees’).

On the same day that each of the general security deeds was executed, the Equitable Mortgagees lodged caveats over the titles to Lots 1, 5 and 6 to protect their respective interests as ‘chargee’ under the relevant deed.

Dispute over the Development; VCAT freezing order

Franek, Natoli, Natcorp Property Holdings, Created by Mark, Made Iconic and Natcorp Developments (‘first respondent group’) alleged that, on 19 July 2019, OTW served on Argyle a notice of breach for what OTW said was Argyle’s failure to reach practical completion by 22 December 2018 in accordance with the Contract.

On 26 July 2019, Argyle issued OTW with a notice suspending building works under the Contract pending payment of outstanding progress claims it alleged were owing.

On 2 August 2019, OTW transferred Lot 2 to Natcorp Developments. The consideration recorded on the transfer was $1,920,000. Argyle alleges that it had no notice of the transfer.

On 26 August 2019, OTW served a notice of termination on Argyle. Argyle disputed the validity of the termination.

Lot 3 was sold for $3,200,000, with settlement taking place on 9 October 2019 and Lot 4 was sold for $3,150,000, with settlement taking place on 4 October 2019. From the proceeds of sale, a total of $5,650,619.42 was paid to NAB pursuant to its mortgage. Argyle conceded that these transactions involved ‘what appeared to be arm’s-length purchasers’ and they are therefore not the subject of the present dispute.

In the VCAT proceeding — which, as we have said, Argyle commenced against OTW on 9 September 2019 — Argyle sought a freezing order and payment for work it claimed to have performed pursuant to the Contract in the amount of $825,891 inclusive of GST. Argyle also sought orders in respect of a cash retention withheld by OTW under the Contract, in the amount of $205,000, which it alleged was held on trust for it by OTW.

Paragraph 1 of the VCAT freezing order dated 3 October 2019 restrained OTW, ‘whether by itself, its servants or agents or howsoever otherwise’ from ‘disposing of, transforming, encumbering, transferring, charging, dissipating, diminishing or in any way dealing with’ the unsold lots in the Development or the retention amount of $205,000, up to the unencumbered value of $1,000,000, until determination of the VCAT proceeding or further order.

Paragraph 3 of the VCAT freezing order created an exception to para 1, in that it permitted OTW to sell the lots to a ‘bona fide arm’s-length purchaser for market value’ provided that the proceeds of sale — net of the amount owing under the NAB mortgage and sale costs — were held on trust and were not in any way ‘disposed of, dealt with or diminished, pending further order of [VCAT]’.

Paragraph 4 of the VCAT freezing order defined ‘arm’s-length purchaser’ as excluding:

(a)       Natoli;
(b)      Franek;
(c)       Robert Natoli Super Fund;
(d)      Radle-Natoli Super Fund;
(e)       Natcorp Developments;
(f)       Created by Mark; and
(g)any person or entity related to OTW or any of the entities, trusts or superannuation funds described in sub-paragraphs (a) to (f) above.

It was not in dispute between the parties that Natcorp Property Holdings and Made Iconic fell within para 4(g) of the VCAT freezing order.

Paragraphs 6 and 7 of the VCAT freezing order required OTW to provide certain information and documentation to Argyle. The information that OTW provided pursuant to those paragraphs is not directly relevant, as similar — and more up to date — information was provided by the respondents in compliance with the judge’s freezing order. The latter information is discussed below.

On 18 November 2019, Argyle obtained judgment against OTW in the Trial Division in the amount of $343,994.75, plus interest and costs, pursuant to the Building and Construction Industry Security of Payment Act 2002 (‘BCISP Act Supreme Court judgment’). Argyle alleges that: the BCISP Act Supreme Court judgment remains unpaid; $319,743.60 owing under that judgment is common with Argyle’s claim for $825,891 in the VCAT proceeding; and that the balance of $24,251.15 ($343,994.75 less $319,743.60) represents costs and interest.

Impugned transactions involving Lightning Canon

On 17 December 2019, Lightning Canon was incorporated with the third respondent, Lucy Sossa, as its sole director and shareholder (‘second respondent group’). Argyle asserts that Sossa was the domestic partner of Natoli at the relevant time.

On 23 December 2019, Lightning Canon, OTW and NAB executed a deed of assignment, under which Lightning Canon agreed to pay NAB an amount equal to the debt owing to NAB by OTW — which was stated to be $796,426 — in exchange for assignment of the debt and the registered mortgage which secured the debt. OTW consented to the assignment. On 9 January 2020, Lightning Canon procured a transfer of the NAB mortgage over Lots 1, 5 and 6 for $796,426. That amount was sourced by way of a loan of $345,000 from Renee Franek and a loan of $455,000 from Natcorp Developments. The original indebtedness of $7,179,500 to NAB under the mortgage was reduced to $796,426 due in part to the sale of Lots 3 and 4.[4]
[4]See [27] above.

On 23 December 2019, each of the Equitable Mortgagees and Lightning Canon executed a deed of assignment by which the Equitable Mortgagees assigned their respective general security deeds to Lightning Canon. Pursuant to the deeds of assignment, Lightning Canon acquired the rights, title and interest to the Equitable Mortgages created by the general security deeds and the caveats that were lodged to support those mortgages. The assignment price was $4,666,000 for the Created by Mark General Security Deed referred to at [15] above, $1,424,000 for the Natcorp Developments General Security Deed referred to at [16] above, $371,000 for the Robert Natoli Super General Security Deed referred to at [18] above and $405,000 for the Radle-Natoli Super General Security Deed referred to at [19] above.

The deeds of assignment provided that the assignment price specified in each deed corresponded to the total debt owed by OTW to the relevant Equitable Mortgagee. The deeds of assignment also provided that the assignment price was payable in accordance with a security deed to be executed by Lightning Canon to secure the assignment price. This Court was not provided with any such security deed. However, in his affidavit sworn on 26 February 2020 in compliance with the judge’s freezing order,[5] Franek stated that the assignment price specified in each deed of assignment was payable on the earlier of (a) a demand, (b) 1 April 2020, or (c) realisation of the security property (that is, the lots) under the relevant general security deed.
[5]See [73], [89] below.

On 10 January 2020, in the exercise of the mortgagee power of sale under the NAB mortgage, Lightning Canon transferred Lot 1 to Created by Mark for $1,920,000. In consideration for having Lot 1 transferred to it, Created by Mark agreed to forebear taking steps to enforce its rights under the Created by Mark Security Deed in respect of the sum of $1,920,000 forming part of the assignment price of $4,666,000 for that deed.

Also on 10 January 2020, in the exercise of the mortgagee power of sale under the NAB mortgage, Lightning Canon transferred Lot 6 to Made Iconic for $1,648,000. Upon completion of the transfer of Lot 6, Created by Mark agreed to forbear taking steps to enforce its rights under the Created by Mark General Security Deed in respect of the sum of $1,648,000 forming part of the assignment price of $4,666,000 for that deed, and entered a credit in the sum of $1,648,000 for the amount otherwise owing by Lightning Canon to Created by Mark pursuant to that assignment.

On 13 January 2020, in the exercise of the mortgagee power of sale under the NAB mortgage, Lightning Canon transferred Lot 5 to Natcorp Property Holdings for $1,736,000. Upon completion of the transfer of Lot 5 to Natcorp Property Holdings, Natcorp Developments and Robert Natoli Super agreed to forbear taking steps to enforce their rights under their respective general security deeds in respect of the sum of $1,736,000 forming part of the combined assignment price of $1,795,000 for those deeds,[6] and entered a credit in the sum of $1,736,000 for the amounts otherwise owing by Lightning Canon to them pursuant to the assignments.
[6]The amount of $1,795,000 is the sum of the amounts of $1,424,000 and $371,000 referred to at [37] above.

The total of the sale prices for the transfers that occurred on 10 and 13 January 2020 was $5,304,000.

On 17 January 2020, OTW was placed into liquidation pursuant to a creditors’ voluntary winding up resolution. Argyle alleges that it had no notice of the meeting at which the resolution was passed.

Argyle’s causes of action in the Trial Division proceeding

Argyle’s proceeding in the Trial Division against the respondents was commenced by writ and indorsed claim. OTW was the ninth defendant in the proceeding but it did not appear or make any submissions. Argyle’s indorsement of claim relied on five causes of action, namely, conspiracy by lawful means, conspiracy by unlawful means, equitable fraud, knowing assistance and knowing receipt of trust property, and contravention of s 172(1) of the PLA. For convenience, we will set out below the elements of each cause of action and how each of them was articulated in Argyle’s indorsement of claim.

In its indorsement of claim, Argyle claimed damages, equitable damages, an account of profits, declaratory relief to the effect that the Transferees held Lots 1, 5 and 6 on constructive trust for OTW and orders pursuant to s 172(1) of the PLA that the alienations of Lots 1, 2, 5 and 6 are void and that the properties be returned to OTW.

Conspiracy by lawful means and conspiracy by unlawful means

To establish the tort of conspiracy by lawful means, the plaintiff must show that:

(a)there was an agreement between two or more defendants to do lawful acts;

(b) the defendants’ sole or predominant purpose was to injure the plaintiff;
(c) the agreement was executed in whole or in part; and
(d)the plaintiff suffered pecuniary loss as a result of the defendants’ acts in furtherance of the agreement.[7]

[7]Crofter Hand Woven Harris Tweed Co Ltd v Veitch [1942] AC 435, 439–40, 445 (‘Veitch’). See also Uber Australia Pty Ltd v Andrianakis [2020] VSCA 186, [31] (‘Uber Australia’).

To establish the tort of conspiracy by unlawful means the plaintiff must show:

(a)an agreement or combination between the defendants;
(b)to commit an unlawful act;

(c)       with an intention to injure the plaintiff;
(d)      the unlawful act was committed; and
(e)       this resulted in pecuniary loss to the plaintiff.[8]

[8]Williams v Hursey (1959) 103 CLR 30, 78, 122–3; [1959] HCA 51 (‘Williams’); Bennett v Estate of Talacko [2017] VSCA 163, [4] n 3. See also Uber Australia [2020] VSCA 186, [31].

