Re BBY Limited (Receivers and Managers Appointed) (in liq) and BBY Holdings Pty Limited (Receivers and Managers Appointed) (in liq)

[2022] NSWSC 29

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Re BBY Limited (Receivers and Managers Appointed) (in liq) and BBY Holdings Pty Limited (Receivers and Managers Appointed) (in liq) [2022] NSWSC 29

Hearing dates:

10-12 November 2020 & 14 December 2020

Date of orders:

28 January 2022

Decision date:

28 January 2022

Jurisdiction:

Equity - Corporations List

Before:

Gleeson J

Decision:

(1) Order pursuant to s 588FF(1)(a) and (c) of the Corporations Act 2001 (Cth), that Ficema Pty Ltd pay to BBY Limited (receivers and managers appointed) (in liq) the sum of $3,000,000, together with interest from 15 May 2018 to the date of judgment calculated at the rates provided under s 100 of the Civil Procedure Act 2005 (NSW).

(2) Order pursuant to s 588FF(1)(a) and (c) of the Corporations Act 2001 (Cth), that Ficema Pty Ltd pay to BBY Holdings Pty Ltd (receivers and managers appointed) (in liq) the sum of $341,890.37, together with interest from 15 May 2018 to the date of judgment calculated at the rates provided under s 100 of the Civil Procedure Act 2005 (NSW).

(3)   Order that Ficema Pty Ltd pay the plaintiffs’ costs of the proceedings.

(4)   Direct the parties to provide an agreed calculation of the amount of pre-judgment interest, calculated in accordance with orders 1 and 2 above within 14 days, and that judgment be entered for those amounts in favour of BBY Limited and BBY Holdings Pty Ltd respectively.

(5)   Direct that if the plaintiffs seek a special order as to costs, then in the absence of agreement as to the form of the order, the plaintiffs shall file and serve short written submissions together with any supporting affidavit evidence within 10 days of this judgment, and the defendant shall file and serve its short written submissions, together with any affidavits in response with a further 10 days, and the question of variation of the costs order will be dealt with on the papers.

Catchwords:

CORPORATIONS – winding up – voidable transactions – whether unfair preferences and insolvent transactions – payments to related entity within extended 4-year relation-back period – where presumption of insolvency of one company under Corporations Act 2001 (Cth), s 588E(8) – whether companies insolvent in fact

CORPORATIONS – winding up – loan by related entity to company – money subsequently repaid – whether unfair preference under Corporations Act 2001 (Cth), s 588FA – whether a Quistclose trust existed

Legislation Cited:

Australian Securities and Investments Commission Act 2001 (Cth), s 19

Civil Procedure Act 2005 (NSW), s 100

Corporations Act 2001 (Cth), ss 9, 91, 95A, 206B(3), 446A, 588E, 588FA, 588FC, 588FE, 588FF, Pt 5.7B, Div 2, Pt 7.8

Corporations Regulations 2001 (Cth)

Evidence Act 1995 (NSW), ss 69, 136

Uniform Civil Procedure Rules 2005 (NSW), r 42.1

Cases Cited:

Alston v Cormack Foundation Pty Limited (2018) 358 ALR 263; [2018] FCA 895

Associated Alloys Pty Limited v ACN 001 452 106 Pty Limited (in liq) (2000) 202 CLR 588; [2000] HCA 25

Australian Securities and Investments Commission v Plymin [2003] VSC 123; (2003) 46 ACSR 126

Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 236 FLR 1

Australian Securities and Investments Commission v Edwards [2005] NSWSC 831; (2005) 220 ALR 148

Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (1978) 141 CLR 335

Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567

Bellis v Challinor [2015] EWCA Civ 59

Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26

Cadwallader v Bajco Pty Ltd [2002] NSWCA 328

Campbell Street Theatre Pty Ltd v Commercial Mortgage Trade Pty Ltd [2012] NSWSC 669

Capital Finance Australia Ltd v Tolsher (2007) 164 FCR 83; [2007] FCAFC 185

Chan v First Strategic Development Corporation (in liq) [2015] QCA 28

Cohen v Cohen (1929) 42 CLR 91; [1929] HCA 15

Commissioner of State Revenue (Vic) v Snowy Hydro Limited (2012) 43 VR 109; [2012] VSCA 145

Compass Resources Ltd v Sherman (2010) 42 WAR 1; [2010] WASC 41

Federal Commissioner of Taxation v Kassem (2012) 205 FCR 156; [2012] FCAFC 124

Ferrier & Knight (as liquidators of Compass Airlines Pty Ltd) v Civil Aviation (1994) 55 FCR 28

George v Webb [2011] NSWSC 1608

Georges (in his capacity as joint and several liquidator of Sonray Capital Markets Pty Ltd (in liq)) v Seaborn International Pty Ltd (as trustee for the Seaborn Family Trust) (2012) 206 FCR 408; [2012] FCAFC 140

