Leader Computers P/L v Johnson & Ors and Synnex Australia P/L v Johnson & Ors

[2013] SADC 72

DISTRICT COURT OF SOUTH AUSTRALIA

(Civil)

LEADER COMPUTERS P/L v JOHNSON & ORS AND SYNNEX AUSTRALIA P/L v JOHNSON & ORS

[2013] SADC 72

Judgment of Her Honour Judge Davey

24 May 2013

REAL PROPERTY - TORRENS TITLE

The plaintiffs were creditors of companies. The first defendant was the director of the companies and had guaranteed company debts. The companies were placed into administration and the next day the first defendant transferred his share in the family home property to the second defendant (his wife). The plaintiffs sought a declaration pursuant to s 86 of the Law Property Act 1936 that the conveyance be voided.

Law of Property Act 1936 s 86, s 86(2); Conveyancing Act 1919 (NSW). s 37A; Stamp Duties Act 1923 s 70, s 71CB(2), referred to.
Marcolongo v Chen (2011) 242 CLR 546; Glegg v Bromley (1912) 3 KB 474; Story, Commentaries on Equity Jurisprudence, as administered in England and America 13th Ed (1886), Volume 1; Ivanovski v McConnell (as representative of the Estate of Perdacher (dec’d) [2009] NSWSC 1036; Green v Schneller [2002] NSWSC 671; Silvera v Savic & Anor [1999] NSWSC 83; Singh v Kaur Bal (NO 2) [2010] WASC 69; Thompson v Webster (1858) 62 ER 241; Lloyds Bank Ltd v Marcan [1973] 1 WLR 1387; Commissioner of Taxation v Oswal [2012] FCA 1507; Zahos v Michael [2012] NSWSC 1110; Donnelly (Trustee) v Windoval Pty Ltd (Trustee) [2012] FCA 943; Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635; In re: Cleadon Trust Ltd [1939] Ch 286; Westpac Banking Corporation v Bell Group (in liq) (No 3) [2012] WASCA 157, considered.

LEADER COMPUTERS P/L v JOHNSON & ORS AND SYNNEX AUSTRALIA P/L v JOHNSON & ORS
[2013] SADC 72

Introduction

1. The plaintiffs, Synnex Australia Pty Ltd (Synnex) and Leader Computers Pty Ltd as trustee for the Leader Computer Wholesale Trust (Leader Computers) claim judgments for debts incurred by Arcom Computer Pty Ltd (Arcom) which traded as A & R Computers. Both plaintiffs were suppliers of computer components used for the purposes of A & R Computers’ retail computer business. There is no dispute as to the amounts owed.

2. There were two companies operating the business. They are now insolvent. The first defendant, Robert William Johnson (Mr Johnson) was sole director of the companies and gave personal guarantees to the plaintiffs in respect of the debts owed by Arcom to the plaintiffs. On 19 October 2010 an administrator was appointed for both companies.

3. Mr and Mrs Johnson (the first and second defendants) are the registered proprietors, as joint tenants, of property at 45 Wattle Avenue Hove, South Australia (the Hove property). On 20 October 2010 a Memorandum of Transfer in relation to the Hove property was lodged for registration at the Lands Titles Office (LTO). The transferor, Mr Johnson, transferred to the transferee (Mrs Johnson) the transferor’s one undivided second part of the Hove property. The plaintiffs seek a declaration pursuant to s 86 of the Law of Property Act 1936 (LPA) that the memorandum of transfer is avoided because the conveyance of the property was made with an intent to defraud creditors.

4. The plaintiffs commenced separate proceedings.[1] Because of the similarities with respect to the claims and arguments as to the application of s 86 of the LPA the parties agreed that the trial of the claims be heard together.

   [1]    The claim by Synnex is 534 of 2011; the claim by Leader Computers is 2267 of 2010.

5. For the reasons expressed hereafter I am of the view that the declaration sought by the plaintiffs should be made.

   General factual circumstances

6. Arcom Computer Pty Ltd (Arcom) and A & R Computer Services Pty Ltd (A & R Computer Services) were a retail business selling computers and computer components. Mr Johnson was the sole director and secretary of both companies. Mr Johnson and his wife, Mrs Fay Johnson, were the joint holders of the issued shares of both companies.[2] The business had been operating for many years. By 2010, the business had a number of retail outlets in metropolitan Adelaide; some premises were owned by related entities, some were leased. The head office of the business was located at Keswick.

   [2]    The defendants admitted the shareholding of the companies. See also Exhibit P2-20. There emerged some uncertainty whether the shares were beneficially held. If the shares were not held by Mr and Mrs Johnson they were held by the Johnson Family Trust (T542). In the circumstances it was unnecessary to finally determine this issue.

7. By 2009, the business was experiencing some financial difficulties. In late 2009/early 2010, a decision was made to close the retail outlet located at Modbury, sell that property[3] and open new, leased premises at Gepps Cross. The business also had a retail outlet at Port Adelaide and the lease on that premises was coming to an end. It was decided to close that outlet and consideration was given to opening a new shop at Mt Barker. Mr and Mrs Johnson were both involved in the discussions and decisions about those matters.

   [3]    Owned by the Johnson Family Trust.

8. During 2010, the property at Modbury was sold and eventually the proceeds of the sale were paid into the bank account of Arcom. Prior to the sale a mortgage (to secure borrowings advanced to the business) had been held by the National Australia Bank (NAB) over that property together with a mortgage over the Hove property. [4]

   [4]    Certificate of Title Register Book Volume 5256 Folio 194.

9. The plaintiffs are both creditors of Arcom. They supplied components to Arcom and both had been dealing with the company for a number of years. Both businesses had extended credit to Arcom and security was given to each of the plaintiffs by personal guarantees from Mr Johnson.

10. On 9 September 2010, Mr and Mrs Johnson met with their accountant, Mr Edwards, and also their solicitor, Mr Frank Camatta, who had previously acted for the Johnsons and the business. The meeting included discussions about the financial affairs of Arcom and the business. A claim of legal professional privilege is made over most of the contents of that meeting.

11. On 15 September 2010, Ray White Adelaide prepared an appraisal of the value of the Hove property.[5] The property was valued at about $1-1.1 million and it was unencumbered. At that time, Mr Johnson’s share in the Hove property was his only asset; he was a potential beneficiary under a family trust and also a beneficiary of a superannuation trust but there was no other asset accessible to creditors other than his share in the Hove property.

    [5]    Exhibit P1-19.

12. On 19 October 2010, Mr and Mrs Johnson met with Mr Edwards, then Mr Camatta and latterly, Mr Paul Jorgensen of Kennedy & Co, Chartered Accountants. Mr and Mrs Johnson decided to place the companies into administration and during the evening that occurred. Mr Jorgenson was appointed administrator; a decision was made to close the business premises and locks were changed. Staff were advised not to come to work.

13. On the morning of 20 October 2010, Mr and Mrs Johnson attended at the head office of Arcom at Keswick where they assisted the administrator with access to some documentation from the business. They also spoke to several employees. They then left. Later that day Mr and Mrs Johnson went to the office of Costi & Co, solicitors, for the purposes of giving instructions to transfer Mr Johnson’s interest in the Hove property to Mrs Johnson.

14. The consideration for the transfer was expressed to be ‘$550,000 paid by the Transferee to the Transferor’ and the transferor purported to acknowledge receipt of the consideration. ‘The Transferor acknowledging receipt of the above consideration transfers to the Transferee...’. [6] No contract of sale was prepared. No settlement statement was prepared. No consideration by way of cash, cheque or bank cheque was paid nor other transfer of funds occurred. No other documentation or deed was prepared with respect to the source of the consideration. An exemption from stamp duty was signed. Later that day, Mr and Mrs Johnson returned to Costi & Co and executed the transfer. Shortly after 4 pm that day a memorandum of transfer was lodged at the Lands Title Office by Costi & Co. Registration of the transfer has not yet been effected.

    [6]    Exhibit P1-4.

15. On 22 November 2010, Arcom and A & R Computer Services went into liquidation. Mr Johnson was declared bankrupt in November 2011. The plaintiffs were listed as unsecured creditors in his bankruptcy.[7]

    [7]    T466; Exhibit P1-18.

16. The plaintiffs called evidence about the circumstances of the indebtedness and guarantees given to them. They rely on inferences to be drawn from the circumstances to prove that Mr Johnson acted with intent to defraud creditors. They also submit that in truth there was no consideration for the alienation of Mr Johnson’s interest and that Mrs Johnson could not rely on the proviso in s 86(2) of the LPA.

17. The defendants argue that the transfer of Mr Johnson’s interest was for consideration and that there was no intent to defraud creditors. They say that Mrs Johnson had paid out monies from her superannuation account[8] to Arcom or to the creditors of Arcom at the request of Mr Johnson.[9] The defendants allege that Mr Johnson was indebted to Mrs Johnson either as a loan or because there was an obligation upon him to repay Mrs Johnson in respect of the monies advanced. Much evidence at the trial concerned those payments, how they came about, how they were treated in the various records and whether there was some indebtedness or obligation by Mr Johnson to pay Mrs Johnson in the circumstances. The defendants’ case is that the repayment of indebtedness was the consideration for the transfer of Mr Johnson’s interest in the Hove property. It was said that there was no intent to defraud creditors at the time of the transfer; on the contrary he was in fact paying one of his creditors, his wife. Mr Johnson said that the timing of the conveyance (the day after the appointment of the administrator) was coincidental with that event.