An unlawful act for the purposes of the tort of conspiracy by unlawful means can consist of a criminal offence[9] or a civil wrong such as breach of contract or a tort.[10] Contempt of court resulting from a breach of a freezing order can also constitute an unlawful act.[11]
[9]Revenue and Customs Commissioners v Total Network SL [2008] AC 1174, 1235 [45], 1253 [94]–[95], 1258 [116], 1285–6 [224]–[227] (‘Total Network’).
[10]Williams (1959) 103 CLR 30, 122; [1959] HCA 51.
[11]JSC BTA Bank v Ablyazov [No 14] [2018] 2 WLR 1125, 1137 [15]–[16].

Whilst a sole or predominant purpose to injure the plaintiff is a necessary element of a lawful means conspiracy, an unlawful means conspiracy requires an intention to injure by unlawful means but that intention need not be the sole or predominant intention.[12]
[12]Uber Australia [2020] VSCA 186, [24], [34], [42]–[43]; Total Network [2008] 1 AC 1174, 1240–1 [56], 1243 [66], 1246 [76], 1258 [115]. See also Fatimi Pty Ltd v Bryant (2004) 59 NSWLR 678, 681 [13]; [2004] NSWCA 140.

In the case of a conspiracy by lawful means, if the predominant purpose of the conspirators in performing the lawful acts which the plaintiff seeks to impugn was the advancement of their economic self-interest, they are not liable to the plaintiff even if another purpose was to harm the plaintiff.[13]
[13]Veitch [1942] AC 435, 445.

In its indorsement of claim, Argyle alleged that between 17 December 2019 and 17 January 2020 the respondents engaged in a conspiracy by unlawful means, or in the alternative by lawful means. Argyle articulated the conspiracy, both by lawful and unlawful means, in the following way:

[The respondents] conspired and combined amongst themselves to divest [OTW] of its then assets, being Lots 1, 5 and 6, in breach of the [VCAT freezing order] with the sole or predominant purpose, and with the intention, of depriving [Argyle] of the opportunity of obtaining satisfaction in respect of [the BCISP Act Supreme Court judgment] and its claims in the [VCAT proceeding].

Argyle alleged that the steps involved in the conspiracy were as follows:

(a)On 17 December 2019, Lightning Canon was registered as a company with Sossa as its sole director and shareholder.
(b)On 9 January 2020, Lightning Canon procured a transfer of the mortgage registered over Lots 1, 5 and 6 from NAB.
(c)On 10 January 2020, Lightning Canon transferred Lot 1 by way of mortgagee power of sale to Created by Mark.
(d)On 10 January 2020, Lightning Canon transferred Lot 6 by way of mortgagee power of sale to Made Iconic.
(e)On 13 January 2020, Lightning Canon transferred Lot 5 by way of mortgagee power of sale to Natcorp Property Holdings.
(f)On 17 January 2020, Natcorp Developments and Created by Mark resolved to wind up OTW.

Argyle identified the loss it suffered as a result of the conspiracy as the value of its claims in the VCAT proceeding and the BCISP Act Supreme Court proceeding, or alternatively the lost opportunity to pursue those claims.

Although it did not identify the unlawful act that was said to be the basis of the conspiracy by unlawful means claim, it can be inferred from other parts of the indorsement of claim that Argyle had in mind breach of the VCAT freezing order as the relevant unlawful act.

Equitable fraud

The nature of the equitable fraud claim alleged by Argyle is the fourth kind of equitable fraud described by Lord Hardwicke in Earl of Chesterfield v Janssen, which is where the nature and circumstances of the transaction reveal it to be ‘an imposition and deceit on the other persons not parties to the fraudulent agreement’.[14]
[14](1750) 2 Ves Sen 125, 156; 28 ER 82.

In Westpac Banking Corporation v Bell Group Ltd (in liq) [No 3], Drummond AJA stated that in order for a case to fall within the fourth head of equitable fraud, there must first be ‘an agreement that works an imposition or deceit on persons not parties to the agreement but who are in such a relationship with one or other of the parties that they will be affected by the agreement’.[15] He went on to state that it is not necessary to show an actual intention to deceive or that the fraudulent agreement has been kept secret from the third parties affected by it. Secondly, he said that the agreement must infringe some head of public policy so as to require equitable intervention.[16]
[15](2012) 44 WAR 1, 497 [2601]; [2012] WASCA 157 (‘Bell Group’).
[16](2012) 44 WAR 1, 497 [2601]; [2012] WASCA 157.

Argyle alleged that the respondents engaged in equitable fraud on the basis that the intention of the conspiracy (as defined at [51] above) was ‘secretly and wrongfully to deprive [it] of the opportunity of obtaining satisfaction of [the BCISP Act Supreme Court judgment] and the VCAT [p]roceeding, or alternatively the [c]onspiracy had that effect’. Argyle defined this as the ‘fraudulent design’. Argyle alleged that the fraudulent design contravened or sought to contravene the VCAT freezing order and thereby offended public policy.

Knowing assistance and knowing receipt

A third party may be liable as an accessory where it knowingly assists in a trustee’s or fiduciary’s fraudulent and dishonest design.[17] A dishonest and fraudulent design in this context means a trustee’s fraudulent and dishonest breach of trust or a fiduciary’s fraudulent and dishonest breach of fiduciary duty.[18] Dishonesty has been described as amounting to ‘a transgression of ordinary standards of honest behaviour’.[19]
[17]Barnes v Addy (1874) LR 9 Ch App 244, 251–2; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 159 [160], 164 [179]; [2007] HCA 22 (‘Farah Constructions’); Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609, 632 [106], 633 [110], 635–6 [122]–[124]; [2014] NSWCA 266 (‘Hasler’).
[18]Farah Constructions (2007) 230 CLR 89, 164 [179]; [2007] HCA 22.
[19]Hasler (2014) 87 NSWLR 609, 636 [124]; [2014] NSWCA 266.

A third party may also be liable as an accessory where it receives trust property with notice that the trust property was being dealt with in a manner that involved a breach of trust or a breach of fiduciary duty.[20]
[20]Barnes v Addy (1874) LR 9 Ch App 244, 251–2; Farah Constructions (2007) 230 CLR 89, 141 [112]; [2007] HCA 22; Hasler (2014) 87 NSWLR 609, 626 [73];[2014] NSWCA 266.

If a third party is found to be liable as an accessory under either of the Barnes v Addy limbs set out at [58] and [59] above, it will be liable to account as a constructive trustee.[21]
[21]Hasler (2014) 87 NSWLR 609, 625–6 [69]–[70]; [2014] NSWCA 266.

Argyle alleged that each of the respondents was aware of and knowingly involved in the fraudulent design (as defined at [57] above) and that Lightning Canon and the Transferees knowingly received Lots 1, 5 and 6. It alleged that each party’s relevant knowledge ought to be inferred from the active role that Franek, Natoli and Sossa took in effecting the fraudulent design, whether on their own behalf or as the directing minds of the corporate respondents. It also alleged that, if any of the respondents were not parties to the fraudulent design, they were liable for breach of trust in accordance with the principles in Barnes v Addy.[22]
[22](1874) LR 9 Ch App 24.

Section 172(1) Property Law Act

Section 172 of the PLA is headed ‘[v]oluntary conveyances to defraud creditors’ and sub-s (1) relevantly provides that ‘every alienation of property made … with intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced’. Section 172(3) provides an exception for alienations ‘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 alienation, notice of the intent to defraud creditors’.

The principles that are applicable to s 172(1) of the PLA include the following:

(a) An intention to hinder or delay creditors is the relevant species of fraud.
(b)There is no requirement to show dishonesty or fraud over and above an intention to hinder or delay creditors.
(c)There is no requirement to find malice against a particular creditor.
(d)The fact that an alienation of property is made voluntarily is a fact which may, on its own, support an inference of the existence of an intention to hinder or delay creditors, but need not do so.
(e)The fact that the conveyance was made for value does not necessarily establish the absence of the relevant intention.
(f)Actual intention is required, but ordinarily its existence will be inferred from the objective facts.
(g)There is no requirement that an intention to hinder or delay creditors be the sole or even the predominant purpose of the alienation and it does not matter if the relevant intention was formed because of or at the instigation of another.[23]

[23]Petrovic v Brett Grimley Sales Pty Ltd [2014] VSCA 99, [24] citing Gilmour J’s summary of Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 3 in Federal Commissioner of Taxation v Oswal (2012) 91 ATR 684, 689–90 [22]–[24]; [2012] FCA 1507.

Argyle alleged that the transfer of the NAB mortgage to Lightning Canon and the subsequent transfers of Lots 1, 5 and 6 to the Transferees were made with the intention of delaying, hindering or defrauding Argyle or creditors generally by divesting OTW of its assets contrary to s 172(1) of the PLA. It alleged that this intention could be inferred from Franek and Natoli’s knowledge of the BCISP Act Supreme Court judgment and Argyle’s claims in the VCAT proceeding, the absence of adequate or market consideration provided to OTW and the resolution of OTW’s members to wind it up soon after the transfers were made.

Argyle also alleged that the transfer of Lot 2 by OTW to Natcorp Developments[24] on 2 August 2019 was an alienation of property contrary to s 172(1) of the PLA. It claimed that the relevant intention of this alienation could be inferred from the absence of adequate or market consideration provided to OTW for the transfer.
[24]Paragraph 24 of Argyle’s indorsement of claim erroneously refers to Natcorp Property Holdings as the transferee of Lot 2. See [25] above.

Argyle’s application for freezing order in Trial Division proceeding

As we have stated at [6] above, on 11 February 2020, the judge granted Argyle an ex parte freezing order against the respondents. Before setting out the procedural history relating to the granting of the order, it is convenient to refer to the principles governing the making of such a freezing order.