Gliderol International Pty Ltd v Hall (2001) 80 SASR 541; [2001] SASC 355

G & M Aldridge Pty Ltd v Walsh (2001) 203 CLR 662; [2001] HCA 27

Henry v Hammond [1913] 2 KB 515

International Cat Manufacturing Pty Ltd (in liq) v Roderick (2013) 97 ACSR 200

Jin Niu Investments Pty Ltd v Wang (No 2) [2020] NSWSC 649

Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8

Kazar (liquidator) v Kargarian; In the matter of Frontier Architects Pty Ltd (in liq) (2011) 197 FCR 113; [2011] FCAFC 136

Korda v Australian Executor Trustees (SA) Limited (2015) 255 CLR 62; [2015] HCA 6

Legal Services Commission v Brereton (2011) 33 VR 126; [2011] VSCA 241

Lewis (as liq of Doran Constructions Pty Ltd (in Liq)) v Doran [2005] NSWCA 243; (2005) 54 ACSR 410 Lewis v Doran [2004] NSWSC 608; (2004) 50 ACSR 175

Liquidator of MJ Woodman Electrical Contractors Pty Ltd v Metal Manufactures Pty Ltd [2021] FCAFC 228

Manly Council v Byrne [2004] NSWCA 123

Marriner v Australian Super Developments Pty Ltd (2012) 46 VR 213; [2012] VSCA 171

M & R Jones Shopfitting Co Pty Ltd (in liq) v National Bank of Australasia Ltd (1983) 68 FLR 282; (1983) 7 ACLR 445

NewCap Reinsurance Corporation Ltd v AE Grant, Lloyds Syndicate No 991 [2009] NSWSC 662; (2009) 72 ACSR 638

Payne v Parker [1976] 1 NSWLR 191

Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651

Peter Cox Investments Pty Ltd (in liq) v International Air Transport Association [1999] FCA 27; (1999) 161 ALR 105

Quistclose Investments Ltd v Rolls Razor Ltd [1970] AC 567

Rambaldi v Federal Commissioner of Taxation [2017] FCAFC 217; (2017) 107 ATR 1

Raulfs v Fishy Bite Pty Ltd [2012] NSWCA 135

Re Antqip Hire Pty Limited (subject to deed of company arrangement) (in liquidation) [2020] NSWSC 487

Re Armstrong (1960) VR 202

Re Ashington Bayswater Pty Ltd (in liq) [2013] NSWSC 1008

Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491

Re BBY Limited (Receivers & Managers Appointed) (in liquidation) [2019] NSWSC 1271

Re Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547

Salvo v New Tel Limited [2005] NSWCA 281

Samm Property Holdings Pty Ltd v Shye Properties Pty Ltd [2017] NSWCA 132

Soundwave Festival Pty Ltd v Altered State (W.A.) Pty Ltd (No 2) [2014] FCA 562

Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; [2001] NSWSC 621

Sutherland & Another (as joint liquidators of Australian Coal Technology) v Hanson Construction Materials Pty Ltd and Others [2009] NSWSC 322; (2009) 254 ALR 650

Treloar Constructions Pty Ltd v McMillan [2017] NSWCA 72; (2017) 120 ACSR 130

Twinsectra Ltd v Yardley [2002] 2 AC 164

Walker v Corboy (1990) 19 NSWLR 382

Warner Capital Pty Ltd v Shazbot Pty Ltd [2020] NSWCA 121

Watson v Foxman (1995) 49 NSWLR 315

Welcome Homes Real Estate Pty Limited v Ziade Investments Pty Limited [2007] NSWCA 167

Williams (as liquidator of Scholz Motor Group Pty Ltd (in liq)) v Scholz [2008] QCA 94

Woodgate v Network Associates International BV [2007] NSWSC 1260

Texts Cited:

Cross on Evidence, Australian Edition, LexisNexis (loose-leaf)

JD Heydon and MJ Leeming, Jacobs’ Law of Trusts in Australia (8th ed, 2016, LexisNexis Butterworths)

Young, Croft and Smith, On Equities (2009, Law Book Co)

Category:

Principal judgment

Parties:

Ian Richard Hall and Stephen Ernest Vaughan (First plaintiff)
BBY Limited (Receivers and Managers Appointed) (in liq) (Second plaintiff)
BBY Holdings Pty Limited (Receivers and Managers Appointed) (in liq) (Third plaintiff)
Ficema Pty Ltd (Defendant)

Representation:

Counsel:
Mr D Krochmalik (Plaintiffs)
Mr R Scruby SC / Mr J Anderson (Defendant)

Solicitors:
Ashurst (Plaintiffs)
Bridges Lawyers (Defendant)

File Number(s):

2018/151979

Judgment

1. GLEESON J: The first plaintiffs, Mr Ian Hall and Mr Stephen Vaughan, are the liquidators of the second and third plaintiffs, BBY Limited (BBY) and BBY Holdings Pty Ltd (BBY Holdings), having been appointed on 22 June 2015 pursuant to a resolution of creditors under s 446A of the Corporations Act 2001 (Cth) (the Act) following their earlier appointment on 17 May 2015 as administrators of companies in the BBY Group including BBY Holdings and BBY. BBY is a wholly owned subsidiary of BBY Holdings, which as its name implies, is the holding company of the BBY Group.