    Section 86 of the Law of Property Act 1936 (LPA); its scope and meaning: Marcolongo v Chen[10]

    [8]    A & R Computer Services Pty Ltd Superannuation Fund. Mr and Mrs Johnson were the two beneficiaries of the fund. T385.

    [9]    Third Defence in 534 of 2011, [21] (Synnex Australia action) and Third Defence in 2267 of 2010, [12] (Leader Computers action). The initial claim by the defendants was that Mrs Johnson had paid sums totalling $946,099.51 from her superannuation entitlement.

    [10] (2011) 242 CLR 546.

18. The plaintiffs rely upon s 86 of the LPA and seek to avoid the transfer between Mr and Mrs Johnson. Section 86 of the LPA provides:

    86—Voluntary conveyances to defraud creditors

    (1)    Every conveyance of property made with intent to defraud creditors shall be voidable at the instance of the party prejudiced thereby.

    (2)    This section shall not extend to any estate or interest in property conveyed for valuable consideration and in good faith or upon good consideration and in good faith to any person not having, at the time of the conveyance, notice of the intent to defraud creditors.

19. In Marcolongo v Chen the High Court considered the application of similar New South Wales legislation, s 37A of the Conveyancing Act 1919 (NSW).

20. Marcolongo concerned the conveyance of real property owned by Lym International Pty Ltd (Lym) to Mr Chen. Mr Chen was a financial adviser to the company and also to the director, Ms Yang. Mr Chen was also a creditor of Lym. The appellant, Mrs Marcolongo, claimed money was owed to her by Lym in respect of a claim by her for damages for the removal of support to her premises during another building development by Lym. The subject property remained the only asset of substance held by Lym in Australia against which Mrs Marcolongo could claim damages. Mrs Marcolongo had made a number of attempts to obtain security for the claimed damages but prior to finalisation of the proceedings, the property was transferred to Mr Chen. Ms Yang had been advised by Mr Chen to transfer the property to him as payment for substantial debts owed to him by Lym and related interests and because of the claim by Mrs Marcolongo against Lym. Ms Yang was advised by Mr Chen to quickly transfer the property in order to avoid the loss of monies owed to Mrs Marcolongo.

21. A contract for sale of the property was prepared and it was expressed that the purchase price of $15 million comprised $7.625 million paid to the mortgagee of the land and the balance (of about $7.4 million) to be applied to the debt owed to Mr Chen by Lym or related entities. No settlement statement was prepared. There was no accounting or statement with respect to the application of the balance of the sale proceeds to debts due to Mr Chen by Lym or related entities. No statement was provided as to which debts owed by the various interests were satisfied by the proceeds of the sale. Monies from Lym’s bank account was used to pay part of the outgoing balance to the mortgagee and a substantial sum for stamp duty.

22. The High Court upheld the finding that the conveyance of the subject property was made with intent to defraud creditors. The court also made a number of observations as to the proper application of s 37A of the Conveyancing Act 1919 (NSW).

23. The court considered the legislative history of the provision (very similar to s 86 of the LPA) dating from 1571 (UK enactment) which is referred to as the ‘Elizabethan statute’. The court referred, with approval, to the description of the operation of the Elizabethan statute in 1912 by Parker J in Glegg v Bromley:[11]

    Now the scheme of that statute is this: By it all conveyances and assignments made with intent to hinder and delay creditors are rendered void against all creditors hindered or delayed by their operation. There is, however, a proviso for the protection of a purchaser for good consideration without notice of the illegal intention. In the authorities which deal with the statute it is not always clear whether the judges are dealing with the operative part of the Act or with the proviso. The illegal intent under the operative part is a question of fact for the jury or the judge sitting as a jury. On the one hand the want of consideration for the conveyance or assignment is a material fact in considering whether there was any illegal intent, but it is not conclusive that there existed any such intent. In the same way consideration was by no means conclusive that there was no illegal intent. When, however, one comes to deal with the proviso, it is quite clear that any person relying on the proviso must prove both good consideration and the fact that he had no notice of the illegal intent.

    [11] (1912) 3 KB 474 at 492; Marcolongo v Chen at [12].

24. The court held that the provision and its modern enactments should receive a liberal construction in effecting a purpose of suppressing fraud[12] and that the term ‘defraud’ in s 37A included the more expansive ‘delay, hinder or defraud’ used in the Elizabethan statute.[13] The court also referred to an object of the Elizabethan statute[14] as the protection of creditors ‘from those frauds which are frequently practised by debtors under the pretence of discharging a moral obligation [to] wives, children and other relations’.[15]

    [12]   Marcolongo v Chen at [20].

    [13] Ibid at [19].

    [14] Ibid at [22].

    [15]   Story, Commentaries on Equity Jurisprudence, as administered in England and America 13th Ed (1886), Volume 1, [353]; Marcolongo v Chen at [22]. See also other examples of the application of similar provisions: Silvera v Savic & Anor [1999] NSWSC 83; Green v Schneller [2002] NSWSC 671; Ivanovski v McConnell (as representative of the Estate of Perdacher (dec'd) [2009] NSWSC 1036; Singh v Kaur Bal(NO 2) [2010] WASC 69.

25. The High Court confirmed that a court is to decide whether it was the intention of the settlor, in making the settlement (emphasis altered), to defeat, hinder or delay his creditors.[16] The court also observed that it was not necessary, in order to set aside a voluntary deed, that the settlor should actually be insolvent.

    [16]   Thompson v Webster (1858) 62 ER 241 at 242.

26. Importantly, the High Court discussed the requisite intention in order to make out the relief sought. The court said:

    ...that it was unnecessary to show that the debtor wanted debtors to suffer a loss or that the debtor had a purpose of causing loss: it was necessary to show the existence of an intention to hinder, delay or defeat creditors and in that sense to show that accordingly the debtor had acted dishonestly.[17]

    [17]   Marcolongo v Chen at [32].

27. The court also referred with approval to the observations by Russell LJ when considering a similar provision:

    I am not sure what is meant by a perfectly innocent defeat, hindrance or delay. It must be remembered that in every case under this section the debtor has done something which in law he has power and is entitled to do: otherwise it would never reach the section. If he disposes of an asset which would be available to his creditors with the intention of prejudicing them by putting it, or its worth, beyond their reach, he is in the ordinary case acting in a fashion not honest in the context of the relationship of debtor and creditor. And in cases of voluntary disposition that intention may be inferred … The intention of Mr Marcan is perfectly plain: the lease to his wife was designed expressly to deprive the bank of the ability to obtain the vacant possession to which the bank plainly attributed value, and to diminish to that extent the strength of the bank’s position as creditor. To take that action at that juncture, in my judgment, was, in the context of relationship of debtor and creditor, less than honest: it was sharp practice, and not the less so because he was advised that he had power to grant the lease. It was, in my judgment, a transaction made with intent to defraud the bank within section 172, and would have been within the [Elizabethan Statute] (emphasis added). [18]

    [18]   Lloyds Bank Ltd v Marcan [1973] 1 WLR 1387 at 1390-1391; Marcolongo v Chen at [32].

28. The provision (in its various forms) is not confined to voluntary (without consideration) dispositions of property. Of course, it may be easier to infer dishonest intention where there is no consideration.[19]

    [19]   Other authorities where Marcolongo v Chen has been considered: Commissioner of Taxation v Oswal [2012] FCA 1507 at [22]-[25]; Zahos v Michael [2012] NSWSC 1110 at [56]-[57]; Donnelly (Trustee) v Windoval Pty Ltd (Trustee) [2012] FCA 943 at [87]-[89].

29. Mr and Mrs Johnson say that there was consideration, there was no dishonest intent and that Mrs Johnson comes within the proviso in s 86(2) of the LPA as she received the conveyance for consideration, in good faith and without notice of intent to defraud creditors. The defendants say that the consideration is monies paid from Mrs Johnston’s interest in the superannuation fund to Arcom or it’s creditors at the request of Mr Johnson. The defendants say that Mr Johnson agreed to transfer his interest in the Hove property to his wife because he had an obligation to repay his wife.

    Evidence called by the Plaintiffs

30. Mr David Scrymgour, financial controller for Leader Computers, said that the business had supplied Arcom for many years with computer and IT components.[20] He briefly described the credit history between the entities and that there had been previous problems with payments of the accounts. A guarantee was entered into in 2007 to secure the line of credit given to Arcom. At one stage the credit limit was $100,000 and it later increased to $300,000.[21] He said that Arcom generally used most of the available credit and, on occasions, exceeded that limit. In early 2008, Leader Computers conducted a LTO search of the Hove property to ensure that there was equity in the property available to satisfy the guarantee.

    [20]   T66.

    [21]   T68, 69.

1. A bundle of nine emails dated between 19 August 2008 and 25 September 2009 were tendered.[22] Most of that correspondence is between officers of Leader Computers and the defendant’s daughter, Ms Penny Johnson, who worked within Arcom and generally handled the accounts. At least two of the documents are emails from Mrs Johnson accompanying payments and demonstrate the nature of her involvement with the business.

   [22]   Exhibit P1-2.

2. Ms Pamela Gauci was the credit controller at Leader Computers[23] and she said that she mainly dealt with Ms Penny Johnson but she would deal with Mrs Johnson from time to time with respect to outstanding accounts and she last spoke to Mrs Johnson about an outstanding account on 8 July 2010.[24]

   [23]   T84.