Principles governing the making of freezing orders

The Court has jurisdiction to make a freezing order under O 37A of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’). The Court also has inherent jurisdiction to make a freezing order and r 37A.06 provides that nothing in O 37A limits that inherent jurisdiction.

Rule 37A.02 of the Rules relevantly provides as follows:

37A.02 Freezing order
(1)The Court may make an order (a freezing order), upon or without notice to the respondent, for the purpose of preventing the frustration or inhibition of the Court’s process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied.
(2)A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets.
…
(4)In making a freezing order …, the Court shall have regard to the practice note concerning freezing orders.[25]
…

[25]The most recent practice note concerning freezing orders was issued on 30 January 2017. Its contents are reflected in the summary of the relevant principles in Rozenblit v Vainer [2019] VSCA 164 at [70] below.

Rule 37A.05(1) relevantly states that r 37A.05 applies if judgment has been given in favour of an applicant by the Court or if an applicant has a ‘good arguable case on an accrued or prospective cause of action that is justiciable’ in the Court. Rule 37A.05(4) provides that the Court may make a freezing order against a judgment debtor or prospective judgment debtor if the Court is satisfied that there is a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied because certain events might occur, including that the assets of the judgment debtor or prospective judgment debtor are ‘disposed of, dealt with or diminished in value’.

The principles governing an application for a freezing order were recently summarised by this Court in Rozenblit v Vainer relevantly as follows:

(1)The purpose of granting a freezing order is to prevent the frustration or inhibition of the Court’s process by seeking to meet a danger that a prospective judgment of the Court will be wholly or partly unsatisfied. Its purpose is not to provide security in respect of a prospective judgment or order.
(2)A freezing order is to be viewed as an extraordinary interim remedy. The order is a drastic remedy which calls for a high degree of caution on the part of the Court before an order is made.
(3)An applicant for a freezing order pending appeal will be required to establish that there is a good arguable case that the appeal will succeed. This means that it can be seen from the available material that the appeal has a real prospect of success.
(4)It must be shown that there is a reasonable possibility, not necessarily more than a 50 per cent chance, that assets may be disposed of or dealt with or diminished in value if an order is not made.
…
(6)The value of the assets covered by a freezing order should not exceed the likely maximum amount of the applicant’s claim, including interest and costs.
(7)As a condition of making a freezing order it will normally be appropriate to require the applicant to give undertakings to the Court, including the usual undertaking as to damages, supported if necessary by the provision of security.
(8)The order being discretionary, other considerations including the balance of convenience may bear upon the Court’s ultimate decision, but it is not a distinct requirement that the balance of convenience favours the making of the order.
(9)The inherent jurisdiction of the Court is preserved and r 37A.05 simply addresses the minimum requirements that ordinarily need to be satisfied in an application.[26]

[26][2019] VSCA 164, [19] (citations omitted). In formulating the above principles, the Court relied on the High Court’s decision in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, 408; [1999] HCA 18.

A wide range of factors may be relevant to the exercise of the discretion to grant or refuse a freezing order.[27]
[27]Talacko v Talacko [2009] VSC 349, [34].

Procedural history regarding the making and discharge of judge’s freezing order

On 7 February 2020, Argyle filed a summons in the Trial Division seeking a freezing order to restrain the respondents from dealing with their assets up to the value of $1,085,156.37. This figure was the sum of the amount claimed in the VCAT proceeding ($825,891), the amount of the BCISP Act Supreme Court judgment over and above that claimed in the VCAT proceeding ($24,251.15),[28] interest in the amount of $85,014.22 and costs in the amount of $150,000.
[28]See [28], [35] above.

On 11 February 2020, the summons was heard by the judge ex parte. On that day, he made a freezing order restraining the respondents from dealing with their assets up to the value of $1,085,156.37. The order also required the respondents to provide certain information to Argyle, including:

(a)the source of the $796,426 sum paid by Lightning Canon to NAB in consideration for the transfer of the NAB mortgage;
(b)information relating to the transfer of Lots 1, 5 and 6 to the Transferees, including:
(i)the value of the debt secured by the NAB mortgage as at the date of sale;
(ii)the grounds on which Lightning Canon was entitled to exercise the mortgagee’s power of sale;

(iii) the method of sale;
(iv) whether any valuation was carried out prior to the transfer; and
(v)the source of the consideration paid by each Transferee to Lightning Canon;

(c)statements for the period from 1 December 2019 until 11 February 2020 for the loan with NAB the subject of the NAB mortgage and the loan with Lightning Canon the subject of the assigned NAB mortgage;
(d)bank statements for the period from 1 December 2019 until 11 February 2020, in the name or under the control of any of the respondents; and
(e)communications between NAB and Lightning Canon in relation to the transfer of the NAB mortgage.

The other provisions of the judge’s freezing order (including the exceptions to the restraint on dealing with assets) are not presently relevant.

The information provided by the respondents pursuant to the judge’s freezing order, insofar as it is relevant to the issues before this Court, is discussed below under the heading ‘Contentious evidence before the judge’.

The judge’s freezing order was subsequently extended by him on 17 February 2020, 28 February 2020 and 13 March 2020. The ‘Other Matters’ section of the judge’s order of 28 February 2020, which extended the freezing order to 12 March 2020, recorded that Argyle had withdrawn a notice to produce addressed to Sossa and that it did not press compliance with subpoenas addressed to NAB and certain other entities. Paragraph 5 of the order required Lightning Canon to comply with a notice to produce addressed to it.

The judge heard Argyle’s summons dated 7 February 2020 on 12 and 13 March 2020. The respondents submitted that the freezing order should be discharged and Argyle’s summons should be dismissed. On 17 April 2020, the judge published his reasons for dismissing the summons, discharging the freezing order and requiring Argyle to provide security for the costs of the respondents. He deferred making orders to this effect until 23 April 2020.

On 20 April 2020, Argyle applied to the judge for a stay of the proposed order discharging the freezing order.

On 23 April 2020, the judge made the proposed orders, including the discharge order. On that same day, the judge published his reasons for refusing Argyle’s application for a stay.[29] On 27 April 2020, the judge made an order on the papers dismissing Argyle’s application for a stay.
[29]Argyle Building Services Pty Ltd v Franek [2020] VSC 207.

On 23 April 2020, Argyle filed an urgent application in this Court seeking a stay of the discharge order. On 24 April 2020, this Court made an order granting a stay until the hearing and determination of Argyle’s application for leave to appeal against the discharge order, provided that Argyle filed and served such an application by 7 May 2020. Argyle has complied with that requirement.

Contentious evidence before the judge

Before the judge, there were two broad areas of contentious evidence which featured prominently on the hearing of the application for leave to appeal, namely the value of Lots 1, 5 and 6 as at January 2020 and the level of indebtedness under the NAB mortgage and the general security deeds/Equitable Mortgages.

In relation to the value of Lots 1, 5 and 6 as at January 2020, the respondents relied upon market appraisals from real estate agents, which were exhibited to the affidavit of the first respondent group’s solicitor, Omar El-Hissi, sworn on 25 February 2020.

The Lot 1 market appraisal, which was in the form of a letter dated 10 October 2019 from Marshall White to Franek, valued Lot 1 at between $1,900,000 and $2,000,000. The letter stated that Lot 1 ‘could potentially achieve well in excess of this value if [the] property were to be marketed, presented and taken to public [a]uction’. The letter stated that Marshall White had analysed sales of comparable properties in the past six months. The Lot 5 and Lot 6 market appraisals, which were in the form of letters dated 2 October 2019 from Follett & Co to Franek and Natoli, valued Lot 5 at between $1,700,000 and $1,750,000 and Lot 6 at between $1,600,000 and $1,650,000. The two letters stated that Follett & Co had taken into consideration recent comparable sales in the area. The two letters contained the following disclaimer:

This letter is not a valuation and has been prepared solely for the information of the client. Although every care has been used in compiling the foregoing information, it is an opinion only and is not to be taken as a certified valuation.

The combined value of Lots 1, 5 and 6 at the top of the ranges set out in the three market appraisal letters was $5,400,000.

Argyle did not object to the admissibility of the three market appraisals but made submissions as to their reliability.

Argyle relied on an affidavit sworn by Paritsi on 7 February 2020. Paritsi stated that he had almost 20 years’ experience in the construction industry working for top tier commercial building companies in Melbourne. He did not state that he had any expertise that qualified him to express an opinion as to the value of the lots.

Paritsi estimated the value of Lots 1, 5 and 6 at $2,360,000, $2,244,000 and $2,100,000, respectively, resulting in a combined value of $6,704,000.[30] He based his estimates on the square metre value of the lots. He stated that Lot 4 was 190m²and was sold to an arm’s-length purchaser for $3,150,000. Using these figures, he estimated the market rate at $16,500 per square metre. He then applied that rate to the areas of Lots 1, 5 and 6, namely 143m², 136m² and 127m², respectively.
[30]Paritsi also estimated the value of Lot 2 at $2,409,000.

The first respondent group objected to the admissibility of Paritsi’s evidence on the basis that he did not have, or profess to have, any expertise to estimate the value of Lots 1, 5 and 6. They accepted that if the judge was to receive into evidence Paritsi’s valuations of the lots, then the judge could consider what weight ought to be given to them.[31] The second respondent group submitted that Paritsi’s evidence was not of any assistance as he did not have any relevant expertise to express an opinion as to the value of the lots and his statements could be construed as self-serving.[32]
[31]Transcript of Proceedings (12 March 2020) 19.9–20.4, 75.1–75.21.
[32]Transcript of Proceedings (13 March 2020) 108.1–108.12.

In compliance with the judge’s freezing order,[33] Franek and Natoli each swore an affidavit on 26 February 2020 and Sossa swore an affidavit on 27 February 2020. Franek and Sossa each swore a further affidavit on 11 March 2020.
[33]See [73] above.