2. The defendant, Ficema Pty Ltd (Ficema), is the trustee of the Ficema Trust, the beneficiaries of which include Mr Kenneth Robert Rosewall, a well-known former Australian professional tennis player, and his son, Mr Glenn Rosewall. Ken Rosewall and Glenn Rosewall were directors of Ficema. Ken Rosewall was also a shareholder of Ficema.

3. The plaintiffs allege that seven payments in the period from 8 January 2014 to 16 April 2015 – four by BBY and three by BBY Holdings – are unfair preferences, insolvent transactions and voidable under s 588FE(4) of the Act.

4. The “relation-back day” for each company within the meaning of s 91 of the Act is 17 May 2015, given the prior appointment of the liquidators as administrators of BBY and BBY Holdings. As Ficema is a “related entity” of BBY and BBY Holdings within the meaning of sub-par (k) of s 9 of the Act, because at least one of Ficema’s directors was a director of BBY and BBY Holdings, the extended “relation-back period” for payments made by BBY and BBY Holdings to Ficema is 4 years ending on the “relation-back day” (17 May 2015): s 588FE(4) of the Act.

5. Six of the impugned payments to Ficema are alleged to be on account of interest on various loans made by Ficema to BBY and BBY Holdings, in the amounts summarised in the table below:

No	Date	Payer	Amount ($)
1	8/01/2014	BBY	$ 82,950.82
2	20/01/2014	BBY	$ 51,787.91
3	26/05/2014	BBY	$ 51,787.91
4	17/07/2014	BBY Holdings	$ 51,787.91
5	27/11/2014	BBY Holdings	$ 51,787.91
6	16/04/2015	BBY Holdings	$ 51,787.91
TOTAL:	$341,890.37

6. The seventh impugned payment of $3 million was made by BBY to Ficema on 24 June 2014. The liquidators say that this payment was in repayment of a short-term loan advanced by Ficema to BBY on 16 June 2014.

Unfair preference

7. Section 588FA of the Act provides for when a transaction is an unfair preference. Relevantly, s 588FA(1) provides:

(1)   A transaction is an unfair preference given by a company to a creditor of the company if, and only if:

(a)   the company and the creditor are parties to the transaction (even if someone else is also a party); and

(b)   the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company;

8. even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.

9. The expression “transaction” in Pt 5.7B of the Act, is defined in s 9 of the Act to mean a transaction to which, relevantly, a body corporate is a party, for example (but without limitation): “a payment made by the body” (sub-par (d)). In s 588FA(1) the two elements of a transaction “given by” a company are that (a) the company and the creditor are parties to the transaction (even if someone else is also a party), and (b) the conferral of a preference on the creditor.

Insolvent transaction

10. Section 588FC relevantly provides that a transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company and the company is insolvent at the time that the transaction is entered into, or becomes insolvent because of, or because of matters including entering into the transaction.

11. “Insolvent” has the meaning in s 95A(2) of the Act which directs attention to s 95A(1) which provides that “[a] person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable”. Section 95A(2) provides that “[a] person who is not solvent is insolvent”. It is well-established that this definition adopts a “cash-flow test” of insolvency as discussed further below.

Voidable transaction

12. Section 588FE(4) provides that a transaction is voidable if it is an insolvent transaction of the company, a related entity of the company was a party to the transaction, and it was entered into, or an act was done for the purpose of giving effect to it, during the 4 years ending on the relation-back day. “Transaction” includes “an unfair preference given by the company to the creditor”: s 588FE(2A)(a)(ii). It is not in dispute that Ficema is a related entity of each of BBY and BBY Holdings (see [4] above), or that each of the impugned payments was made during the 4 years ending on the relation-back day (17 May 2015).

13. As the Full Federal Court observed in Morton as Liquidator of MJ Woodman Electrical Contractors Pty Ltd v Metal Manufactures Pty Ltd [2021] FCAFC 228 at [29], the statutory purpose of the avoidance or conclusion of voidableness of preferences and of the preference action, is the just remedying of dislocation of the equality of creditors reflected in pari passu distribution, citing G & M Aldridge Pty Ltd v Walsh (2001) 203 CLR 662 at 674-675 [29] and [30]; [2001] HCA 27 (Gleeson CJ, Gaudron, Gummow, Hayne and Callinan JJ).