   [24]   T91.

3. Mr Adam Lovell previously worked for A & R Computer Services as a warehouse assistant. He was employed in November 1999 and Mrs Johnson interviewed him.[25] His manager was Mr Leigh Johnson, the son of the defendants.[26] He said that during the last year or so of the business Mrs Johnson would be in the business for two or three days a week but they weren’t necessarily full days.[27] He also gave evidence of reduced ordering of products in the week or two prior to the administration of the companies.

   [25]   T96.

   [26]   T98.

   [27]   T97, 99, 105.

4. Mr Paul Jorgenson was appointed the administrator and later, the liquidator of the companies. He gave evidence of the financial records of the companies. He said that according to those records there was one loan account in respect of the Johnsons; a joint loan account for Fay and Robert Johnson. [28] He described various entries. He could not ascertain from the business records what funds came from Mrs or Mr Johnson’s entitlements in the superannuation fund. He agreed that the transactions alleged by Mr and Mrs Johnson should have been (if they related to the business) properly recorded in the company’s records and they were not. He acknowledged that staff who created those records may not have been aware of the appropriate accounting standards.

   [28]   Exhibit P2-9.

5. Mr Jorgensen also gave evidence of the events of 19 October 2010 when he was appointed administrator. He did not recall any discussion about restructuring the business or ongoing trading.[29] He recalled that Mr Johnson was at the ‘end of his rope’; he had no desire to continue trading at that stage.[30]

   [29]   T113-117, 119-123, 151-156, 159.

   [30]   T161, 164, 165.

6. Mr Roger Wang,[31] the credit controller of Synnex gave evidence of the credit arrangements between Arcom and Synnex. He also described the credit checks about Mr Johnson including a LTO search in 2009 and that when extending the credit trading account, he had relied upon Mr Johnson’s share in the Hove property.

   [31]   Much of his evidence-in-chief was by affidavit, Exhibit P2-10.

7. Mr Wang also said that in mid September 2010, Arcom requested an increase in the credit limit and that was granted. By 30 September 2010 the balance owing for Arcom to Synnex had reached $99,908.49. The final balance owing varied because of some credit items and stock returned.

8. Mr Con Costi is a legal practitioner, the principal of the legal firm Costi & Co. He arranged for the conveyance of the Hove property. Mr and Mrs Johnson were not previously known to him and he could not say how they came to be referred to him.

9. Mr Costi’s only dealings with Mr and Mrs Johnson were on 20 October 2010. Mr Costi agreed that since the transfer of the interest was between spouses, there was no need to specify consideration to secure an exemption from stamp duty. He agreed that the transfer could have been made for ‘love and affection’. He could not recall why the transfer was done in the way it was done nor why the consideration was particularly specified; he could not recall his thought processes.[32] Mr Costi’s recollection of events was incomplete.

   [32]   T194-195.

10. Mr Costi was asked about the lack of settlement statement (none was prepared). He agreed that was unusual if the parties were at arm’s length but if the parties were not, he said he may or may not prepare a settlement statement. Mr Costi agreed that he had no record of any antecedent transaction other than the correspondence back to the client after the transfer.[33] There was no contract or record of the payment of consideration other than the original bank records of the superannuation trust.

    [33]   T205.

11. Mr Costi said he could not tell from his file whether or not he attended to the matter in hurried circumstances. He agreed that an arm’s length transaction normally takes longer (about a month) but suggested that in these circumstances there was no need for the transfer to take that time.[34]

    [34]   T222.

    The case for the Defendants

12. The defendants do not dispute the quantum of the claims by the plaintiffs nor that Mr Johnson signed personal guarantees in favour of each of the plaintiffs although he denied knowledge of equitable charge over real estate held by him.

13. With respect to the declarations sought pursuant to s 86 of the LPA the defendants submit that the conveyance was made for consideration and specifically allege the following:[35]

    [35]   Defence [12] No 2267 of 2010 (Leader Computers).

    Defence [21] No 534 of 2011 (Synnex Australia).

    12.1From time to time during the period from 28 July 2009 to 11 May 2010 the second defendant at the specific request of the first defendant on each occasion, paid out monies from her superannuation account with the A & R Computer Services Pty Ltd ACN 059 145 863 Superannuation Fund to Arcom or to creditors of Arcom totalling $946,099.51:

    12.1.1$200,000.00 was paid on 28 July 2009 to Arcom;

    12.1.2$200,000.00 was paid on 27 August 2009 to Arcom;

    12.1.3$40,000.00 was paid on 12 November 2009 to a creditor of Arcom namely Them Advertising;

    12.1.4$40,000.00 was paid on 12 November 2009 to Arcom;

    12.1.5$200,000.00 was paid on 2 December 2009 to Arcom;

    12.1.6$50,000.00 was paid on 25 February 2010 to Arcom;

    12.1.7$22,427.39 was paid on 2 March 2010 to a creditor of Arcom namely APCA;

    12.1.8$12,690.70 was paid on 2 March 2010 to a creditor of Arcom namely Audion;

    12.1.9$66,442.46 was paid on 2 March 2010 to Arcom;

    12.1.10$50,000.00 was paid on 11 May 2010 to Arcom;

    12.1.11$19,651.50 was paid on 11 May 2010 to a creditor of Arcom namely Blue Chip;

    12.1.12$30,000.00 was paid on 11 May 2010 to a creditor of Arcom namely Ingram Micro;

    12.1.13$14,887.52 was paid on 11 May 2010 to a creditor of Arcom namely Altech.

14. The defendants say that the payments were made as a result of oral requests made by Mr Johnson, that Mr and Mrs Johnson can no longer recall the words used but the words were to the effect of a request to ‘put money into Arcom or pay creditor or creditors of Arcom for a particular sum’.

15. Mr and Mrs Johnson were the beneficiaries of the A & R Computer Services Pty Ltd Superannuation Fund. Contributions came from pre-existing superannuation and contributions from A & R Computers. Kauritire Pty Ltd was a trustee of the fund. Mrs Fay Johnson was a director of Kauritire Pty Ltd.[36]

    [36]   T385-387.

16. The defendants say that the monies paid at the request of Mr Johnson were from part of Mrs Johnson’s entitlement in the superannuation fund and were a loan from Mrs Johnson to him, payable on demand, or alternatively the monies paid at the request of Mr Johnson gave rise to a contractual or restitutionary obligation on the part of Mr Johnson to reimburse Mrs Johnson.

17. The defendants’ case is that the conveyance of Mr Johnson’s interest in the Hove Property was for valuable consideration being in discharge of a loan or alternatively pursuant to an obligation to reimburse the second defendant and was made in good faith. The defendants also submit that Mrs Johnson was a person who did not have, at the time of the conveyance, notice of any intent to defraud creditors.

    The evidence of Mr Johnson

18. Central to the issue of the alleged contractual obligation or obligation to repay Mrs Johnson, as well as to the issue of Mr Johnson’s credibility generally, is his evidence as to how monies were advanced, that the monies were from Mrs Johnson and that he had a personal liability to Mrs Johnson for those monies.

19. Mr Johnson gave evidence as to the circumstances of the payments and his knowledge and intentions on 20 October 2010. He was cross-examined at length. I will refer to his evidence-in-chief in some detail although I will not summarise the cross-examination. The points made by the plaintiffs in respect of his evidence can be dealt with in a less expansive way.

20. Mr Johnson said that at Christmas 2009 the company trading was ‘heading towards’ a small loss. He said that he spoke to his son (who worked in the business) and that they decided to close and sell the Modbury store and open a store at Gepps Cross. He said that he needed money to open a new store; there would be several hundred thousand dollars of expenses and that is when he approached Fay (Mrs Johnson) and asked to borrow ‘some more money out of her super fund’. Mr Johnson said that his wife was extremely cautious about doing that, implied that she didn’t really wish to do this and he said that he told her that he would transfer half of the Hove property as security for the money. He said that this arrangement/agreement occurred in February 2010.[37]

    [37]   T309-311.

21. At February 2010, both Mr and Mrs Johnson had credit balances in the superannuation fund but at that time Mr Johnson believed that he could not access funds held on his account because he had not turned 65. His date of birth is 20 March 1945.

22. Mr Johnson said that the transfer of his share of the Hove property to Mrs Johnson was to have occurred earlier in 2010 but that process was impeded because Mr and Mrs Johnson had used the Hove property to secure a loan in respect of the Modbury property. He described the Hove property as being ‘collateral’ for the loan for the Modbury property and said that in order to transfer his share of the Hove property to Mrs Johnson, the Modbury property had to be sold. He said that the Modbury property went on the market in March 2010 but there was no contract of sale until July 2010 and the settlement on that property did not occur until 23 September 2010. He said that he was chasing the bank for the ‘deed’ (to the Hove property) and that he had to go and pick it up from the bank on 19 October 2010.[38] He explained that the delay with the transfer occurred because of the inaccessibility of the duplicate Certificate of Title to the Hove property. Far from the conveyance on 19 October being to avoid creditors, he said that the timing was a coincidence.[39]

    [38]   T312.

    [39]   T368.

23. Mr Johnson referred to the payments from the A & R Computers Pty Ltd Superannuation Fund.[40] There was no dispute between the parties that the relevant payments were made out of the bank account of the superannuation fund. There was a dispute as to the source of the funds i.e. whether or not the payments came from Mrs Johnson’s entitlement within the superannuation fund and whether they were paid to Mr Johnson as opposed to the company.