The evidence relating to the level of indebtedness under the general security deeds was contained in undated documents described as ‘loan account ledgers’ exhibited to Franek’s affidavit of 11 March 2020. In that affidavit, Franek stated that: he had prepared the loan account ledgers in respect of each of the general security deeds; the loan account ledgers had been ‘calculated on a monthly interest calculation in accordance with the terms of the general security deeds’; he believed that each of the ledgers was true and correct; and he had made a mistake in his affidavit of 21 October 2019 filed in the VCAT proceeding ‘by miscalculating the interest using the date of each advance as a reference rather than calculating it on a month to month basis’.

According to the loan account ledgers, as at January 2020 the total amount owing under the general security deeds/Equitable Mortgages was $7,009,147.84, calculated as follows:

(a)$4,792,340.04 was owing in respect of the equitable mortgage previously held by Created by Mark;
(b)$1,434,181.75 was owing in respect of the equitable mortgage previously held by Natcorp Developments;
(c)$374,020.55 was owing in respect of the equitable mortgage previously held by Robert Natoli Super; and
(d)$408,605.50 was owing in respect of the equitable mortgage previously held by Radle-Natoli Super.

The loan account ledgers disclosed the following relevant information:

(a)The opening balance for each ledger corresponded with the initial loan amount in the relevant general security deed, as set out at [15], [16], [18] and [19] above.
(b)A default interest rate of 20 per cent was charged to OTW from the initial month of each general security deed. In his affidavit of 11 March 2020, Franek did not provide an explanation for this. In particular, he did not state that OTW was in default from the outset and that the relevant Equitable Mortgagee made a demand that interest be paid at the default rate.[34]

[34]See [20(b)] above.

A certificate of indebtedness dated 11 March 2020 and signed by Sossa on behalf of Lightning Canon was exhibited to her affidavit of 11 March 2020. The certificate stated that, as at 9 January 2020, $804,267.24 was owed by OTW to Lightning Canon, as assignee of the NAB mortgage.

The affidavits of Franek and Natoli sworn on 26 February 2020, and the affidavit of Sossa sworn on 27 February 2020, stated that as at 10 January 2020, the total amount owing to Lightning Canon as assignee of the NAB mortgage was $7,824,747.84. They included the amounts owing under the Equitable Mortgages in that sum.[35]
[35]The amount of $7,824,747.84 is roughly equivalent to the sum of the amount of $7,009,147.84 referred to at [91] above and the amount of $804,267.24 referred to at [93] above.

During the hearing before the judge, in his submissions in reply, Argyle’s counsel stated that there was a ‘real issue’ about the admissibility of the loan account ledgers as there was no reference in Franek’s affidavit of 11 March 2020 to the material upon which he had relied to calculate the amounts set out in the ledgers.[36] Counsel also observed that the loan account ledgers used the 20 per cent default interest rate from the outset without any evidence as to the stage at which the loans became in default.[37] The judge commented that these matters should have been raised as substantive arguments, rather than in reply, so that counsel for the respondents could address them.[38]
[36]Transcript of Proceedings (13 March 2020) 138.14–138.20.
[37]Transcript of Proceedings (13 March 2020) 140.27–140.30.
[38]Transcript of Proceedings (13 March 2020) 138.14–139.26, 140.27–141.5.

Senior counsel for the first respondent group responded in relation to the default interest rate by stating that it was obvious from the loan account ledgers that the default interest rate applied because no interest had been paid.[39]
[39]Transcript of Proceedings (13 March 2020) 147.4–147.15.

The respondents did not adduce any evidence before the judge as to the purpose of the impugned transactions. However, before us, the first respondent group accepted that the Transferees had implemented a strategy to circumvent the rule that prohibits a mortgagee from purchasing a mortgaged property pursuant to a power of sale. They argued that a sale by a mortgagee to an associate can only be impugned by showing that the mortgagee failed to act bona fide or take reasonable precautions to obtain the best price reasonably obtainable.

The second respondent group also accepted that a strategy was implemented by the secured creditors in order to realise their securities and pay down the debt owing to them by OTW. According to them, that strategy involved Lightning Canon becoming the assignee of the NAB mortgage and the Equitable Mortgages. They argued that there was nothing improper or illegal in implementing the strategy and that the secured creditors were entitled to protect their secured interests in preference to unsecured creditors.

Judge’s reasons

The judge found that the impugned conduct of the respondents did not cause any loss to Argyle. This finding meant that Argyle could not establish a good arguable case in relation to any of its causes of action. The judge’s reasoning in relation to loss can be summarised as follows.

First, OTW had ‘longstanding indebtedness’ to the Equitable Mortgagees which was secured by the Equitable Mortgages.[40] The judge was satisfied that the first respondent group had sufficiently established the sums secured under the NAB mortgage and the Equitable Mortgages.[41]
[40]Reasons [128].
[41]Reasons [133]. The first respondent group had relied on the certificate of indebtedness issued under the NAB mortgage as being conclusive on the basis of the principles in Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643, 654; [1935] HCA 49 and Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279.

Secondly, the market appraisals upon which the respondents relied constituted ‘admissible persuasive evidence of market value [of Lots 1, 5 and 6].’[42] Having regard to OTW’s indebtedness to its secured creditors and the market appraisals of Lots 1, 5 and 6, the judge stated that ‘at all material times the extent of [OTW’s] debt considerably exceeded the market value of Lots 1, 5 and 6’.[43]
[42]Reasons [124(j)].
[43]Reasons [128].

Thirdly, even if Paritsi’s valuations were accepted, the sale of Lots 1, 5 and 6 would produce a likely sum of $6,033,600, which was approximately $1,800,000 less than OTW’s secured debt of $7,824,747.84 under the NAB mortgage and the Equitable Mortgages.[44] The judge arrived at the figure of $6,033,600 by deducting from Paritsi’s combined value of $6,704,000 an amount of $670,400 representing estimated sales costs and commissions that would have been incurred if the three lots had been sold through a real estate agent.[45]
[44]Reasons [133].
[45]Reasons [132]. There was evidence of these costs in the form of an affidavit sworn by a solicitor.

Accordingly, the judge decided that Argyle had not established any arguable basis for loss and damage or loss of opportunity to recover the judgment it alleges would have been recoverable in the VCAT proceeding or pursuant to the BCISP Act Supreme Court judgment.

The judge found that the steps taken by the respondents which Argyle sought to impugn ‘were both commercial and explicable, and substantially in the nature of actions taken by secured security holders to realise on their securities in relation to Lots 1, 5 and 6 and pay down debt owed by [OTW]’.[46] This finding also undermined Argyle’s causes of action. The judge relied on the following facts and circumstances in making this finding:
[46]Reasons [126].

(a)That from a point in time well before the ‘conspiracy’ of which [Argyle] complains, the NAB was a first mortgagee secured in respect of the sum of $7,179,500 over Lots 1, 5 and 6.
(b)Further, Lots 1, 5 and 6 were the subject of four general security deeds in the nature of equitable mortgages and charges, entered into between [OTW] and the [Equitable Mortgagees], from about early 2016 to late 2017, which secured sums in excess of $5.8 million.
(c)[Lightning Canon] procured the transfer to itself of the NAB first mortgage over Lots 1, 5 and 6 in an arm’s length transaction with a major Australian Bank and for consideration in the sum of $796,426.00.
(d)The first mortgage transferred from the NAB to [Lightning Canon] included powers under NAB Memorandum of Common Provisions, exercisable upon default by the Mortgagor, including a default arising in circumstances where the secured Lots are the subject of a freezing order (NAB Memorandum of Common Provisions cls 15(n), 16.1 and 16.3).
(e)The [VCAT freezing order] obtained by [Argyle] constituted a freezing order of the type referred to in the preceding subparagraph and triggered a default under the Memorandum of Common Provisions.
(f)[Lightning Canon’s] transfer of Lots 1, 5 and 6 to [the Transferees] was for substantial consideration.
(g)[Lightning Canon] sold Lots 1, 5 and 6 as Mortgagee under mortgage Power of Sale and the proceeds of sale of Lots 1, 5 and 6 were all applied to pay down secured debt.
(h)[Lightning Canon’s] sale of Lots 1, 5 and 6 was for consideration equating to market value as substantiated by Licensed Real Estate Agents’ appraisals of the value of those Lots based amongst other considerations, on comparative sales.
(i)The market value of Lots 1, 5 and 6 referred to in the last preceding paragraph, established that the sale of those Lots would not have yielded an amount which, in any event, would exceed [Lightning Canon’s] security over the said Lots.
Accordingly, on the above bases no part of [Lightning Canon’s] net sale proceeds would have been distributed to any unsecured creditor including [OTW].
At all material times, including in December 2019, the same position obtained in relation to the value of Lots 1, 5 and 6 because [of] the extent to which those Lots were encumbered by the five securities referred to above.
(j)The Licensed Real Estate Agents’ appraisals of market value evidence in relation to Lots 1, 5 and 6 relied upon by the first [respondent] group and the second [respondent] group in this application, constitute admissible persuasive evidence of market value, and provide appraisals of value of more persuasive weight than [Argyle’s] valuation related evidence in the form of Paritsi’s lay assertions as to the value of those Lots. Paritsi has no expert land valuation qualifications and for this reason no weight is ascribed to his valuation related evidence.
Further, although [Argyle] criticised the Licensed Real Estate Agents’ land value appraisal evidence relied upon by the first [respondent] group notwithstanding that [Argyle] had ample time in which to do so, [Argyle] did not seek to put on any expert evidence, either as primary evidence in support of its application or by way of responsive evidence, establishing the value of Lots 1, 5 and 6 as at the end of 2019 and early 2020. This was the position notwithstanding, in this application before argument on the return of [Argyle’s] application, the first [respondent] group had put [Argyle] on notice that it challenged Paritsi’s land valuation evidence.
(k)The first [respondent] group’s Licensed Real Estate Agents’ appraisals of market value of the Lots relied upon by the first [respondent] group were in each instance provided by Licensed Real Estate Agents who recorded that their valuations included reliance upon comparable land values.
(l)By 10 January 2020 [OTW] owed [Lightning Canon] the sum of $7,824,748.84, which … was secured to [Lightning Canon] under the assigned securities referred to above.
(m)Lots 1, 5 and 6 were transferred in early January 2020 by [Lightning Canon] to [the Transferees], for valuable consideration which was applied to pay down secured debt in respect of each of those Lots.
(n)Lot 2 was transferred in early August 2019, for substantial consideration.[47]

[47]Reasons [124] (citations omitted).