Relief

14. Section 588FF(1) provides that where, on the application of the company’s liquidator, the court is satisfied that a transaction of the company is voidable because of s 588FE, the court may make one or more of the orders specified, including:

(a) an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction;

…

(c) an order requiring a person to pay to the company an amount that, in the court’s opinion, fairly represents some or all of the benefits that the person has received because of the transaction;

…

15. The plaintiffs seek orders under s 588FF(1)(a) and (c) of the Act for payment by Ficema to BBY of the amount of $3,186,526.64 and to BBY Holdings of the amount of $155,363.73, and together with interest thereon in each case. Whilst the liquidators are the proper plaintiff to bring the action, the proper order for payment or other relief under s 588FF(1) is in favour of the company: Morton as liquidator of MJ Woodman Electrical Contractors Pty Ltd v Metal Manufactures Pty Ltd at [139].

Issues

16. The parties identified two issues for determination.

17. First, whether the payment of $3 million to Ficema on 24 June 2014 was received by Ficema qua creditor of BBY or qua beneficiary of a trust created by Ficema on 16 June 2014. That turns on whether an advance of $3 million by Ficema to BBY on 16 June 2014 was a short-term loan, as the plaintiffs contend, or was impressed with a trust in favour of Ficema within the principles in Barclays Bank Limited v Quistclose Investments Ltd [1970] AC 567, as Ficema contends.

18. Second, whether each of BBY and BBY Holdings was insolvent at the date of the impugned transactions with Ficema in the period from January 2014 to April 2015.

19. There is a third issue raised on the pleadings, which the parties did not address, namely whether the three payments made by BBY to Ficema on 8 January 2014, 20 January 2014, and 26 May 2014 totalling $186,526.64 were received by Ficema qua creditor of BBY or qua creditor of BBY Holdings.

20. With respect to proof of insolvency, the plaintiffs rely in the case of BBY on the presumption of insolvency arising under s 588E(8) of the Act, given the earlier finding by Rees J in Re BBY Limited (Receivers and managers appointed) (in liq) [2019] NSWSC 1271 (the GARF proceedings) that BBY was insolvent at all times from 1 January 2014 to 17 May 2015. The presumption of insolvency in s 588E(8) operates except so far as the contrary is proved by Ficema in this proceeding: s 588E(9). Objection was taken by Ficema in its closing written submissions to the plaintiffs’ reliance on the presumption in s 588E(8)(a), arguing that this was outside the pleaded case. The plaintiffs responded that Ficema was on notice from pre-trial correspondence and the plaintiffs’ written and oral opening that they relied upon the presumption with respect to BBY and that this was the case run at trial. In addition, the plaintiffs sought and obtained leave to expressly plead reliance upon s 588E(8) with respect to BBY. My reasons for that ruling are set out in Re BBY Limited (Receivers and Managers Appointed) (in liq) and BBY Holdings Pty Limited (Receivers and Managers Appointed) (in liq) (No 2) [2022] NSWSC 30.

21. Additionally, the plaintiffs sought to prove that each of BBY and BBY Holdings was in fact insolvent at the time of the impugned payments. The plaintiffs relied upon expert evidence from one of the liquidators, Mr Vaughan, who expressed the opinion that each of BBY and BBY Holdings was insolvent at all times from 1 January 2014 to 17 May 2015. Mr Vaughan was challenged on his report in cross-examination. Ficema served an expert report on the question of solvency but ultimately did not rely upon this report at trial.

Summary of conclusions

22. For the reasons that follow I have concluded that:

1. the payment of $3 million made by BBY to Ficema on 24 June 2014 was received by Ficema qua creditor of BBY, and conferred an unfair preference on Ficema;

2. the interest payments totalling $186,526.64 originating from the bank account of BBY on 8 January 2014, 20 January 2014, and 26 May 2014 were made on behalf of BBY Holdings and received by Ficema qua creditor of BBY Holdings, and conferred an unfair preference on Ficema;

3. the interest payments totalling $155,363.73 made by BBY Holdings to Ficema on 17 July 2014, 27 November 2014, and 16 April 2015 were received by Ficema qua creditor of BBY Holdings, and conferred an unfair preference on Ficema;

4. Ficema has not rebutted the presumption of insolvency arising under s 588E(8)(a) with respect to BBY;

5. in any event, the plaintiffs have established that each of BBY and BBY Holdings was in fact insolvent from 1 January 2014 to 17 May 2015;

6. each of the impugned payments is an insolvent transaction under s 588FC and a voidable transaction under s 588FE(4); and

7. the plaintiffs are entitled to relief under s 588FF(1)(a) and (c), specifically, orders that Ficema pay to BBY the sum of $3,000,000, pay to BBY Holdings the sum of $341,890.37 and pay interest on those amounts from the date of the commencement of these proceedings on 15 May 2018 to the date of judgment calculated at the rates provided under s 100 of the Civil Procedure Act 2005 (NSW).

