Cannane & Anor v J. Cannane Pty Limited

[1996] HCATrans 393

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S69 of 1996

B e t w e e n -

DENISE MARY CANNANE

First Applicant

WISBECK PTY LTD

Second Applicant

and

J. CANNANE PTY LIMITED (In Liquidation)

First Respondent

JOHN VOURIS (as Liquidator of J. CANNANE PTY LIMITED in Liquidation)

Second Respondent

Office of the Registry
  Sydney  No S70 of 1996

B e t w e e n -

ANDREW VINCENT CANNANE

First Applicant

and

WISBECK PTY LTD

Second Applicant

and

OFFICIAL TRUSTEE IN BANKRUPTCY AS TRUSTEE OF THE BANKRUPT ESTATE OF JOHN VINCENT CANNANE

Respondent

Applications for special leave to appeal

DAWSON J
TOOHEY J
KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 13 DECEMBER 1996, AT 10.27 AM

Copyright in the High Court of Australia

MR D.M.J. BENNETT, QC:   If the Court pleases, in both those matters I appear for the applicants, with my learned friend, MR S.J. McMILLAN. (instructed by Ferrier & Associates)

MR J.W. STEVENSON:   If the Court pleases, in both those matters I appear for the respondents. (instructed by Mallesons Stephen Jaques)

DAWSON J:   Yes, Mr Stevenson.  Both matters can be dealt with together.  Yes, Mr Bennett.

MR BENNETT:   If the Court pleases.  Your Honour, sometimes one can just look at the facts and the result in a case and say that must be wrong and this must be, in our respectful submission, a very clear example of that.  The simple facts in this case were that there was a transaction being negotiated which did not involve any assets of the bankrupt or the company that was ultimately wound up; it was a transaction which involved other entities, involved security being given by the bankrupt’s wife and involved warranties and other matters of that sort, but did not involve any of his or the company’s assets.

At one stage during the negotiation of the transaction, substantially for tax reasons and as a matter of convenience, it was decided to insert into the proposed transaction a shelf company.  A shelf company could have been bought from an accountant or a shelf company shop or from a number of sources, but the person who became bankrupt had a shelf company, of which one share was owned by him, one was owned by the insolvent company.  If was a worthless company, and that has been found.  And it was simply, as a matter of convenience, decided to insert it into the transaction.  Accordingly, in order to effectuate that intention, the relevant shares were transferred from the family members who owned it, from, in effect, the man who became bankrupt and the company which was wound up, to wife and son; so another share was allotted to the second son.  The transaction then goes ahead and the company makes money out of it.  That is said to be, and held by the majority below, to be a fraudulent conveyance.

It is held to be a fraudulent conveyance, not because of any contingent value the shares had; that is expressly eschewed.  What is said is, it is a fraudulent conveyance because the bankrupt very candidly admits in the witness box, oh, the reason for transferring the shares was to prevent whatever was achieved from the transaction going to my creditors.  That, of course, is true, but it is a half truth.  The full truth, when one takes the whole of the evidence together, is that what was being prevented from going to creditors was something that would never have gone to them and was in no way any part of his property.  It was the fruits of an intended transaction, which the wife’s property was the security for, and which could equally have been done with any shelf company, or indeed with another family member, had it not been for tax considerations, and it was simply someone saying, well I have got this shelf company, let us use this.  And the transfer, at full value, the one dollar was held to be full value of the shares in the shelf company, is held to be a fraudulent conveyance.

DAWSON J:   Mr Bennett, any question of bone fides is inevitably bound up with the question of the intent to defraud creditors, is it not?

MR BENNETT:   Yes.

DAWSON J:   So the one goes with the other?

MR BENNETT:   Yes, your Honour it does, and what we submit is that it is really taking the admission out of context; the admission obtained by no doubt skilful cross-examination, but a correct admission; it is a correct admission but it is only half the full picture, and really that is the whole matter.  Now there is no case which is directly on issue, there is no case ‑ ‑ ‑

DAWSON J:   It is really a matter of you do not have to conduct your business so as to benefit your creditors.