    [40]   Defence [12] No 2267 of 2010 (Leader Computers).

    Defence [21] No 534 of 2011 (Synnex Australia).

24. Mr Johnson said the payments came about because he requested that his wife pay the cheques to the company or to a particular creditor and that he understood the payments to be a loan from his wife to him and he believed he was borrowing the money from his wife.[41] Mr Johnson agreed that none of the payments were made to him personally but rather to the company or to creditors of the company. He said that he considered the monies paid were a loan by his wife to himself because:

    Well I asked Fay to take the money out of her super fund and pay it either into the business, or a bank account, or directly to a creditor. In the past where Fay made payments on her Visa or to creditors we have and that, I had always paid her back out of the business. So any occurrence of my asking her to use any of her funds, it’s always been my intention to pay it back.[42]

    [41]   T318. There was a dispute about the admissibility of evidence of the state of mind of Mr Johnson about these payments from the superannuation fund; the plaintiffs argued that the evidence led extended beyond the pleaded case for the defendants and that pre-trial interlocutory proceedings had expressly concerned the defendants case in this regard (see T318-327). I indicated that I would receive the evidence subject to argument and that I would rule upon the matter in light of the totality of the evidence. Notwithstanding the objections of the plaintiffs, I admit this evidence.

    [42]   T328.

25. He acknowledged that those previous repayments had been made out of the business by payments from the business bank accounts.[43]

    [43]   T328, 333.

26. Mr Johnson referred to the loan account record of Arcom:

    The loan account was kept as a record of moneys that had been lent to me to put into the business, or moneys that I’d put in, or moneys that had been paid back, so we could keep track of money that I owed to Fay for her super or money that had been put in from the Johnson family trust.[44]

    [44]   T334.

27. Mr Johnson was asked whether the loan account related to any of the payments listed in the defences; he said that he kept track of those payments as to what was outstanding and the payment back to Fay was the transfer of the property.[45] He clarified the matter by saying that there were records in the loan account of the payments but that there were no repayments recorded in the loan account.[46] He never explained how he ‘kept track of these payments’.

    [45]   T334.

    [46]   T335.

28. Mr Johnson confirmed that the discussion about the transfer of his share of the Hove property occurred in February 2010;[47] early February.[48] He agreed that the first five payments set out in the Defence had already been ‘made by Fay’ prior to the discussion about the transfer of his interest in the Hove property.

    [47]   T335.

    [48]   T336.

29. With respect to the first payment: 28 July 2009; Mr Johnson said he verbally asked Fay if he could borrow or she could lend him $200,000. He acknowledged that the cheque was made out to the company and said that payment occurred at his request. He intended that Arcom should have the funds.[49] Mr Johnson said that all of the payments were made in similar circumstances. He said that on each occasion it was a verbal request.

    [49]   T339.

30. Mr Johnson said that in February 2010 there were discussions about the value of the Hove property and that ‘they’ had valuations done on the property by Ray White and Brock (Real Estate). He said he formed the view that the Hove property was worth between $1-1.1 million; his share was $550,000. He said that his debt to his wife would have been in excess of that so it was agreed that his share would help compensate her. [50] He said that one valuation was a hard copy (a valuation/appraisal dated February 2010 was never produced) and the other was sent by email. He was asked when he and his wife agreed about the transfer and the price and that the price would come out of the monies already owed to her and he said that occurred in February/early March.[51]

    [50]   T344.

    [51]   T345.

31. Mr Johnson described the trading of the business after the new store opened at Gepps Cross. He said the business planned to open a store at Mount Barker and that trading was ‘not too bad until the end of the financial year’. He said that by September/October 2010 the business ‘died’. He acknowledged that between July 2009 and May 2010 the business was struggling to pay its creditors, there was insufficient cash flow, not enough turnover and not enough margin on the turnover. He said the business was cutting back costs wherever it could.[52]

    [52]   T347-349.

32. Mr Johnson said that the duplicate Certificate of Title was released on 19 October 2010. He said that he received a phone call from the bank manager at Wingfield to say that ‘the deeds’ (his term for the duplicate Certificate of Title) were available and ‘did I want him to post them out and I said no, I’ll come down and get them. I’d been waiting that long for them’.[53] He said he collected the duplicate title in the late morning of 19 October 2010. Mr Johnson said he had already arranged a 3 pm meeting with Mr Scott Edwards from Freer Parker and that he had arranged for Mr Frank Camatta to be there. He said that the meeting had been arranged before he had been told about the availability of the title and he said that the meeting was to discuss ‘how the company was going’.[54] He said that during the meeting he made a decision to put the company into administration and that occurred in the evening on 19 October 2010. Mr Johnson said he took the ‘deed’ (the duplicate Certificate of Title to the Hove property) to that meeting.[55]

    [53]   T351, 352.

    [54]   T352.

    [55]   T354.

33. With respect to the transfer Mr Johnson said that an appointment was made with Mr Con Costi, a solicitor who he had not previously dealt with. When I asked if there was any particular hurry about doing the transfer he said:

    The reason we wanted it done was I’d been waiting for it for so long. I mean, in my mind I’d already, the house you know should have gone, should have been transferred across to Fay.[56]

    [56]   T355.

34. He confirmed that he had been married to Fay Johnson since 1966 and he was not planning a separation from his wife. He agreed he was very busy at that time with the issue of the administration of the company and he said that the transfer happened then because he finally got the ‘deed’ into his hands.[57]

    [57]   T355, 356.

35. Mr Johnson said that the consideration described in the transfer document was drafted by Mr Costi on his instructions.[58] Mr Johnson said that he provided Mr Costi with copies of the superannuation fund bank statement and told Mr Costi how Fay (Mrs Johnson) had lent him the money. He said there was no discussion about the money having been paid to Arcom or on Arcom’s behalf.[59]

    [58]   T356, 357; Exhibit P2 (11).

    [59]   T358.

36. Mr Johnson acknowledged the guarantees which he gave to Synnex. He said he could not recall whether he had read the guarantee but that every creditor that the business traded with had to have a director’s guarantee and so it was ‘pretty much a standard document’.[60] He said that he could not recall whether or not he saw the clause that purported to create a charge over his real property and he wasn’t conscious of that prior to the proceedings.[61] He was also referred to the guarantee in favour of Leader Computers.[62] He agreed that he signed the document but he could not recall when or the circumstances of signing it. He could not recall any clause in relation to a charge over his land for that guarantee. He agreed that at the time the guarantees were signed he owned real property.[63] With respect to both guarantees, Mr Johnson said that as at 20 October 2010 no demand had been made against him.

    [60]   T360, Exhibit P2-1.

    [61]   T361, 362.

    [62]   Exhibit P1-3.

    [63]   T364.

37. Mr Johnson said that at the time the companies were placed into administration he was hopeful that two of the stores would continue trading, that there could be a ‘fire sale’ and that the workshop (conducting repairs) was also valuable. He said that at that time he initially continued to hope that the company would be able to continue to trade; that was, ‘in the first couple of weeks or so’. He also said that at the time his main concern was that he had all his family working at the business plus 40 employees. He said that he believed he had about $1 million worth of trade creditors as at 19 October 2010.[64]

    [64]   T365, 366.

38. Mr Johnson was asked whether there was any connection between placing the company into administration and the transfer the following day. He said:

    ...it is more a case of coincidence because the fact that I’d only just got the deed – if I had had the deed a week earlier, two weeks earlier, couple of days after settlement went through then the transfer would have gone through then.[65]

    [65]   T368.

1. He said that he went ahead and did the transfer, he owed the debt to Fay, she had already paid for the property ‘way back in February’ and it was important that he did the transfer the minute he got the deed.

2. In response to questions from me, Mr Johnson said that he did the transfer to secure the money that she had lent him. He said that there were joint not separate bank accounts in the marriage.[66]

   [66]   T368.

3. Mr Johnson was cross-examined at length by both plaintiffs including about the only company record which apparently referred to the payments said to be received from Mrs Johnson’s share of the superannuation trust, Exhibit P2-9. This document was referred to by Mr Johnson as ‘the loan account’ but he said it was ‘basically just a journal’.[67] Cross-examination showed that document and the payments that the defendants alleged in the defences were made from Mrs Johnson’s entitlement from the superannuation fund do not match. There are discrepancies as to the descriptions and the entries made.

   [67]   T407.

   The evidence of Mrs Johnson

4. Mrs Johnson gave evidence as to her role within the business.[68] She said she became known as the General Manager but her principle areas of responsibility were hiring staff, staffing issues and assisting with the accounts when necessary. She originally worked full-time in the business but said that about seven years before the business went into administration she started to reduce her role to working one, possibly two days a week. She admitted regular oversight of the accounts, that her husband shared his plans for the business with her and that she had frequent discussions with him about the business.

   [68]   T751-754.

5. She was asked whether there were occasions in the financial year from 2008 to 2009 when she put funds into the company and she answered ‘Yes I actually lent them to my husband’.[69] Mrs Johnson said she drew the cheques whereby money was paid from the superannuation fund into the company and she said that ‘My husband would ask me if he could borrow money from my superannuation’.[70] She said she could not recall the exact words used but she said that her husband ‘Asked if he could borrow money’.[71] She said that her husband had entitlements in the superannuation fund but he was unable to draw on it in 2009 because he was not old enough. She said she always believed that the money paid out would come back and never doubted that it would. Mrs Johnson identified the various sums drawn from the Australian Central Credit Union[72] and identified the various cheques drawn from the superannuation fund bank account.