Background

23. BBY was the principal operating entity of a group of companies known as the BBY Group, of which BBY Holdings was the ultimate parent company. The BBY Group operated a financial services business providing a range of financial services to clients, including stockbroking, trading in financial products, asset management, financial advice and research.

24. Glenn Rosewall was a director and executive chairman of companies in the BBY Group, including BBY and BBY Holdings. Ken Rosewall became a director of the BBY companies on 17 March 2008 at the invitation of Glenn. The other director of BBY and BBY Holdings was Mr David John Perkins.

25. Ficema was a shareholder of BBY Holdings. Other entities associated with Ken Rosewall and his son Glenn made up the largest shareholders of BBY Holdings. They acquired these shareholdings in 2006. Ken Rosewall, through a related entity, acquired further shares in BBY Holdings in June 2011.

23. The chief executive officer of BBY from February 2012 until February 2015 was Mr Arunesh (Arun) Maharaj. He was previously the chief financial officer of the BBY Group between June 2005 and February 2012. He was assisted closely by Ms April Yuen, who had a finance and accounting role in the BBY Group and had access to BBY’s bank accounts. Ms Yuen was employed by Broker Services Australia Pty Ltd, a member of the BBY Group, in various positions between 2007 and 2015. From early 2014 her title was “Manager – Strategy”, reporting directly to Glenn Rosewall and Mr Maharaj.

24. BBY was a registered participant on the Australian Securities Exchanges (ASX) operated by ASX Limited, the Chi-X Exchange (Chi-X) operated by Chi-X Australia Pty Ltd and the Australia Pacific Stock Exchange (APX) operated by Australia Pacific Stock Exchange Limited. BBY held an Australian Financial Services License and acted as the main operating entity through which the BBY Group conducted its financial services business. BBY Advisory Services Pty Ltd conducted a corporate finance business which included advising corporate clients in capital raising on the ASX, via mergers or acquisitions, or through issuing various debt instruments. Broker Services Australia acted as the main employment company for BBY. BBY Nominees Pty Ltd (BBY Nominees) was a trustee company used for transactions organised by BBY or BBY Advisory Services in which a custodian or a trustee was required to complete the transaction or hold assets on behalf of BBY’s clients.

25. The financial products offered by BBY comprised two broad product lines. The first was exchange-traded financial products, such as listed shares and units, exchange traded options, and futures contracts and futures options, which were contracts entered into by BBY as agent for a client. The second was “over-the-counter” (OTC) financial products, being products not traded on an exchange such as foreign exchange contracts and contracts for difference, which were contracts entered into directly between BBY and its clients.

26. BBY was required by s 981B of the Act to hold client money deposited with it in client segregated accounts (CSAs). One of the liquidators, Mr Vaughan, gave evidence that at the commencement of the external administration of the BBY Group there were 47 CSAs maintained by the BBY Group in Australia for the benefit of its clients. Mr Vaughan said that it was apparent immediately that there was likely to be a significant shortfall between the client monies available in the CSAs for distribution to clients as against the estimated entitlements owing by BBY to those clients. As events transpired, the estimated shortfall was about $21 million.

Interest payments on loans from Ficema

30. Ficema made the following loans to BBY Holdings and BBY:

1. on 16 November 2011, Ficema lent $2 million to BBY Holdings pursuant to a loan agreement dated 25 October 2011. The loan was for an initial term of 12 months with interest to be paid at 15 per cent per annum;

2. on 26 June 2013, Ficema lent a further $500,000 to BBY Holdings;

3. on 16 June 2014, Ficema lent $3 million to BBY;

4. on 1 December 2014, Ficema lent $1 million to BBY Holdings; and

5. on 11 December 2014, Ficema lent $3 million to BBY.

31. In pars 26 and 27 of the points of claim, the plaintiffs contended that BBY and BBY Holdings made the six interest payments totalling $341,890.37 on account of the interest that was payable in respect of the loans referred to in pars [20], [21], [23] and [24] of the points of claim, being the loans to BBY Holdings and BBY referred to in [29(1), (2), (4) and (5)] above, and that each of the interest payments was accepted by Ficema in satisfaction of BBY and/or BBY Holdings’ obligations to pay interest on those loans. Further, par [28(c)] of the points of claim contended that each of the interest payments resulted in Ficema receiving more, in respect of an unsecured debt owed to it by BBY Holdings, than it would receive from BBY Holdings in respect of that debt if it were set aside and Ficema were to prove for that debt in the winding up of BBY Holdings.