In relation to Argyle’s conspiracy claims, the judge relied upon the facts and circumstances set out at [104] above in rejecting Argyle’s allegations that the respondents unlawfully, and in a ‘calculated and deliberate’ way, conspired to divest OTW of its assets.[48] He also rejected that the respondents did so in breach of the VCAT freezing order and so as to deprive Argyle of the prospective judgment in the VCAT proceeding and the BCISP Act Supreme Court judgment.[49] The judge did not consider that the steps in the alleged conspiracy, as set out at [52] above, inarguably established or indicated a wrongful, calculated and deliberate conspiracy to divest OTW of its assets.[50] Rather, according to him, those steps reflected a ‘commercial and understandable series of transactions which have in any event resulted in no loss or damage to [Argyle]’.[51]
[48]Reasons [127].
[49]Reasons [127].
[50]Reasons [123].
[51]Reasons [123].

As to Argyle’s equitable fraud claim, the judge considered that the impugned transactions were ‘commercially explicable transactions for value’ and that they comfortably displaced what he described as Argyle’s ‘mere assertions’ that it had been the victim of an actionable fraudulent design or some form of actionable unconscionable conduct by the respondents.[52] The judge held that there was no arguable basis for a conclusion that the respondents had breached the VCAT freezing order so as to establish a claim for equitable fraud.[53] He relied on the following reasoning:

Neither did the VCAT freezing order extend to the NAB as mortgagee, or to the assignors of the equitable mortgages and charges. It is the first mortgagee which dealt with its rights under its registered first mortgage. That mortgagee is not caught by the VCAT freezing order of 3 October 2019, and neither are the parties to the downstream transactions in relation to Lots 1, 5 and 6. The VCAT freezing order attaches only to [OTW], the respondent at the VCAT [p]roceeding in which the order was made.[54]

[52]Reasons [139].

[53]Reasons [141].

[54]Reasons [141].

The judge considered that the claims of knowing assistance and knowing receipt of trust property were substantially answered by the facts and circumstances set out at [104] above. He said that those facts and circumstances explained and rendered the conduct of ‘the registered security holders and the first [respondent] group and [Lightning Canon] commercially justifiable’.[55]
[55]Reasons [146].

In addition, the judge held that Argyle had not substantiated a reasonably arguable basis upon which the Equitable Mortgagees or any of the respondents were the subject of any relevant fiduciary duty, or acted in a relevantly unconscionable way vis-à-vis Argyle.[56] He was also not satisfied that Argyle had ‘made out a reasonably arguable case as to the existence of any relevant trust, constructive or otherwise, or relevant fiduciary relationship’.[57]
[56]Reasons [140]. The judge cited Farah Constructions (2007) 230 CLR 89, 164 [179]; [2007] HCA 22 in support of this finding.
[57]Reasons [142].

Accordingly, the judge considered that Argyle had not established a reasonably arguable case that the respondents, as a group or individually, knowingly assisted in any breach of fiduciary duty owed to Argyle or breach of trust, or that they directly or indirectly knowingly received any trust property.[58]
[58]Reasons [149]. The judge cited Farah Constructions (2007) 230 CLR 89, 140 [111]; [2007] HCA 22 in support of this finding.

The judge found that Argyle’s claim based on the transfers of Lots 1, 5 and 6 being voluntary conveyances to defraud creditors contrary to s 172(1) of the PLA was not reasonably arguable.[59] He made this finding on the basis that Argyle had not substantiated its assertion that the Transferees had not provided adequate or market consideration for the transfers of Lots 1, 5 and 6. The judge stated that Argyle had asserted that this was a key indicator of wrongful intention to alienate those assets. The judge also stated that the other key indicator of wrongful intention to alienate upon which Argyle relied, namely the timing of the liquidation of OTW, was triggered by Argyle’s actions in obtaining the VCAT freezing order and did not indicate wrongful intention. The judge was ultimately satisfied that the impugned transfers were not voluntary conveyances to defraud creditors but rather transfers for valuable consideration.[60]
[59]Reasons [152], [155].
[60]Reasons [154].

In addition, the judge concluded that Argyle’s claim under s 172(1) of the PLA was misconceived because the alienation complained of was not by the registered proprietor (OTW), but rather by the registered mortgagee under a power of sale.[61] Further, the judge concluded that ‘the proceeds of sale were utilised to satisfy extinguishable the debts owed by [OTW] to secured creditors’.[62]
[61]Reasons [153].
[62]Reasons [154] (error of expression in original).

As the judge found that there was no reasonably arguable case in respect of any of Argyle’s causes of action, he did not consider it necessary to address balance of convenience issues.[63]
[63]Reasons [157].

Grounds of appeal

Argyle seeks leave to rely on the following 15 proposed grounds of appeal:

Overarching grounds referable to each of the causes of action identified in [Argyle’s] general indorsement
1The primary judge erred at [123], [126] and [134] of the reasons delivered on 17 April 2020 (the principal reasons) in finding that the transactions impugned by [Argyle] (being the transactions set out in paragraph 14 of the general indorsement together with the assignments of securities to Lightning Canon … referred to in paragraph 13 of the affidavit of Michael Jonathan Kenny sworn 4 March 2020) (the impugned transactions) reflected ‘a commercial and understandable’ and ‘commercial and explicable’ series of transactions, ‘substantially in the nature of actions taken by secured security holders to realise on their securities in relation to Lots 1, 5 and 6 and pay down debt owed by’ [OTW], in circumstances where:
(a)there was no evidence before him from any of the respondents as to the respondents’ purpose or intent in entering into or giving effect to the impugned transactions;
(b)on proper analysis, the impugned transactions made no commercial sense, and were not commercially explicable, when viewed from the perspective of:
(i)Lightning Canon or its sole director, secretary and shareholder, Lucy Sossa …; or
(ii)Renee Franek (who is the spouse of … Franek …) or [Natcorp Developments];

(c)there was no evidence before him that Lightning Canon, by its director Sossa, considered, or took any steps to independently verify the contents of, market appraisals that had been obtained by Franek and … Natoli … for each of Lots 1, 5 and 6 before it exercised the power of sale by which those properties were transferred to [the Transferees] respectively; and
(d)there was no admissible evidence before him that the impugned transactions resulted in any reduction in the level of indebtedness owed by OTW to its secured creditors, and where that finding was inconsistent with the respondents’ own evidence as to the express effect of the impugned transactions.

2The primary judge erred at [124(g) and (m)], [126], [128] and [154] of the principal reasons in finding on the evidence before him, alternatively it was not open on the evidence to find, that the proceeds of sale of Lots 1, 5 and 6 were applied to pay down secured debt owed by OTW.
3The primary judge erred in finding on the evidence before him, alternatively it was not open on the evidence to find:
(a)at [133] of the principal reasons, that the [first respondent group] had sufficiently established the extent of the sums secured under the equitable securities;
(b)at [124(l)], [128] and [131] to [133] of the principal reasons, that the secured debt over Lots 1, 5 and 6 exceeded the potential proceeds of sale for those properties; and
(c)at [123] and [135] of the principal reasons, that, accordingly, the impugned transactions resulted in no loss or damage to [Argyle].

4The primary judge erred at [124(j)] of the principal reasons in accepting real estate agents’ market appraisals in relation to Lots 1, 5 and 6 as admissible persuasive evidence of the market value of those properties.

The conspiracy claim
5The primary judge erred in law in finding at [125]–[130] and [134] of the principal reasons that [Argyle’s] conspiracy claim was not reasonably arguable:
(a)by relying upon the premise that the impugned transactions reflected ‘a commercial and understandable’ and ‘commercial and explicable’ series of transactions; and
(b)by failing to consider or embark upon the correct enquiry as to whether the purpose or intent of the impugned transactions was to deprive [Argyle] of the opportunity of obtaining satisfaction in respect of the [BCISP Act Supreme Court judgment] … and its claims in [the] VCAT proceeding … .

The equitable fraud claim
6The primary judge erred in law in finding at [138], [139], [141] and [143] of the principal reasons that [Argyle’s] equitable fraud claim was not reasonably arguable:
(a)by relying upon the premise that the impugned transactions were ‘commercially explicable transactions for value’;
(b)on the basis that the premise in (a) above displaced [Argyle’s] case that it had, directly or indirectly, been the victim of the fraudulent design alleged, namely to deprive [Argyle] of the opportunity of obtaining satisfaction in respect of the [BCISP Act Supreme Court] judgment … and its claims in [the] VCAT proceeding … (the alleged fraudulent design);
(c)on the basis that the VCAT freezing orders attached only to OTW, and not to any of the respondents; and
(d)by failing to consider or embark upon the correct enquiry as to whether the intent or effect of the conspiracy alleged was to circumvent the VCAT freezing orders, and whether to do so offended public policy so as to render the alleged fraudulent design unconscionable and an equitable fraud on [Argyle].

7 The primary judge erred in law:
(a)in finding at [140] of the principal reasons that [Argyle] had not made out a reasonably arguable case that the respondents were the subject of any relevant fiduciary duty, or acted in a relevantly unconscionable way, vis-à-vis [Argyle]; and

(b) in failing to give any or any adequate reasons for that finding.

8 The primary judge erred in law:
(a)in finding at [142] of the principal reasons that, in respect of [Argyle’s] Barnes v Addy claim founded on a breach of trust or fiduciary duty, [Argyle] had not made out a reasonably arguable case as to the existence of any relevant trust, constructive or otherwise, or relevant fiduciary relationship; and

(b) in failing to give any or any adequate reasons for that finding.