   [69]   T756, ll36-38.

   [70]   T759.

   [71]   T759.

   [72]   Contained with Exhibit P1-13.

6. In answer to questions about the payments, Mrs Johnson said she saw the business as her husband’s business, that she never saw it as her business, it was a business he had started when she was working elsewhere and that she always felt ‘As though I was lending it to Bob’.[73]

   [73]   T765.

7. Mrs Johnson said that ‘We always talked about, would I get the money back. The answer was always yes, and I believed that I would’.[74] She said that in late 2009 there were no specific arrangements for repayment but after Christmas there were discussions about a new shop[75] and she became uncomfortable and did not want to put more money in. She said ‘That’s when we started discussing the house’. At that stage she said she thought there was just one conversation between herself and her husband and she thought it was probably a couple of weeks after Christmas. She said that her husband told her that he thought there may not be enough cash to pay her back and that he would then transfer the house into her name and pay her that way.[76] She said that she agreed that it would be sufficient repayment to transfer (his interest in) the house into her name.[77] She also said that the transfer of the house did not occur straight away because the house at Hove was mortgaged to secured borrowings on the Modbury property.[78]

   [74]   T775.

   [75]   T778, 780.

   [76]   T782.

   [77]   T783.

   [78]   Sometimes referred to as the Holden Hill property.

8. Later Mrs Johnson said she did not have a specific recollection of each of the conversations where the issue of the house was raised but she did recall that it was discussed on more than one occasion, over a few weeks early in 2010.[79] Mrs Johnson gave evidence to similar effect as Mr Johnson; that the plan was that once the Modbury property was sold it was intended to transfer his interest but settlement of the Modbury property did not occur until September 2010. She said that she was told about the delay in obtaining the duplicate Certificate of Title and settlement arrangements by her husband and that she could also follow what was happening by reference to the accounts at the business.[80]

   [79]   T787, 788.

   [80]   T790.

9. Mrs Johnson was asked specific questions about individual cheques drawn on the superannuation fund bank account including a group of cheques drawn on 11 May 2010 i.e. after her husband had turned 65. She said she did not turn her mind to whose share of the fund those payments would come from.[81]

   [81]   T801.

10. Mrs Johnson said that she thought the company was ‘her husband’s company’ and that he was the sole owner of the business; the suggestion being she did not really have a direct interest in the business.[82] She said she never saw it as her business.[83] I think that Mrs Johnson was trying to distance herself from involvement in the operation of the companies and the business, however that evidence was inconsistent with other evidence given by her and others. She used the term ‘we’ with respect to the business,[84] she attended all of the meetings in relation to the future of the company, was aware of the trust arrangements with respect to the business and she assumed she was a beneficiary.[85] At another point in the evidence she seemed to contradict herself when she said ‘We thought about it as our business because we worked together...we are a couple’.[86]

    [82]   T819, 820.

    [83]   T765.

    [84]   Eg. T802 1136.

    [85]   T821, 822.

    [86]   T826.

11. Mrs Johnson said that she wasn’t sure if she drew a salary whilst she was working in the business, that was dealt with by the accountants, but she operated a joint bank account with her husband, their own savings account and the source of the income for that account was the business. That account was used to pay joint expenses, household bills and the like.[87] She also agreed that she went to regular meetings with the accountant (generally every six months) to review the financial affairs of the business.

    [87]   T757.

12. Despite Mrs Johnson’s suggestion that she was removed from the business, that it was operated by her husband and she was at a distance, responding to his requests for money which she considered that he personally owed her, other evidence points the other way. Mrs Johnson was intimately involved in the business and significant decisions about the business. Her background suggests that she had knowledge of the business affairs.[88] She had previously worked in the finance industry. She also admitted that she was aware that Arcom was losing money. She was asked:

    QWere you keeping an eye on what was going on.

    AI was keeping an eye, two eyes, on the daily business and the payables but as far as the whole....

    QWhat’s the payables.

    AThe payables are the creditors; owing to the creditors.

    QWhat, on a daily basis were you keeping an eye on that.

    AYes.[89]

    [88]   T844.

    [89]   T847.

13. Mrs Johnson said that her husband told her that Mr Edwards gave advice in 2010 about the proceeds of settlement from the Modbury property (the proceeds were to go into the Arcom bank account) and the repayment to the bank would free up the title of the Hove property. Mrs Johnson does not suggest that there was any discussion with Mr Edwards about the transfer of the Hove property by Mr Johnson to Mrs Johnson.[90]

    [90]   T849, 850, 851.

14. Mrs Johnson said that in early 2010 (January – May) she was not concerned about the business going into administration and never thought the business would fail at that stage. She acknowledged there were some difficulties, a slowing of business. She was pressed about why the transfer of the property needed to occur as opposed to repayment to the superannuation fund from the business and she said ‘I didn’t really care where it came from, as long as I got it back’.[91]

    [91]   T852, 853.

15. Mrs Johnson was tested on the suggestion that Mr Johnson sought payment of the monies from her superannuation entitlement for his personal use. She could not dispute that the money was used for the purposes of the company.[92] Mrs Johnson said that she did not realise that her husband may be personally liable for any debts of the company if the company went into administration or liquidation. She said she never gave the matter any thought.[93] She agreed that at the meeting on 19 October 2010 she believed that the company could be insolvent.

    [92]   T855.

    [93]   T862.

    QAt that time (19 October 2010) you formed the view that the company was insolvent, didn’t you.

    AI believed that it could be.

    QAnd did you then think about the consequences if the company failed.

    ANo.

    QNot at all.

    ANo. Going to administration – well, that’s jumping ahead a bit – no, I didn’t -

    QYou would have thought that –

    A– not really.

    Q– if the company failed you were out of a job, your husband was out of a job and a lot of your children were out of a job.

    AActually 35 people were out of a job.

    QYes. But some of those –

    AAnd that was a concern.

    QSome of those were your immediate family.

    AYes, they were.

    QSo you gave that some thought.

    AFor a long time we gave a lot of thought to our employees and their jobs, yes.

    QAnd on 19 October 2010 you gave some thought as to what would happen to your husband’s share of the house if the business failed.

    ANo, I didn’t.

    QNot at all.

    ANo. No. I don’t believe so at that time.

    QOr on 20 October, the next day, did you give that some thought when you were before Mr Costi in relation to the transfer.

    AI wasn’t thinking about my husband losing the house.

16. Mrs Johnson went on to say that she was ill at the time.[94] She later said that she had a breakdown, depression caused by stress.[95]

    [94]   T864.

    [95]   T875.

17. The effect of Mrs Johnson’s evidence was that at 19 October 2010, apart from the upsetting sadness about the loss of the business, she was concerned about the staff of the business. She was aware that the company was likely to cease to trade and she said that the actions the next day, whereby she and her husband met with Mr Costi for the purpose of transferring her husband’s interest in their home, were not because she was concerned about losing an interest in the house. I do not accept Mrs Johnson’s evidence in this regard.

18. Mrs Johnson demonstrated a long-standing interest and involvement in the business. She also had a background of previous employment in the finance industry. She was not commercially naive. She attended all of the important meetings in relation to the business and even when she no longer worked full-time, she often attended at the head office. On a daily basis she checked sales and stock figures for the business. She and her husband shared the proceeds of the business and they had a joint personal bank account. The separation of interests in either the family trust or superannuation fund were arrangements that were tax effective as opposed to truly separate financial interests.

19. By 19 October 2010, Mrs Johnson was aware that the business was in serious financial difficulty. On her own account that caused her great stress and illness; her condition required hospitalisation and treatment.[96] She must have been aware of the level of creditors[97] and in the circumstances, I do not accept that she was unaware of the risks from creditors of the business making claim against her husband.

    [96]   T1029.

    [97]   T944, 1058.

20. Mrs Johnson asserted her care and concern for the employees of the business. On the day that the employees learnt that their employment had ended she did not spend time with the employees comforting or assisting them. Mr and Mrs Johnson left the staff and attended at Costi & Co to convey Mr Johnson’s interest in the Hove property to her.

21. When pressed as to why the meeting with Mr Costi (and the transfer) had to occur on that day, Mrs Johnson did not provide a satisfactory explanation. In answer to a question about that topic she said:

    The document had come through so we had to do the transfer, we’d waited a long time. We’d started the procedure for that back at the beginning of the year, it took a long time and when we had it we wanted the transfer done.

22. Another aspect of Mrs Johnson’s evidence that lacks credibility is her assertion that it was necessary to obtain an appraisal of the value of the Hove property. She said she could not recall anyone recommending that this appraisal be obtained. She was pressed about whether or not such an appraisal was necessary in light of the fact that there was a quantifiable sum of money that had been allegedly lent by her to her husband; in other words, wasn’t the consideration the total of those loans? Given the evidence as to the alleged payments and Mr Johnson’s liability to repay, there was no need for appraisal of the house. Mrs Johnson did not give a satisfactory explanation for this matter.[98]

    [98]   T1038-1039.

23. Mrs Johnson did know that her husband’s creditors could not have recourse to his interest in the family or superannuation trust.[99]

    [99]   T944, 1054-1056.