32. In its points of defence, Ficema admitted that it received $341,890.27 between 8 January 2014 and 16 April 2015 (being the amount of the six payments set out in the table at [5] above), and otherwise denied the balance of par [26], denied par [27] and did not admit par [28] of the points of claim.

33. On the evidence, all six payments totalling $341,890.37 referred to in the table at [5] above were on account of interest owing on the loans made by Ficema to BBY Holdings. This is apparent from the invoices issued by Ficema to BBY Holdings claiming interest on the loan for $2 million dated 3 July 2013, and the invoices claiming interest on the loans for $2.5 million dated 3 October 2013, 14 January 2014, 2 April 2014, 2 July 2014 2 October 2014, 6 January 2015 and 16 April 2015. The three payments originating from BBY on 8 and 20 January 2014 and 26 May 2014 were not in respect of interest owing by BBY to Ficema on the loan to BBY referred to at [29(5)] above, since the loan to BBY in December 2014 post-dated those three payments.

34. Although Ficema did not take any issue in its submissions that the three payments made by BBY totalling $186,526.64 were not an unfair preference within s 588FA, these payments were not received by Ficema qua creditor of BBY. Rather, the inference to be drawn is that although the originating source of these payments was BBY, the payments were made on behalf of BBY Holdings and received by Ficema qua creditor of BBY Holdings for the following reasons.

35. First, the three payments originating from BBY were made from the main BBY operating account with National Australia Bank (account 0891), which was used for the operations of the BBY Group business. Operational expense payments were made out of this account: see memorandum entitled “Operation of BBY House accounts”, par A1.3, referred to in par 3.3(a) solvency report.

36. Second, although there is no evidence of a written direction given by BBY Holdings to BBY to make these payments to Ficema, I infer that such a direction was given by BBY Holdings having regard to the fact that BBY operated as the main operating entity of the BBY Group companies, the companies were managed by the same persons and had common directors and the payments were made from the main BBY operating account from which, on the evidence, expense payments were made on behalf of related companies in the BBY Group, which included BBY Holdings.

37. Third, the proper characterisation of the payments is similar to the analysis in Federal Commissioner of Taxation v Kassem (2012) 205 FCR 156; [2012] FCAFC 124, where Jacobson, Siopis and Murphy JJ said at [40]-[42]:

[40]   It is clear, as the primary judge found, that the originating source of the payments to the Commissioner was, on each occasion, the bank account of Mortlake’s related entity, Antqip.  But, as the primary judge found, this was a clear example of a lender paying moneys advanced to a creditor of the borrower in accordance with the borrower’s directions.

[41]   The position as between Mortlake and Antquip was no different from a drawing by Mortlake on an overdraft from its bank with a direction to the bank to pay the creditor directly.  Such a payment constitutes a loan by the bank to its customer:  see eg Andrews v ANZ Banking Group Ltd (2011) 86 ACSR 292 at [82] per Gordon J.

[42]   Moreover, even if it is not correct to describe the transaction between Mortlake and Antqip as a loan, what is important is the finding that the payment by Antqip to the Commissioner was a payment that was made by or on behalf of Mortlake.  So much is plain from the evidence to which we were taken.  

38. Thus, notwithstanding that the originating source of the payments to Ficema was the bank account of BBY, I infer that BBY Holdings directed the three interest payments to be made on its behalf, being loans by BBY to BBY Holdings advanced to Ficema at the direction of BBY Holdings, or, even if the payments were not a loan by BBY to BBY Holdings, each involved a payment being “made by or on behalf of” the debtor BBY Holdings. It follows that these three payments were made by BBY Holdings and received by Ficema qua creditor of BBY Holdings. Each of these payments was an unfair preference within s 588FA of the Act and, subject to proof of insolvency of BBY Holdings at the time of the impugned payments, each of the payments was voidable on the application of the plaintiffs in their capacity as liquidators of BBY Holdings.

16 June 2014 – $3 million advance by Ficema to BBY

39. Following a conversation between Ken Rosewall and Glenn Rosewall on 11 June 2014 (Phoenix time) while they were holidaying in Arizona, Ficema advanced $3 million to BBY as a short-term loan on 16 June 2014. The terms of the loan were oral. Ken Rosewall instructed Mr Peter Collier, the accountant for Ficema, to attend to the mechanics of the loan by Ficema, including arranging a temporary $2 million overdraft for Ficema with Westpac Banking Corporation (Westpac).