The claim in respect of knowing assistance and knowing receipt
9The primary judge erred in law in finding at [146] and [149] of the principal reasons that [Argyle’s] claims based on knowing assistance and knowing receipt were not reasonably arguable by relying on the premise that the conduct of the respondents was ‘commercially justifiable’.
10The primary judge erred at [147] and [149] of the principal reasons that [Argyle] had not established that it was reasonably arguable that any of the respondents were aware of and knowingly involved in the alleged fraudulent design, and that any of them directly or indirectly knowingly received any property impressed with a trust, in circumstances where:
(a)the [first respondent group was] specifically prevented by paragraphs 3 and 4 of the VCAT freezing orders from taking a transfer of Lots 1, 5 or 6 from OTW;
(b)Lightning Canon was not incorporated until 17 December 2019;
(c)at the time that Lightning Canon entered into the impugned transactions, it had no independent means itself to permit it to do so;
(d)the sole director of Lightning Canon was Sossa, who was Natoli’s domestic partner;
(e)Franek was the director of OTW, and of Created by Mark … (the transferee of Lot 1) and Made Iconic (the transferee of Lot 6);
(f)Natoli was the director of OTW, and of Natcorp Property Holdings (the transferee of Lot 5);
(g)Lightning Canon, by its director Sossa, exercised its power of sale in respect of Lots 1, 5 and 6 in reliance upon, and on notice of, the existence of the VCAT freezing orders, which it treated as constituting an event of default under the mortgage registered over the properties; and
(h)there was no evidence that any of the respondents did not have notice of the VCAT freezing orders or their terms.

The claim under s 172(1) of the [PLA]
11The primary judge erred in law in finding at [152] and [155] of the principal reasons that [Argyle’s] claim under s 172(1) of the [PLA] was not reasonably arguable by reference to his findings at [124(a)–(n)], which formed the factual and contextual factors of significance for the premise that the impugned transactions were ‘a commercial and understandable’ series of transactions.
12The primary judge erred at [152] and [154] of the principal reasons in finding on the evidence before him, alternatively it was not open on the evidence to find, that:
(a)[Argyle] had not substantiated the absence of consideration or adequate or market consideration provided to OTW for the transfers of Lots 1, 5 and 6; and

(b) the transfers were for valuable consideration.
13The primary judge erred at [152] of the principal reasons in finding, on the evidence before him, alternatively it was not open on the evidence to find, that the timing of the winding up of OTW was an action which appeared to have been triggered by [Argyle’s] actions in obtaining orders at VCAT.
14The primary judge erred in law at [153] of the principal reasons in finding that [Argyle’s] claim under s 172(1) of the [PLA] was in any event misconceived on the basis that the alienation was not by the registered proprietor.

Exercise of the discretion to discharge the freezing orders
15In circumstances where it was not open to the primary judge to find (at [156] and [157] of the principal reasons) that none of the causes of action sought to be advanced by [Argyle] were reasonably arguable, the exercise of the discretion to discharge the freezing orders made on 11 February 2020 (as extended) miscarried.

Before us, it was common ground that, in order for Argyle to succeed on any of the causes of action upon which it relied, it had to establish that it had suffered loss as a result of the alleged wrongful conduct of the respondents. It was also common ground that, as Argyle was at all relevant times an unsecured creditor of OTW, Argyle would not be able to establish that it suffered such loss unless the value of OTW’s assets between 10 and 13 January 2020 exceeded its secured debts. Accordingly, Argyle conceded that if this Court decides that the judge was correct in finding that the total debts owing under the NAB mortgage and the Equitable Mortgages exceeded the value of Lots 1, 5 and 6 in that period, then the application for leave to appeal must be refused.

Our primary conclusion is that the judge was correct to so find. Accordingly, it is not necessary for us to discuss each of the grounds of appeal individually. However, in deference to the detailed submissions of the parties, after we set out our reasons for our primary conclusion, we will discuss those grounds in the context of considering whether Argyle established a good arguable case in respect of each of the causes of action upon which it relied.

Did OTW’s secured debts exceed the value of Lots 1, 5 and 6?

Argyle submitted that the judge erred in finding that the respondents had sufficiently established the sums secured under the Equitable Mortgages. According to it, the judge had accepted bare assertions as to the level of indebtedness contained in affidavits sworn on behalf of the respondents. Argyle argued that this was an unsafe foundation for that finding in the light of the following matters:

(a)there was no evidence of any ‘real money’ being advanced under the general security deeds;
(b)Franek conceded that the interest calculation in his affidavit of 21 October 2019 filed in the VCAT proceeding was incorrect;
(c)the level of indebtedness was calculated on the basis that there was an entitlement to charge default interest at a rate of 20 per cent per annum from the outset, without any evidentiary basis for that entitlement being adduced;
(d)the loan account ledgers prepared by Franek, which were adduced into evidence to establish the level of indebtedness, did not state the basis for the information provided and were inadmissible as business records or otherwise;
(e)no certificate was issued conclusively certifying the amount owed under the Equitable Mortgages; and
(f)Franek gave evidence on behalf of the companies in which Natoli had an interest as to how much those companies were owed, without a verifying affidavit from Natoli.

Argyle contended that the judge erred in finding that the secured debt over Lots 1, 5 and 6 exceeded the potential proceeds of sale. It submitted that, contrary to the judge’s finding, the market appraisals were inadmissible. Argyle argued that the appraisals were not sworn valuations, the facts and assumptions underlying them were not adequately disclosed, they were in the nature of marketing advice rather than evidence of value and two of them expressly disclaimed that they could be relied upon for the purpose of valuation.[64]
[64]See [83] above.

Argyle argued that if there was no equity in Lots 1, 5 and 6 above the amount secured by the general security deeds, as alleged by the respondents, then rather than entering into the impugned transactions, the respondents could have taken simpler steps. Those steps were said to be the making of an application to VCAT to discharge the VCAT freezing order or opposing the making of the VCAT freezing order on the basis that there was no utility to it. Argyle submitted that the fact that neither of these steps was taken by the respondents provided an additional reason as to why their evidence as to the level of indebtedness should not have been accepted by the judge.

Argyle contended that there was no mutuality between the assignors of the general security deeds on the one hand, and Natcorp Property Holdings and Made Iconic on the other, as these two companies were not parties to the deeds of assignment. Therefore, so it was said, no consideration moved from these two companies to Lightning Canon. According to Argyle, the only available credit from a Transferee to Lightning Canon was that from Created by Mark because it was both an assignor of an Equitable Mortgage — under the Created by Mark General Security Deed — and a Transferee.

The first respondent group submitted that there was conclusive evidence before the judge of the amount owing under the NAB mortgage as at 9 January 2020 as well as independent evidence of the amount owing as at 23 December 2019.[65] They argued that the loan account ledgers exhibited to Franek’s affidavit of 11 March 2020 were not challenged by Argyle. In relation to the default interest rate as set out in the loan account ledgers, they contended that the loan account ledgers showed that no monthly interest payments were made and therefore, in accordance with the terms of the general security deeds, the loans accrued interest at the higher rate from the outset. They also noted that the sum paid as a deposit for the Land corresponded with the opening balance for the loan account ledger relating to the Created by Mark General Security Deed.[66]
[65]See [17], [36] and [93] above.
[66]See [15] above.

According to the first respondent group, for the purpose of determining whether Argyle had a good arguable case, the judge was entitled to accept the evidence as sufficiently showing the amount owed by OTW to its secured creditors.

In relation to the value of Lots 1, 5 and 6, the first respondent group submitted that the judge was correct to prefer the market appraisals to the evidence of Paritsi. According to them, the market appraisals contained independent opinions and were not contradicted by evidence from any person with relevant expertise. Accordingly, they argued that there was a sufficient evidentiary basis for the judge to determine the value of the lots. Further, they submitted that the judge addressed the hypothetical scenario in which the lots were sold for the value placed on them by Paritsi and concluded that OTW was still approximately $1,800,000 short of satisfying secured creditors.

The first respondent group submitted that the consideration for the sale of each of Lots 1, 5 and 6 was credited by the relevant transferee against the assignment price owing by Lightning Canon for the assignment of the general security deeds. According to them, the net proceeds of sale reduced OTW’s debt under the NAB mortgage and the Equitable Mortgages because Lightning Canon, in exercising the mortgagee power of sale, was bound in equity to account to OTW for the receipt by it of the net proceeds of sale. The first respondent group contended that it was not to the point that no ‘real money’ was provided by the Transferees, as they paid for the lots and the debt owed by OTW was extinguished to that extent.

Similarly, the first respondent group submitted that it was not relevant that no ‘real money’ was advanced under, or for the assignment of, the general security deeds. According to them, it was sufficient to have journal entries which recorded each transaction and that each obligation had been offset.

The second respondent group made submissions which were similar to those of the first respondent group. In addition, they contended that the general security deeds were legitimate and had been in existence for ‘some time’. They argued that Argyle had been aware of them since October 2019 but had taken no steps to verify or contest the loans, for example by serving a notice to produce.[67]
[67]In oral submissions, Argyle stated that it had issued a subpoena to NAB dated 19 February 2020 for information concerning the NAB mortgage but the judge did not permit it to proceed with the subpoena at that stage of the proceeding. See also [76] above.

In our opinion, the judge was right to make the discharge order on the basis that Argyle had failed to establish a good arguable case that the value of Lots 1, 5 and 6 exceeded OTW’s secured debt to Lightning Canon. That was so even if there was otherwise some substance to the causes of action upon which Argyle relied.