24. Mrs Johnson said that she never turned her mind to whether or not her husband could be liable to any of the creditors and she does not recall any conversation about that topic. [100] It may be that her recollection is wrong by reason of passage of time or due to her ill health, but I do not accept that this topic was not discussed.

    [100] T1052, 1053.

    The evidence of Mr Edwards

25. The defendants also called Mr Scott Edwards, Chartered Accountant at Freer Parker. Mr Edwards had been the accountant for the business and also prepared the accounts for the superannuation fund. Amongst other things, Mr Edwards explained the distribution of funds to the beneficiaries (Mr and Mrs Johnson) in the superannuation fund accounts.[101]

    [101] T1086.

26. Mr Edwards said he attended two meetings with Mr and Mrs Johnson in 2010 when Mr Frank Camatta, solicitor, was present. One meeting was on 9 September 2010 (subject to a claim of legal professional privilege) and the other on 19 October 2010. Notwithstanding the privilege claimed by the defendants, they led the following:

    At that first meeting basically really it was just brought to my attention that the company had got itself into really quite significant financial difficulty and that’s really what it was about. I was completely unaware until that first meeting, I guess, how difficult things had become for Arcom and so I guess we discussed some changes that Mr and Mrs Johnson were going to implement with the company to hopefully, I guess, stem the cashflow bleeding that was happening at the time, really.[102]

    [102] T1089.

27. Legal professional privilege is claimed over much of the meeting of 9 September 2010. I do not draw any inference adverse or otherwise from that claim of privilege or the absence of evidence about that meeting.

28. Mr Edwards said that at the meeting of 19 October 2010, Mr and Mrs Johnson sought advice about what to do with the business and during that meeting they told him that they had put an enormous amount of cash into the business and wanted to know how they could fix it, that is, the situation of the company’s indebtedness. Mr Edwards does not recall any discussion about Mr Johnson transferring his interest or half share in the Hove property but there was discussion about Mr Johnson’s potential liability for personal guarantees for leases and that bankruptcy could result.

29. There is no suggestion that Mr Edwards was aware of the proposed transfer of the interest in the Hove property between Mr and Mrs Johnson. He said he was aware that money had been paid from the superannuation fund into the business. He did not give advice about obtaining an appraisal on the Hove property.[103]

    [103] T1154.

30. Mr Camatta (who was known to the Johnsons and had previously acted for the business) did not act in respect of the conveyance. He was not called at the trial. There was no discussion with Mr Edwards about the proposed transfer. If the transfer was in the circumstances and for the reasons asserted by Mr and Mrs Johnson, then it is surprising that this was not discussed with Mr Edwards. The fact that Mr Costi was used rather than Mr Camatta is consistent with Mr and Mrs Johnson wanting to make the conveyance appear to be removed from the issues relating to the business.

31. Mr Edwards also said that in December 2010 Mr Johnson sought advice about the distribution of income from the family trust account and the effect of allocation of income to him. The plaintiffs submit that the way that these distributions were treated demonstrates that Mr Johnson was aware of the risks to assets held by him and the risk of claims by creditors. [104]

    The Plaintiffs’ case as to why the conveyance of the Hove Property was made with intent to defraud creditors

    [104] T1117, Exhibit P1-40 and T1140-1141.

32. The onus of proof is on the plaintiffs to establish that Mr Johnson had an intention to defraud his creditors at the time of the conveyance. They must satisfy me on the balance of probabilities that he had the requisite intent. In this case there is no direct evidence of Mr Johnson’s intention. I must consider all of the circumstances and decide whether I can infer that intention. The plaintiffs rely on the following circumstances:

    ·At the time of the conveyance Mr Johnson knew that he was personally liable to creditors of Arcom via directors’ guarantees;

    ·The timing and circumstances of the conveyance coinciding with the appointment of the administrator of the company and the apparent urgency of the transfer;

    ·The relationship between the defendants being husband and wife who were not estranged;

    ·That prior to the conveyance, the Hove property was jointly owned by the defendants;

    ·That Mr Johnson was the sole Director of the company who had provided the guarantees to the plaintiffs and that Mrs Johnson was not a party to the guarantees and therefore not liable;

    ·That the consideration expressed in the memorandum of transfer was a sham and not in fact paid by Mrs Johnson or alternatively if the payments were owed to Mrs Johnson the consideration expressed was inadequate;

    ·That there was no contract or other document reflecting monies allegedly paid by Mrs Johnson to Mr Johnson;

    ·The absence of accounting and contemporaneous documentation such as a settlement statement;

    ·That the monies paid from the superannuation trust bank account were not necessarily from the account of Mrs Johnson;

    ·That any monies that were advanced by Mrs Johnson from the superannuation trust were in fact advanced to the company, Arcom and not to Mr Johnson personally;

    ·That Mr Costi acted for both parties to the conveyance (who allege that they were debtor and creditor);

    ·The absence of information given to Mr Costi about the true circumstances of the payments i.e. to the company;

    ·That Mr Costi rather than Mr Camatta (who had previously acted for the Johnson’s) was used to effect the conveyance;

    ·The absence of and/or contradictory records of Arcom as to the source of alleged payments from the superannuation fund bank account to Arcom;

    ·The absence of records kept by Mr or Mrs Johnson of the alleged payments;

    ·That Mr and Mrs Johnson jointly pursued the Proof of Debt against the company for $222,238.76 (Exhibit P1-7);

    ·That Mr and Mrs Johnson did not tell their accountants or bankers of the payments;

    ·That there was no provision for interest in respect of the alleged payments by Mrs Johnson to the company;

    ·The absence of a claim in Mr Johnson’s bankruptcy by Mrs Johnson for the balance of the funds allegedly owed to her.

    The Defendants’ case that there was no intent to defraud creditors

1. The defendants deny the plaintiffs’ case that the alleged consideration for the conveyance was a sham; that no money changed hands and there was no consideration. The defendants argue that on the issue of whether or not there is good consideration the plaintiffs bear the onus of proof. I think that the plaintiffs have the onus of proving that in transferring the Hove property Mr Johnson intended to defraud his creditors. The question of consideration is a material fact in considering whether there was illegal intent but is not conclusive of that issue.

2. The defendants argue that if I am satisfied that there was good consideration, the plaintiffs will not have made out their case because they cannot establish that the transfer has defeated creditors because, if there is consideration, then money has been exchanged for money’s worth and Mr Johnson is no worse off, vis-à-vis his creditors, than before.[105]

   [105] T1188-1191.

3. The defendants submit that ‘intention to defraud’ within the meaning of the LPA means a deliberate intent to remove the assets of the transferor beyond the reach of his creditors. It is said that the issue of consideration is determinative of this matter because, if the effect of the transfer does not place assets beyond the reach of the creditors, (as one debt is exchanged for another) the sum of Mr Johnson’s wealth is not diminished because his indebtedness is not reduced. It is submitted that if the sum of the value of Mr Johnson’s assets available to creditors is not reduced by the transaction, then the transfer cannot be said to have the effect of placing any assets beyond the reach of creditors within the meaning of s 86 of the LPA. It was argued that since the consideration in this case wasn’t nominal consideration but rather full consideration then there can be no fraud because the transaction does not have the effect of diminishing Mr Johnson’s assets.

4. As to the matter of consideration, the defendants say that whether by way of loan or otherwise, money was advanced to Arcom (or its creditors) from Mrs Johnson’s superannuation entitlement at the request of Mr Johnson and that there was indebtedness by Mr Johnson to Mrs Johnson either via the law of contract or via the law of restitution.[106] The defendants argue that the plaintiffs must establish that no reasonable person could have believed that Mr Johnson undertook an obligation or had an obligation to reimburse Mrs Johnson for the monies advanced to Arcom.[107] It was also submitted that the issue of whether or not there was a genuine debt is a question of law.[108]

   [106] T1196-1197.

   [107] T1198.

   [108] T1197 l28; T1198 l37.

5. It was submitted that, because Mr Johnson requested that the money be advanced to Arcom, as a matter of law, there was either an agreement that he repay Mrs Johnson or alternatively he was under an obligation to reimburse Mrs Johnson. Notwithstanding that Mr Johnson was a director of Arcom, it was argued that his request for funds for Arcom was either made in his personal capacity or as an agent who is personally liable to repay the debt. It was submitted that the onus of proof is on the plaintiffs to show there was no loan or obligation to repay.[109] The defendants submit:

   … because at the end of the day they have to persuade your Honour that there was no consideration, that there was no existing debt, and in order to prove there was no existing debt, they have to prove that there was no contract and no restitutionary obligation, and in order to prove that there was no contract, they have to prove that there were no words of ‘loan’ used or no words of ‘repayment’ used or that an obligation of lending or an obligation to repay is not properly to be implied from the surrounding circumstances, and then they have to go on and prove that there’s no restitutionary obligation, namely that the request which is admitted or not controversial, did not give rise to an obligation to reimburse.[110]

   [109] T1203-1204.

   [110] T1204 ll15-28.

6. The request that is referred to is the request allegedly made by Mr Johnson to Mrs Johnson for payment of funds from her entitlement of the superannuation fund to Arcom or the creditors of Arcom. Those events occurred many months prior to the transfer. The defendants argue that the issue of whether or not a request was made for the funds is not, on the evidence, a question of credibility of witnesses as the issue was not disputed by the plaintiffs. It is argued that the request gave rise to a contractual obligation or an obligation to reimburse according to restitutionary principles.