40. The genesis of this loan was a liquidity difficulty for BBY in June 2014 arising from a large transaction which BBY was facilitating for one of its clients, Mineral Resources Pty Ltd (Mineral Resources), in acquiring $192 million worth of shares in Aquila Resources Pty Ltd (Aquila). This transaction was referred to in submissions as the “Aquila trade”. Given a shortage of funds to meet margin calls by the ASX in relation to this transaction, BBY sought short-term financial assistance from its shareholders, including Ficema. As events happened, the $3 million advance by Ficema was not needed or used by BBY to pay any margin calls and BBY repaid the sum of $3 million to Ficema on 24 June 2014.

41. Ficema contends that the $3 million loan by Ficema was impressed with a “Quistclose trust” because the funds were advanced to BBY for a particular purpose in relation to the Aquila trade, and that the parties did not intend that the funds, once advanced, would become BBY’s property absolutely. Ficema says that the payment of $3 million by BBY to Ficema on 24 June 2014 was not a preference because it was the return to Ficema of property held on trust by BBY for Ficema.

42. It is common ground that Ficema bears the onus of proof of establishing the existence of such a trust, which is fact dependent: Re Armstrong (1960) VR 202; Peter Cox Investments Pty Ltd (in liq) v International Air Transport Association [1999] FCA 27; (1999) 161 ALR 105 at [49]; Gliderol International Pty Ltd v Hall (2001) 80 SASR 541; [2001] SASC 355 at [20]. Before addressing the facts, it is convenient to refer to some matters of principle.

Quistclose trust

43. The term “Quistclose trust” is derived from the decision of the House of Lords in Barclays Bank Ltd v Quistclose Investments Ltd. In Rambaldi v Federal Commissioner of Taxation [2017] FCAFC 217; (2017) 107 ATR 1, the Full Federal Court (Allsop CJ, Dowsett and Burley JJ) said of Quistclose at [21]-[22]:

[21]   That case was concerned with circumstances in which one party (the “lender”) advanced money to another party (the “debtor”) who owed money to a third party (the “creditor”) on the agreed basis that the advance would be used only to discharge the relevant debt, the debtor agreeing to pay the lender, at some future time, the amount of the advance. In [Quistclose at 580], Lord Wilberforce observed:

That arrangements of this character for the payment of a person's creditors by a third person, give rise to a relationship of a fiduciary character or trust, in favour, as a primary trust, of the creditors, and secondarily, if the primary trust fails, of the third person, has been recognized in a series of cases over some 150 years.

[22]   At 580581, referring to the decision in Toovey v Milne (1819) 106 ER 574 concerning a similar arrangement, his Lordship said:

The basis for the decision was thus clearly stated, viz., that the money advanced for the specific purpose did not become part of the bankrupt's estate. This case has been repeatedly followed and applied.

These cases have the support of longevity, authority, consistency and, I would add, good sense.

44. Quistclose recognised at 581-582 that where the relationship between parties is that of debtor and creditor, there may also be equitable obligations including those of trust in relation to monies advanced: see also JD Heydon and MJ Leeming, Jacobs’ Law of Trusts in Australia (8th ed, 2016, LexisNexis Butterworths) at [12-06]. Critical to the reasoning in Quistclose is that the liability of Rolls Razor, the company in receipt of the loan, to repay the amount to Quistclose arose on the application of the loan monies to the intended purpose, in that case, the payment of a dividend by Rolls Razor. Lord Wilberforce said at 581: “when the purpose has been carried out (ie, the debt paid) the lender has his remedy against the borrower in debt”.

45. In Australasian Conference Association Limited v Mainline Constructions Pty Limited (in liq) (1978) 141 CLR 335 at 353; [1978] HCA 45, Gibbs ACJ said (Jacobs and Murphy JJ agreeing) that the decision in Quistclose was authority for the proposition that:

….where money is advanced by A to B, with the mutual intention that it should not become part of the assets of B, but should be used exclusively for a specific purpose, there will be implied (at least in the absence of an indication of a contrary intention) a stipulation that if the purpose fails the money will be repaid, and the arrangement will give rise to a relationship of a fiduciary character, or trust.

46. In Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491, Gummow J said of Quistclose at 500-501:

However, in the House of Lords, Lord Wilberforce said ... that a necessary consequence of the mutual intention of Quistclose and Rolls Razor to create arrangements which gave rise to a “primary” trust in favour of those entitled to the dividend was that, if the dividend could not be paid for any reason, the money, as a “secondary” trust, was to be returned to Quistclose; the intention was clear to create the secondary trust for the benefit of the lender, to arise if the primary trust, to pay the dividend, could not be carried out. This characterisation of what occurred is indicative of an express trust with two limbs rather than an express trust in favour of the shareholders and a resulting trust in favour of Quistclose which arose by reason of an incomplete disposition by Quistclose of the whole of its interest in the money lent to Rolls Razor.  But, on either characterisation, Quistclose had a beneficial interest (although not at all relevant times an exclusive beneficial interest) in the money in question.  Thus, it was not merely in the position of a lender with the benefit of a promise to repay.  Nor was Quistclose a settlor who had fully settled a fund upon other parties and did so not retain for itself a beneficial interest sufficient for it to ensure performance of the trust.