In relation to the amounts owing under the securities assigned to Lightning Canon, the judge was entitled to rely on the certificate issued under the NAB mortgage as conclusive in accordance with the principles in Dodds v National Bank of Australasia Ltd[68] and Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd.[69] The amount of $804,267.24 in the certificate was broadly consistent with the consideration of $796,426 paid by Lightning Canon for the assignment of the mortgage. Argyle did not adduce any evidence to impugn the validity of the certificate.
[68](1935) 53 CLR 643, 654; [1935] HCA 49.
[69][1992] 2 VR 279.

In relation to the general security deeds, there was no evidence that the deeds were not genuine commercial documents which secured genuine loans. As such, the judge was right to conclude that it made commercial sense for the security holders to enter into the impugned transactions for the purpose of recovering their secured debts.

As to the amounts owing under the general security deeds, the judge was entitled to rely upon the sworn evidence of Franek. In his affidavit of 11 March 2020, Franek exhibited loan account ledgers which showed the amounts owing under the deeds at the date of the inception of the loans and at monthly intervals since that date. When the affidavit was sworn, Franek would have had available to him records in his capacity as director of the debtor, OTW, as well as those of Created by Mark and Made Iconic. The affidavit was consistent with the affidavits of Franek and Natoli sworn on 26 February 2020 and the affidavit of Sossa sworn on 27 February 2020 in terms of the total amount owing to Lightning Canon under the general security deeds and NAB mortgage.[70]
[70]See [94] above.

The second respondent group made submissions which were similar to those of the first respondent group.

Our conclusion at [138] above — that the judge was correct to find that the value of OTW’s assets did not exceed its secured debts as at January 2020 — means that Argyle could not establish that it had suffered loss as a result of the respondents’ impugned conduct and therefore it could not make out a good arguable case in relation to the two conspiracy claims. Furthermore, the judge was correct to conclude, on an interlocutory basis, that the evidence before him was insufficient to satisfy the other elements of the claims.

In relation to the conspiracy by lawful means claim, the evidence does not support a finding that the predominant purpose of the respondents’ admitted strategy was to injure Argyle. It was lawful for the Equitable Mortgagees to assign the general security deeds to Lightning Canon and for Lightning Canon to take an assignment of those deeds and the NAB mortgage. It was also lawful for Lightning Canon to exercise its power of sale as mortgagee and to transfer Lots 1, 5 and 6 to any person provided that the sale was made in good faith and the consideration was the best price reasonably obtainable.[85]
[85]See Corporations Act 2001 (Cth) s 420A.

At the hearing of the application for leave to appeal, the Bench referred to the fact that Lightning Canon exercised the power of sale in the NAB mortgage in respect of Lots 1, 5 and 6 when the amount owing under that mortgage as at 9 January 2020 ($804,267.24)[86] could have been recovered by selling only one of those lots. In response, counsel for Argyle criticised in a broad and general way this aspect of the impugned transactions but did not articulate any legal basis as to how that aspect might vitiate the judge’s findings in favour of the respondents. In these circumstances, we need not consider that issue.
[86]See [93] above.

In relation to the conspiracy by unlawful means claim, the evidence does not support a finding, on an interlocutory basis, that the VCAT freezing order was contravened by Lightning Canon’s sale of Lots 1, 5 and 6 to the Transferees. The restraint in para 1 of that order was confined to OTW and did not extend to alienation of the lots by a mortgagee. Further, the order did not in terms prohibit a transfer of any lot to the Transferees. Paragraph 3 of the order qualified para 1 by permitting alienations by OTW to a ‘bona fide arm’s-length purchaser for market value’ and para 4 listed or described certain individuals and entities (including the Transferees) who were deemed not to be arm’s-length purchasers.

It follows that the sale of Lots 1, 5 and 6 from Lightning Canon to the Transferees did not involve an alienation of the lots by OTW to the Transferees and therefore did not, in terms, contravene the VCAT freezing order.

It is true that the intervention of Lightning Canon as mortgagee resulted in the Transferees acquiring the three lots in circumstances where they could not have acquired them directly from OTW. In a loose sense, the Transferees acquired the lots indirectly from Lightning Canon in circumstances where they could not acquire them directly from OTW. However, that does not mean that those respondents who facilitated this outcome contravened the VCAT freezing order.

There is no general principle of law that achieving a purpose indirectly when the law prohibits its achievement directly constitutes illegal or tortious conduct. Whether it does so depends on all the circumstances of the case, including the nature, purpose and scope of the prohibition and the means adopted to circumvent it. In the present case, the purpose of the VCAT freezing order was to prevent OTW from improperly placing its assets beyond the reach of Argyle. It can be inferred that the first respondent group’s purposes were the recovery of their secured debts and the transfer of ownership of Lots 1, 5 and 6 to the Transferees. These purposes were not improper. Furthermore, none of the steps taken to achieve these purposes were unlawful.

Argyle’s reliance on Hinch is misplaced. The VCAT freezing order did not, either in form or in substance, prevent a mortgagee from exercising a valid power of sale. Accordingly, Lightning Canon’s sale of the lots to the Transferees — in its capacity as mortgagee by assignment — did not involve either a direct or indirect contravention of the order. Lightning Canon did not perform any act which infringed or frustrated the efficacy of the VCAT freezing order or interfered with the administration of justice; it simply exercised a legal right vested in it by virtue of its security interest in the lots.

The impugned transactions made commercial sense from the point of view of the first respondent group. Whilst it may be accepted that Renee Franek and the second respondent group may not have benefited commercially from the transactions, they were associates of the first respondent group and it is evident that their role was to facilitate the transactions for the benefit of the first respondent group.

For the reasons discussed above under the heading ‘Did OTW’s secured debts exceed the value of Lots 1, 5 and 6?’, there is no substance to Argyle’s submissions regarding the value of Lots 1, 5 and 6 and the level of OTW’s indebtedness to the Equitable Mortgagees and their assignee, Lightning Canon.

For the above reasons, the judge was correct to conclude that Argyle had failed to establish a good arguable case in relation to the conspiracy claims. It follows that grounds 1, 2 and 5 are not made out.

Equitable fraud

Argyle submitted that if the judge’s finding that the impugned transactions were ‘commercially explicable transactions for value’ is set aside for the reasons set out at [153]–[156] above, then the facts underpinning the judge’s findings as to the equitable fraud claim cannot stand. Argyle argued that the judge failed to undertake the correct inquiry which was whether the purpose or intent of the conspiracy alleged was to circumvent the VCAT freezing order, and whether to do so offended public policy so as to render the alleged fraudulent design unconscionable and an equitable fraud on Argyle.

Argyle contended that the respondents’ equitable fraud deprived OTW of its assets, such that the Transferees held Lots 1, 5 and 6 as constructive trustees on behalf of OTW. According to them, the trust attached immediately upon the existence of circumstances in which equity would construe a trust, and the trust on which the lots were held need not have arisen from a pre-existing fiduciary obligation.[87]
[87]Argyle relied upon Wambo Coal Pty Ltd v Ariff (2007) 63 ACSR 429, 442 [64]; [2007] NSWSC 589.

Argyle submitted that, save for the reference to Farah Constructions Pty Ltd v Say-Dee Pty Ltd,[88] the judge’s reasons did not contain any analysis of the evidence or legal principles on which he relied in concluding that it was not reasonably arguable that the respondents were subject to a fiduciary duty or acted in an unconscionable way. Accordingly, so it was said, the judge erred in failing to give adequate reasons for rejecting Argyle’s propositions.
[88](2007) 230 CLR 89, 164 [179]; [2007] HCA 22.

The first respondent group submitted that Argyle had not been deceived, in the sense of a lie or a trick, and no imposition or fraud had been practised on it. They argued that the alleged fraudulent design could not offend public policy because it was not prohibited by the VCAT freezing order and therefore did not involve a breach of the order. They further contended that, even if there was an agreement to breach the VCAT freezing order and a breach of that order, that conduct would fall within contempt of court, rather than equitable fraud.

The first respondent group submitted that although the judge did not analyse what was meant by equitable fraud as alleged by Argyle, it was unnecessary for him to do so once he concluded that the factual and legal premises in Argyle’s indorsement of claim could not be made good.

The second respondent group made submissions which were similar to those of the first respondent group.

In our opinion, the judge was correct to find that Argyle had not established a good arguable case in relation to its equitable fraud claim for the following reasons.

First, the judge’s correct finding that Argyle had failed to establish a good arguable case that the value of OTW’s assets exceeded its secured debts as at January 2020 meant that it had not suffered any loss as a result of the alleged fraudulent design.

Secondly, for the reasons discussed in relation to the conspiracy claims, Argyle failed to establish a good arguable case that the respondents’ admitted strategy worked an imposition or deceit on it, as it did not involve any dishonesty on their part.

Thirdly, for the reasons discussed in relation to the conspiracy claims, Argyle failed to establish a good arguable case that the respondents’ admitted strategy offended public policy, as their conduct did not involve a contravention of the VCAT freezing order.

Although the judge’s reasons for his conclusions in relation to Argyle’s equitable fraud claim are brief, they adequately explain his path of reasoning.

It follows that grounds 6 and 7 are not made out.

Knowing assistance and knowing receipt

Argyle submitted that if the judge’s finding that the impugned transactions were ‘commercially justifiable’ is set aside, then his findings in respect of the knowing assistance and knowing receipt or trust property claims cannot stand. Argyle argued that the judge failed to undertake the correct inquiry which was whether the respondents were aware of and knowingly involved in the alleged fraudulent design and whether Lightning Canon and the Transferees knowingly received Lots 1, 5 and 6.