7. It was submitted that the manner in which the payments were made to Arcom or its creditors and the absence of clear recollection by the defendants as to the conversations surrounding those events are indicative of the defendants’ veracity. It was submitted that the absence of clear recollection by Mr and Mrs Johnson of the words used and the absence of any sort of confirmatory correspondence, note or formal contract points to the genuineness of the defendants’ recollections.

8. The defendants say that at the time of the transfer, Mr and Mrs Johnson intended and hoped to resume trading and that in their minds the business was not finished. They point to the lease negotiations for the proposed Mount Barker store and the retention of the security system from the Port Adelaide store as evidence of intention to keep trading.

9. The defendants also argued that this was not a case of gift or indulgence between a husband and wife; the nature of the events were commercial. Mrs Johnson was advancing a substantial sum from her life savings, she was now retired, and the money was being paid into a company she no longer worked for. It was submitted that these circumstances tend to suggest that it is likely that Mr Johnson gave an undertaking to repay the monies.[111]

   [111] T1214.

10. The defendants submit that I should accept Mr and Mrs Johnson’s evidence that the issue of the transfer of the house was first raised in February 2010 and that other evidence, for example, Exhibit P1-39[112] provide evidence that there were discussions about the transfer of the house well before the company was placed into administration.

    [112] Email from Bob Johnson dated 31 August 2010.

11. The defendants argue that it is not a fraud to repay a creditor nor fraud to prefer one creditor over another. It was submitted that the transfer to Mrs Johnson, whilst transferring Mr Johnson’s interest in the property, did not change his net asset position because after the transfer Arcom was indebted to him and this was an asset.

12. It was submitted that (as at 19 and 20 October 2010) Mr Johnson would not have thought of claims made personally against him by creditors. The defendants point out that at that time none of the creditors had made any claim against Mr Johnson and that even though the company was put into administration, the company still had assets. It was said that the company was not trading whilst insolvent and that this supports Mr Johnson’s belief that the claims of the creditors would be satisfied.[113] It was argued that there was no urgency with respect to the transfer; there were no creditors ‘beating at the door’ and no demands on the guarantees had been made.

    [113] T1252.

13. The defendants relied upon Lumbers v W Cook Builders Pty Ltd (in liq)[114] and In re: Cleadon Trust Ltd[115] in support of their argument. I have considered those authorities and the other legal texts referred to me by the defendants. The law recognises an action for money paid at the request of another (in the absence of contractual arrangements) in certain circumstances but these cases do not assist with determination of the issues before me. The factual circumstances are different.

    [114] (2008) 232 CLR 635.

    [115] [1939] 1 Ch 286.

14. Where money is paid by A to C at the request of B there may be a claim against B. However the law recognises such a claim where there has been a benefit to B. There must be some benefit or enrichment to B; for example where A has paid for a debt which B owed to C. Another situation which may arise is where A pays C for an expense incurred by B due to emergency or some other necessity. The authorities relied upon by the defendants all refer to the requisite benefit to the party held to be liable.

15. In this case, the defendants assert that Mr Johnson requested that Mrs Johnson pay Arcom. The benefit (apart from the indirect benefit that might flow to shareholders; both of the Johnsons) was received by Arcom. My view is consistent with the liability of directors and employees who obtain funds, lines of credit or goods on behalf of a company; they are not liable for debts of a company as they do not directly benefit.

16. The arguments advanced by the defendants tend to focus on the question of consideration and the events of early 2010 (sometimes referred to by the defendants as the ‘February agreement’). In my view, the question for me is the conduct and intention of the transferor, Mr Johnson, at the time of the transfer, namely 20 October 2010. I accept that the earlier conduct may bear upon Mr Johnson’s intentions as at 20 October 2010, but I do not agree that the existence or otherwise of ‘consideration’ is necessarily determinative of the issue. That view is supported by Marcolongo’s case.[116] In that case there was apparent consideration; the contract between the company and the transferee expressly referred to the transferor’s indebtedness to the transferee as part of the consideration.

    [116] (2011) 242 CLR 546.

17. I note the defendants’ arguments that the transfer was a payment to Mrs Johnson of a debt owed, and ‘a mere preference’, not fraud; that it was not unlawful for Mr Johnson to prefer one creditor to another[117] and in any event the effect of the transfer meant that Mr Johnson’s asset position had not altered; he had merely replaced one creditor for another. I think that this argument lacks merit. Mr Johnson was not just another creditor. He had given a charge over his real property.

    My views and findings

    [117] T1254; T1275.

    Was there an oral agreement about the transfer of the Hove property?

18. The plaintiffs complain (perhaps with justification) that the evidence led by the defendants that there was an express oral agreement or series of agreements between the Johnson’s at the end of 2009 or early 2010 to transfer Mr Johnson’s interest in the Hove property to Mrs Johnson was not pleaded and that the defendants should not be able to rely upon it. I find it unnecessary to decide this point. In considering the matter, I intend to have regard to all of the evidence led by the defendants and all of the arguments advanced by them notwithstanding the argument about the pleadings.

19. On the defendants’ case, the existence of the verbal agreement or understanding in late 2009/early 2010 is relied upon to prove that there was genuine consideration and negate the existence of an intent to defraud creditors. I note all of the evidence given by Mr and Mrs Johnson in this regard. I do not accept that evidence.

20. The only evidence as to the existence of the request for payment between Mr Johnson and Mrs Johnson from the superannuation fund and promised repayment by the transfer of Mr Johnson’s interest in the Hove property, is from Mr and Mrs Johnson. Whilst the onus of proof is on the plaintiffs with respect to the matter, I do not accept the evidence of Mr and Mrs Johnson about this important matter and there is a good deal of evidence supporting the absence of genuine consideration.

21. There is no documentary support for the existence of the agreement. Other company records do not support this agreement. Exhibit P1-7 includes the proof of debts or claims made by creditors of the company. No proof of debt reflects the defendants’ position.

22. Exhibit P2-9 is the only accounting record within the accounts of Arcom which relates to these monies paid from the superannuation fund. The document has been variously described as a ‘journal’, ‘log’ or ‘list of payments’. Mr Johnson described it as a journal and he said that he made some of the entries and ‘our administration girl’ made some other entries.[118] He said that there were some mistakes with respect to entries and a number of those mistakes were reversed. It was not possible for him to identify who made the various entries because the record does not show who made the entries. Mr Johnson expressed some uncertainty about how the document came to be prepared.[119] Some of the payments allegedly made by Mrs Johnson for the benefit of Arcom are described in Exhibit P2-9 as ‘loan RWFJ’. Only a couple of the entries relate to payments or loans from Mrs Johnson.

    [118] T407-408.

    [119] T410.

23. Exhibit P2-9 comprises the sub-journal with the code ‘29060’ which records payments for the benefit of Arcom proximate to the making of payments from the superannuation fund bank account. The descriptions given to the various payments were made by staff at Arcom itself, not Freer Parker.[120] If the true position was that described by the Johnsons, it would be expected that there would be records reflecting these payments and the source of funds within Arcom’s accounting system. Generally, the descriptions which coincide with the payments to or on behalf of Arcom do not refer to the arrangements described by Mr and Mrs Johnson.

    [120] T1147 and 1148.

24. On 31 August 2010, Mr Johnson sent an email to Mr Edwards[121] wherein he said: ‘also to free up our house so we can possibly move it across into Fay’s name only’ (emphasis added). That email also refers to ‘us having a charge over the business for our loan to Arcom...’ (emphasis added). Part of the exhibit includes an email from Paul Thompson of the NAB dated 31 August 2010. Mr Thompson’s email referred to a meeting between he and Mr and Mrs Johnson ‘the other day’ and confirms that ‘as discussed you have requested that we release the following; fixed and floating charges over Arcom Computers Pty Ltd, A & R Computers Pty Ltd and Kauritire Pty Ltd, ATF for Katurire (sic) Trust and property located at 45 Wattle Avenue, Hove’. This conversation or meeting apparently occurred in August 2010 and seems inconsistent with a desire to release the Hove property since February 2010. If the agreement to transfer Mr Johnson’s interest was reached in about February 2010, it seems unusual that the Johnson’s did not investigate the possibility of the NAB permitting a transfer of the title to Mrs Johnson alone at a much earlier time. Mrs Johnson agreed that they did not ask the NAB to put some other arrangement in place so that her husband’s interest could be transferred to her immediately i.e. in February.[122]

    [121] Exhibit P1-39.

    [122] T1016.

25. The transfer of the Hove property did not, on the evidence of Mr and Mrs Johnson, extinguish Mr Johnson’s liability to Mrs Johnson. Mrs Johnson did not file a proof of debt in her husband’s bankruptcy for the outstanding sum. Of itself, this matter may not be of great significance as there might be other reasons why that step is not taken, but this is inconsistent with true debt, obligation or agreement.

26. The defendants’ case is that Mrs Johnson was specifically concerned about the use of her entitlements from the superannuation fund and that she be repaid. She kept no records of those monies and despite her keen interest in the state of the accounts of Arcom did not ensure that records were kept nor that the transactions were properly recorded in the loan account journal. Additionally, there were no accurate contemporaneous records within the superannuation trust fund records recording distributions of entitlements.