MR BENNETT:   Precisely, your Honour, that is exactly the way we put it, and that is really what his answers meant - I do not want this to go to my creditors because it is not theirs and why should it, but because it is associated with the transfer of an item of property, although for full value, it is held to be a fraudulent conveyance.  What is said is, well the mere fact that you could have done it in some other way does not stop it being a fraudulent conveyance, but what your Honour has just put to me is, we submit, the answer to that.

TOOHEY J:   Well the first leg of that proposition is correct, is it not?  The fact that it could have been done in some other way does not really help.

MR BENNETT:   On its own, no; the question is, what is it that could have been done in some other way and is that something that should have gone to the creditors, that was in any way his, or in the case of the company, the company’s property?

TOOHEY J:   Well no, the question is, whether it having been done in this way.

MR BENNETT:   Yes, and what the creditors were deprived of was nothing.  There were shares, which were transferred for their full value, and had the transaction not taken place, had they remained in these names, then presumably some other shelf company would have been used or the warranties would not have been given by the wife and the mortgage would not have been given by the wife.  It was the subsequent events which created the value and they just would not have occurred, obviously, after the bankruptcy, because they would not have been done for the benefit of creditors, there was no obligation to put a transaction which was being done substantially with the wife’s asset for the benefit of the husband’s creditors.

There were some examples given by the court of cases where you can have full consideration, but nevertheless be a fraudulent conveyance.  None of the three examples given really supply, we would submit, proper examples of that:  one was the case where there was full consideration payable over one hundred years - well that is clearly a case where the present value is not full consideration and, in any event, that is delaying one’s creditors rather than defeating them; one was the example of where the full consideration goes to a third party, which is clearly not full consideration to the bankrupt and the third was the case where there is full consideration with the clause that you do not pay it if I go bankrupt, and that again is clearly not full consideration to the bankrupt or his estate.  But apart from those examples given by the court, no one has found the case or given an example of a case where there is full consideration, but a fraudulent conveyance, without any delaying of creditors, which may be a special case.  So we submit it is an important question and it is one where we submit the judgment of the dissenting judge is far more persuasive than that of the majority and the trial judge.

There is a secondary issue in the case, which is an alternative basis on which it is put, and that concerns the notice in the son.  The son was 18 at the time, so he was a full age; the evidence was that, from time to time, his father placed documents in front of him and he signed them and that he had no recollection of signing this particular document, the share transfer, but knows that, from time to time, he did sign documents purely at his father’s request, without any particular understanding of them.

DAWSON J:   If your first point is right, this does not matter, does it?

MR BENNETT:   It does not matter, yes; if the first point is wrong, we submit that point would still succeed, because there is nothing to put him on notice.  It is not like the case where there is a transaction which would put him on notice; even if he read the document and even if he valued the

company, it would not put him on notice of what was in his father’s mind.  So we would submit, for both reasons, this is a case where special leave should be granted.  May it please the Court.

DAWSON J:   Yes, Mr Stevenson.

MR STEVENSON:   If your Honours please.  In my submission, this case came down to a factual inquiry as to what Mr Cannane’s state of mind was on 15 May 1991 and it is, in truth, quite beside the point to say that Mr Cannane could have structured this transaction in a way which would not have given rise to an application of the kind made by the respondents in this case.  As your Honour Justice Toohey ‑ ‑ ‑

DAWSON J:   What were the creditors deprived of?

MR STEVENSON:   What the creditors were deprived of was the wealth that Mr Cannane intended be acquired by the company, Wisbeck, your Honour.

DAWSON J:   It was, by the time he had acquired it, the property of his wife and sons.

MR STEVENSON:   Well, your Honour, the proper question was, on 15 May, what was Mr Cannane’s intention?  His intention was that Wisbeck, not some other vehicle, would be the vehicle which would acquire the CCI shares and which would accumulate the wealth that he expected would be acquired.  His intention was to place those shares and, as he said in his evidence, the wealth that he expected or anticipated that those shares would acquire once the CCI acquisition proceeded, to be placed ‑ ‑ ‑

DAWSON J:   In other words, he expected his wife and sons to acquire wealth which he could have acquired, but did not.