Argyle contended that there were objective factual circumstances which were inconsistent with the judge’s finding that its case under both limbs of the rule in Barnes v Addy was not reasonably arguable. Those circumstances included the following:

(a)members of the first respondent group were specifically prevented by the VCAT freezing order from taking a transfer of Lots 1, 5 or 6 from OTW;

(b) Lightning Canon was incorporated on 17 December 2019;
(c)the sole director and shareholder of Lightning Canon was Sossa, Natoli’s domestic partner;
(d)at the time that Lightning Canon entered into the impugned transactions, it had no independent means to fund the acquisition of the NAB mortgage or to pay any real money for the acquisition of the Equitable Mortgages;

(e) Franek was the director of OTW, Created by Mark and Made Iconic;
(f) Natoli was the director of OTW and Natcorp Property Holdings;
(g)Lightning Canon, by its director Sossa, exercised its power of sale in respect of Lots 1, 5 and 6 in reliance upon, and on notice of, the existence of the VCAT freezing order, which it treated as constituting an event of default under the NAB mortgage; and
(h)there was no evidence before the judge that any of the respondents did not have notice of the VCAT freezing order or its terms.

Argyle contended that Lightning Canon and the Transferees received assets that were already impressed with a constructive trust and were thereafter bound by that trust. Upon becoming liable as constructive trustees, so it was said, Lightning Canon and the Transferees owed a fiduciary duty to OTW. According to Argyle, the recipients of the assets were liable as constructive trustees for having received and become chargeable with trust property. Further, it argued that the respondents were liable for knowingly assisting in a dishonest and fraudulent design. Accordingly, so it was said, the judge erred in finding that it was not reasonably arguable that the respondents were not the subject of a fiduciary duty, that they had not acted unconscionably and that, in respect of the knowing assistance and knowing receipt claims, there was no relevant trust or fiduciary relationship.

The first respondent group submitted that Argyle could not establish either the knowing receipt or knowing assistance limbs of the rule in Barnes v Addy because no respondent received trust property, there was no breach of trust or breach of fiduciary duty and no dishonesty on the part of any respondent that had been alleged or shown on the evidence.

In oral submissions, senior counsel for the first respondent group argued that it was not in evidence that OTW was a trustee, nor was there a suggestion that Lots 1, 5 and 6 were impressed with a trust prior to the transfers. Therefore, so it was said, the transfers were not made in breach of any existing trust. Further, according to them, even if a constructive trust arose because of the circumstances of the transfer, nothing was done subsequently which was in breach of that constructive trust.

The second respondent group contended that no fiduciary duty or trust in respect of the property of OTW has been established by Argyle. According to them, Argyle is an unsecured creditor and ranks behind the interests of various secured creditors and the impugned transactions do not give rise to a cause of action.

In our opinion, the judge was correct to find that Argyle had not established a good arguable case in relation to its knowing assistance and knowing receipt claim. That is because, for the reasons we have already discussed in relation to the other causes of action, Argyle failed to establish a good arguable case that:

(a)the conduct of any respondent involved dishonesty or constituted a fraudulent design;
(b)the conduct of any respondent gave rise to a constructive trust or a fiduciary relationship in favour of Argyle such that a breach of trust or fiduciary duty by such a respondent could give rise to accessorial liability on the part of another respondent pursuant to the principles in Barnes v Addy; or
(c)Argyle suffered loss as a result of the respondents’ conduct.

Although the judge’s discussion of Argyle’s knowing assistance and knowing receipt claim is not extensive, it adequately explains his path of reasoning. Further, his reference to Farah Constructions[89] indicates that his discussion was informed by the principles in that case.
[89]See n 56 above.

It follows that grounds 8–10 are not made out.

Section 172(1) of the Property Law Act 1958

Argyle submitted that if the judge’s finding that the impugned transactions were ‘commercial and understandable’ is set aside for the reasons set out at [153]–[156] above, then his finding that Argyle’s claim under s 172(1) of the PLA was not reasonably arguable cannot stand.

Argyle argued that for the reasons set out at [156] above, the judge’s findings that Argyle had not substantiated the absence of adequate or market consideration provided to OTW for the transfers of Lots 1, 5 and 6 and that the transfers were for valuable consideration, were not open on the evidence. It further contended that there was no evidentiary foundation for the judge’s finding that the timing of the winding up of OTW was an action which appeared to have been triggered by Argyle’s actions in obtaining the VCAT freezing order.

Argyle submitted that the judge erred in holding that its claim under s 172(1) of the PLA was misconceived on the basis that the alienation was by the registered mortgagee, rather than the registered proprietor. It argued that this finding was inconsistent with authority which states that a broad approach is to be adopted as to what constitutes alienation of property.[90]
[90]Argyle relied upon Hall v Poolman (2007) 215 FLR 243, 361–2 [550]–[555]; [2007] NSWSC 1330 as endorsed by the Full Court of the Federal Court in Israel Discount Bank Ltd v ACN 078 272 867 Pty Ltd (in liq) (formerly Advance Finances Pty Ltd) (2019) 367 ALR 71, 91 [73]–[75]; [2019] FCAFC 90.

The first respondent group submitted that the judge did not make findings but rather stated the factual position, which was sufficiently established at an interlocutory stage, that Lots 1, 5 and 6 were sold for adequate or market consideration and that their sale did not and could not have produced a surplus for distribution to unsecured creditors.

They contended that whilst it could be readily inferred that Lightning Canon was acting in concert with OTW and the Transferees, it could not be inferred that Lightning Canon placed any impediments in the way of Argyle’s recourse to the three lots in order to satisfy the BCISP Act Supreme Court judgment or its claims in the VCAT proceeding. This was said to be because Argyle, as an unsecured creditor, had no access to the three lots unless there was equity over and above the secured debts, which was not the case on the evidence.

They argued that the fact that the inevitable consequence of there being insufficient surplus to distribute to unsecured creditors was a result of the legitimate strategy executed by the respondents to enable the Transferees to purchase Lots 1, 5 and 6 at a mortgagee sale was insufficient to make good a claim under s 172(1) of the PLA.

In oral argument, senior counsel for the first respondent group submitted that s 172(1) of the PLA did not apply for three reasons. First, s 172(1) did not apply to payments made by a debtor to a creditor.[91] Secondly, s 172(1) did not apply to the granting of security for an existing debt for which there was no fresh consideration. It followed, so it was said, that a mortgagee can exercise a power of sale without being caught by s 172(1). Thirdly, property mortgaged by a debtor is not property that falls within s 172(1). The first respondent group argued that Argyle sought to impugn the sale of the three lots but did not seek to impugn any of the mortgages.
[91]The first respondent group replied upon P T Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515, 525–7.

The first respondent group contended that, for the reasons they advanced in relation to the conspiracy claims, it could not be inferred that the respondents had an intention to hinder or delay Argyle or any other unsecured creditor of OTW. They also contended that the Transferees provided valuable consideration and therefore the transfers of Lots 1, 5 and 6 were not voluntary conveyances.

The first respondent group submitted that the inference was open, on an interlocutory basis, that OTW was insolvent after the enforcement of the securities as it no longer had substantial assets and was liable for the BCISP Act Supreme Court judgment.

The second respondent group submitted that, in transferring Lots 1, 5 and 6, there was no intent on the part of the respondents to defraud Argyle. They argued that it was open on the evidence for the judge to find that the transactions were commercial and understandable. They also contended that the transfers were for valuable consideration and in accordance with independent market appraisals, which the judge was entitled to accept as to the value of the lots.

The second respondent group submitted that it was understandable for OTW to be placed into liquidation because OTW was a specific purpose vehicle, whose purpose had been completed, and it was dependent upon external funding which had ceased.

In our opinion, the judge was right to conclude that Argyle had not established a good arguable case that the transfer of Lots 1, 5 and 6 to the Transferees infringed s 172(1) of the PLA.

As an unsecured creditor of OTW, Argyle could not have access to OTW’s assets unless there was a surplus of assets over OTW’s secured debts. Accordingly, our conclusion that the judge was correct to find that, at the time the transfers were made, the value of OTW’s assets did not exceed its secured debts means that Argyle could not establish that its access to OTW’s assets was in any way hindered or delayed. Consequently, Argyle could not establish that there was an intention to defraud it in the sense in which ‘fraud’ is used in s 172(1).

Furthermore, for the reasons we have already discussed, the transfers to the Transferees were made for valuable consideration and there was nothing improper in the purpose for which the transfers were made.[92]
[92]See [141]–[144], [174] above.

It is not necessary for us to discuss the extent to which s 172(1) of the PLA applies to an alienation of property by a security holder, acting under a security granted by a debtor, rather than by the debtor itself. That is because, for the reasons set out above, even if the section applied to the transfers by Lightning Canon, the judge was correct to conclude that Argyle had not established a good arguable case that the ‘intent to defraud creditors’ requirement was met.

Furthermore, the reasons for the timing of the winding up of OTW were not a material issue in the proceeding. Accordingly, it is not necessary for us to consider whether the judge erred in attributing the timing of the winding up to the making of the VCAT freezing order.

For the above reasons, grounds 11–14 are not made out.

Conclusion

Our conclusion that grounds 1–14 are not made out means that ground 15 is also not made out. That is because ground 15 is dependent on the success of one or more of the earlier grounds.

Accordingly, the application for leave to appeal will be refused.

Finally, we note that our factual conclusions in relation to Argyle’s causes of action, like those of the judge, have been reached on an interlocutory basis on the evidence before the Court on the issue of the continuation of the judge’s freezing order. Our conclusions do not foreclose different findings being made in relation to those causes of action if the judge is called upon to adjudicate upon them on the basis of different evidence.

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SCHEDULE OF PARTIES

ARGYLE BUILDING SERVICES PTY LTD (ACN 151 322 520)	Applicant
v
MARK FRANEK	First Respondent
ROBERT NATOLI	Second Respondent
LUCY SOSSA	Third Respondent
LIGHTNING CANON PTY LTD (ACN 638 102 011)	Fourth Respondent
NATCORP PROPERTY HOLDINGS PTY LTD (ACN 628 237 945)	Fifth Respondent
CREATED BY MARK FRANEK PTY LTD (ACN 616 180 566)	Sixth Respondent
MADE ICONIC PTY LTD (ACN 636 547 441)	Seventh Respondent
NATCORP DEVELOPMENTS PTY LTD (ACN 099 534 193)	Eighth Respondent

[2020] VSCA 196

4 August 2020