27. I found Mrs Johnson’s (and Mr Johnson’s) explanation that the money was taken from her entitlement in the superannuation fund (as opposed to Mr Johnson’s entitlement) unconvincing when it is considered that Mr Johnson turned 65 in March 2010 and there was evidence that he believed he was able to withdraw funds from the superannuation fund on his own account in the year he turned 65. Mrs Johnson also claimed that it didn’t occur to her that from 20 March 2010 upon Mr Johnson turning 65 years that he might access his own funds from the superannuation fund and repay her.[123]

    [123] T1007-1009.

28. I do not accept the evidence of the agreement to transfer the Hove property as asserted by Mr and Mrs Johnson.

    The timing and circumstances of the conveyance

29. The conveyance occurred the day after the companies were placed into administration in circumstances where Mr Johnson must have known that there was a significant risk of creditors seeking to make him liable for debts incurred by Arcom.

30. The process occurred with haste. Mr Johnson collected the duplicate Certificate of Title from the NAB at Wingfield on 19 October 2010 even though the bank had given the option of posting out the document.[124] Collection of the Certificate of Title occurred at a time when Mr Johnson was undoubtedly busy with the affairs and problems of the company, and had the need to seek urgent assistance and advice as to its future viability. Arcom had about 40 employees as well as employing a number of members of the Johnson family. Some of those employees had been with the business for many years and Mr and Mrs Johnson claimed that they were concerned for the welfare of their staff. Notwithstanding those matters, Mr and Mrs Johnson spent time on 20 October 2010 attending at the offices of Costi & Co on two occasions.

    [124] T352.

31. By implication Mr Costi’s evidence confirms the haste of the conveyance. His diary did not contain a record of the appointment. All of his actions including attendance for registration occurred on the one day.

32. In my view neither Mr nor Mrs Johnson gave an adequate explanation as to why the conveyance needed to occur on that day in light of the other circumstances.

33. Mr Johnson said that he took the duplicate Certificate of Title to the meeting with Mr Camatta and his accountants at 3 pm on 19 October 2010.[125] There was no explanation about why he did this. That behaviour is consistent with the conveyance being one of a number of steps that Mr Johnson felt he should take to protect his own interests in light of the financial difficulties of the company.

    [125] T354.

34. Mr Edwards said that the proposed conveyance was not discussed with him in September or October 2010. If there was an agreement between Mr and Mrs Johnson and it related to the monies advanced as deposed to by them, why was that not discussed with Mr Edwards? He was their accountant as well as the accountant for the companies. On the defendants’ case, there was nothing untoward or sneaky about their actions. It is curious that the proposed transfer was not openly discussed.

35. The defendants say that at 19 October 2010 they did not know that Mr Johnson would be liable to any of Arcom’s creditors. They suggest a belief at that time that the business would trade on. Despite that suggestion, there was no evidence of any efforts made to continue with the operation of the business after 19 October 2010. The shops were shut. The locks changed. Staff were immediately stood down. It was never suggested to any of the staff that there was a plan for the business to trade on. Other evidence points away from the suggestion that Mr Johnson believed that the company could trade on after the administration. Mr Edwards said that neither Mr or Mrs Johnson said anything at the 19 October 2010 meeting to indicate that they intended to trade-on in the future.[126] Mr Jorgenson’s evidence was to similar effect. He thought that Mr Johnson was at the ‘end of his rope’ as at 19 October 2010 and had no desire to continue trading; the time for that had passed.[127] After the meeting on 19 October 2010, Mr Johnson did not contact either of them about plans for trading.

    [126] T1157.

    [127] T162.

36. In my view the defendants tried to suggest a belief in future or ongoing trading to deflect attention from the two events, the administration and the transfer, occurring together. The evidence as to events at that time do not support their assertion that they believed that the business might trade on.

1. As the second plaintiff contends, Mr Johnson must have made his own assessment of Arcom’s difficult financial position before attending the meeting on 19 October 2010. Mr Edwards’ evidence was that Mr Johnson did not take any printouts of financial information to the meeting on that day but orally conveyed the financial information about the company trading to those at the meeting.[128] Prior to the meeting he had arranged for Mr Camatta to be in attendance.[129] He said in evidence that trading had ‘just died’ in September-October 2010 and was down some 50 percent.[130]

   [128] T1155.

   [129] T352.

   [130] T348.

2. Mr Edwards said that the topic of Mr Johnson’s potential bankruptcy was raised by Mr Camatta at the meeting on 19 October 2010 and that Mr Camatta had advised that bankruptcy may arise in the context of claims by landlords to whom Mr Johnson had given personal guarantees.[131] Mr Johnson had run a successful business for many years. He was experienced in commercial matters. He knew that he had given personal guarantees to suppliers and that was a regular procedure. I do not accept that he was not aware of the risk of bankruptcy as a result of claims by these creditors.

   [131] T1090 and 1091.

3. I do not accept that the timing of the conveyance was coincidental with the administration of the companies.

   The consideration expressed on the transfer

4. In the circumstances, the description of the consideration in the memorandum of transfer is suspicious. Mr Johnson said that at the time of the transfer he did not have a concern about the possibility of creditors making claims against him. Why was there a need to express consideration on the memorandum of transfer? A transfer without consideration would, in the circumstances, have attracted a stamp duty exemption because it was a transfer between spouses. The stated consideration in the memorandum of transfer, intending to represent half the market value of the Hove property suggests that the Johnsons were keen to ensure that anyone inspecting the memorandum of transfer would believe that the stated consideration had in fact been paid from Mrs Johnson to Mr Johnson.

   Other observations about the case for the Defendants

5. Another way to test the veracity of the defendants’ evidence about the alleged agreement to transfer the interest in the Hove property is to ask, why would there be such an agreement? In late 2009, early 2010 the trading conditions were apparently difficult but neither Mr or Mrs Johnson believed that the business would fail. Monies previously paid into Arcom had been repaid from the business; why would either Mr or Mrs Johnson believe that an agreement to transfer the interest in the Hove property was necessary? Such an agreement would only make sense if there was a perceived risk to Mr Johnson’s assets, otherwise why would Mr and Mrs Johnson be concerned at this time about the title to the Hove property?

6. Mr and Mrs Johnson had a long standing marriage, were and are not estranged and other than for tax or other legal reasons, have treated their assets as joint. That was demonstrated by the manner in which the Hove property was used as security for the company, the way in which funds from the business were distributed and paid into and out of the family trust, the source of the funds (from Arcom) which were paid into the superannuation trust on account of Mrs Johnson and the income from the business shared by them.

7. Having considered all the evidence and reflected upon the demeanour and attitudes of Mr and Mrs Johnson, I find that in October 2010 their primary concern was to protect assets, whether joint or held in any other way, for their benefit. I do not accept that it was a coincidence that the transfer of Mr Johnson’s interest in the family home was made on the day after the companies were placed into administration. If Mr and Mrs Johnson’s financial affairs were separate in the manner suggested by them, why were the repayments allegedly owed to Mrs Johnson not made from Mr Johnson’s interest in the family trust or his entitlement in the superannuation fund? Those are assets that Mr Johnson continued to have post liquidation and bankruptcy and which were not accessible to his creditors. The only asset held by Mr Johnson as at 20 October 2010 which could be pursued by creditors was his interest in the family home.

8. I think it quite unlikely that Mr or Mrs Johnson believed that the payments made to or for Arcom would give rise to personal liability by Mr Johnson to Mrs Johnson. Mrs Johnson knew that Mr Johnson was the director of the companies and that he was acting in the capacity when funds were lent to or paid on behalf of Arcom. Whilst Mrs Johnson said that she believed her husband to be personally liable there was no adequate explanation why she would think this. Her evidence in this regard lacked a ring of truth. I think that the asserted legal basis for that liability is an ex post facto construction of the situation.

9. In respect of s 86(2) of the LPA the party seeking to invoke the proviso bears the onus of proof in that regard. In my view, Mrs Johnson has not discharged that onus.[132]

   [132] Glegg v Bromley [1912] 3 KB 474 at 492; Westpac Banking Corporation v Bell Group (in liq) (No 3) [2012] WASCA 157 at [513], [514].

10. In addition to other arguments, the plaintiff, Leader Computers, has advanced an argument as to the effect of ss 70 and 71CB(2) of the Stamp Duties Act 1923 upon the validity of the memorandum of transfer. In view of the findings I have made with respect to s 86 of the LPA it is unnecessary for me to consider and decide this matter.

    Conclusion

11. Having regard to all of the evidence and the inferences which I am prepared to draw, I reject the evidence of Mr and Mrs Johnson as to the alleged agreement in February 2010 to transfer Mr Johnson’s interest in the Hove property. I also reject their evidence as to their intentions and beliefs at the time of the transfer on 20 October 2010.

12. In my view, the inference that Mr Johnson transferred his interest in the Hove property with intent to defraud his creditors (within the meaning of s 86 of the LPA) is overwhelming. I find that Mrs Johnson had notice of intent to defraud creditors. She did not act in good faith such that reliance can be made of s 86(2) of the LPA.

    Orders and relief

13. There is no dispute as to the quantum of the plaintiffs’ claims and I will enter judgment against Mr Johnson in those amounts after hearing further from the parties. The Federal Court has given leave to the plaintiffs to pursue their claims against Mr Johnson notwithstanding his bankruptcy.[133] In respect of the memorandum of transfer and application pursuant to s 86 of the LPA I declare the transfer of 20 October 2010 in respect of the Hove property void.

    [133] Order of Besanko J dated 3 July 2012 [2012] FCA 716.