MR STEVENSON:   Well, your Honour, what one must focus on, in my respectful submission, is what his intention was, not as at 15 May; what his intention was ‑ ‑ ‑

DAWSON J:   No, you have got to focus on what were the creditors deprived of.

MR STEVENSON:   Yes, but what was his intention as to what they would be deprived of, not on 15 May ‑ ‑ ‑

DAWSON J:   But it was not of the intention that the creditors be deprived of anything; it was an intention that his wife and sons should acquire wealth.

MR STEVENSON:   Well, your Honour, he was the owner of the shares on 15 May ‑ ‑ ‑

DAWSON J:   And he sold them for their full value.

MR STEVENSON:   Yes, but with the intention that they would acquire value in the future ‑ ‑ ‑

DAWSON J:   To the benefit of his wife and sons, yes.

MR STEVENSON:   Yes, and to the detriment of the creditors he anticipated ‑ ‑ ‑

DAWSON J:   Not to the detriment of the creditors, because if it was not his wealth, they were not deprived of anything.

MR STEVENSON:   But, your Honour, he intended that it would be the wealth of the company, he intended that.

DAWSON J:   Of course he did.

MR STEVENSON:   Yes, and in my submission it comes down to a question of what he intended would happen to the assets which were his on the day and one asks rhetorically, your Honour ‑ ‑ ‑

DAWSON J:   The assets which were his on the day were two, or is it three, shares, valued at one dollar, which he sold for one dollar.

MR STEVENSON:   Well, your Honour, can I seek to persuade your Honours with this analogy; if I own a property which I expect to be rezoned, if I am lobbying council seeking to have a property rezoned, I have no certainty that it will take place, I have no legal right to the rezoning, but I expect it will be rezoned, and if I dispose of the property for its then full value, but in the expectation that it will increase in value, and with the intention that if, as I expect, I will become bankrupt, my creditors when I become bankrupt do not share the benefit of what I intend to be the increase and wealth on that property.  In my submission, in that circumstance, a finding that I am intending to defraud my creditors is open; that is analogous to what has happened here, and it really just does come down to a question of what he was intending to do and one can ask rhetorically, if that was not his intention - why did he do it?  Why did he dispose of his shares just after he had been served with a $6 million summons ‑ ‑ ‑

DAWSON J:   So that his wife and sons would become wealthy rather than the creditors.

MR STEVENSON:   Well, I put it the other way respectfully, and that is so that the creditors he expected to be at his doorstep when he became bankrupt would not share the wealth that he intended that company to acquire.

DAWSON J:   That is right.

MR STEVENSON:   Well, your Honours, that is the way it is put.  It is a narrow point and my submission is that it just comes down to a factual inquiry as to what he intended to do, and he clearly intended, in my respectful submission ‑ ‑ ‑

DAWSON J:   It is a clear point, is it not?

KIRBY J:   What do you say about the second case, that is to say the subsidiary point concerning Andrew?

MR STEVENSON:   Well, your Honour, Andrew can be in no better position than his father, in my respectful submission.  The evidence was, and I put the statement in the extra papers which your Honours would have received yesterday ‑ ‑ ‑

KIRBY J:   It is a very short point.  If the Court is bringing the other matter up, it may as well not divide the two points.

MR STEVENSON:   Well that is so, your Honour, that is so, but if his father had an intent to defraud he, by simply doing his father’s bidding without question, cannot be in any better position than that and cannot, in those circumstances, act in good faith; the converse must apply of course.

KIRBY J:   They are tied up together.

MR STEVENSON:   Yes, as your Honour has said, they stand or fall together.

DAWSON J:   We need not trouble you, Mr Bennett.  There will be a grant of special leave in this case.

MR BENNETT:   If the Court pleases.

AT 10.40 AM THE MATTER WAS CONCLUDED