47. Importantly, a “Quistclose trust” is not a new or distinct species of trust and it must satisfy the requirements for any private trust: Re Australian Elizabethan Theatre Trust at 502; Compass Resources Ltd v Sherman (2010) 42 WAR 1; [2010] WASC 41 at [72]. Thus, there must be certainty of intention to create a trust: Korda v Australian Executor Trustees (SA) Limited (2015) 255 CLR 62; [2015] HCA 6 at [7]; George v Webb [2011] NSWSC 1608 at [202] (Ward J).

48. The question of whether such a trust arises depends on the mutual intentions of the parties, assessed objectively: Raulfs v Fishy Bite Pty Ltd [2012] NSWCA 135 at [48]. Subjective intentions are irrelevant as the Court is concerned not with “the real intentions of the parties” but with the outward manifestation of those intentions: Commissioner of State Revenue (Vic) v Snowy Hydro Limited (2012) 43 VR 109; [2012] VSCA 145 at [83], citing Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26 at [59], [114]-[115].

49. Where the language employed by the parties for the transaction is inexplicit, the court is left to infer the relevant intention from other language used by them, from the nature of the transaction and from the circumstances attending the relationship between the parties: Re Antqip Hire Pty Limited (subject to deed of company arrangement) (in liquidation) [2020] NSWSC 487 at [90], citing Associated Alloys Pty Limited v ACN 001 452 106 Pty Limited (in liq) (2000) 202 CLR 588; [2000] HCA 25 at [34], Walker v Corboy (1990) 19 NSWLR 382 at 397; Alston v Cormack Foundation Pty Limited (2018) 358 ALR 263; [2018] FCA 895 at [190]; Re Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547 at [64]; Compass Resources at [69]. Nonetheless, there is no need for particular caution in drawing the inference that a trust was intended: Re Australian Elizabethan Theatre Trust at 503; Raulfs v Fishy Bite Pty Ltd at [47].

50. There is some debate in the authorities as to the juristic nature of a Quistclose trust and whether it is a resulting or express trust. As indicated, in Re Australian Elizabethan Theatre Trust, Gummow J preferred the view that the characterisation of the circumstances giving rise to a Quistclose trust leads to the conclusion that the trust is an express trust with two limbs, rather than an express trust in favour of the intended payee (being the beneficiary under the primary trust) and a resulting trust in favour of the original payer arising by reason of the incomplete disposition.

51. By contrast, in Twinsectra Ltd v Yardley [2002] 2 AC 164, Lord Millett favoured the view that a Quistclose trust is a resulting trust, explaining at [100]:

… The lender pays the money to the borrower by way of loan, but he does not part with the entire beneficial interest in the money, and in so far as he does not it is held on a resulting trust for the lender from the outset. … When the purpose fails, the money is returnable to the lender, not under some new trust in his favour which only comes into being on the failure of the purpose, but because the resulting trust in his favour is no longer subject to any power on the part of the borrower to make use of the money. Whether the borrower is obliged to apply the money for the stated purpose or merely at liberty to do so, and whether the lender can countermand the borrower’s mandate while it is still capable of being carried out, must depend on the circumstances of the particular case.

52. In Salvo v New Tel Limited [2005] NSWCA 281, the Court of Appeal divided on the juristic nature of a Quistclose trust. Spigelman CJ and Young CJ in Eq were of the view that an express trust was created: at [53] and [96]; whereas Handley JA considered that a “resulting trust seems to accord more closely with the realities”: at [78]. In the present case, neither party suggested that anything turned on this distinction.

53. Whether a Quistclose trust is understood as an express or resulting trust, the legal analysis with respect to the beneficial interest in the property remaining in the payer/transferor unless and until the purposes for which it has been paid/transferred have been fulfilled is essentially the same. If the money/property is applied by the payee/transferee for the stated purpose, then the obligation of the payee/transferee is that of debtor to its creditor, but if the property is not applied for the stated purpose, then the obligation of the payee/transferee is that of trustee to its beneficiary: Quistclose at 581-582.

54. As Briggs LJ explained in Bellis v Challinor [2015] EWCA Civ 59 at [63] (Underhill and Moore-Bick LJJ agreeing), ignoring the infelicity in the reference to “purpose” in the expression “primary purpose trust”:

Where property is transferred on terms that do not leave it at the free disposal of the transferee then the Quistclose-type trust thereby established is one under which the beneficial interest in the property remains in the transferor unless and until the purposes for which it has been transferred have been fulfilled: see Twinsectra at paragraph 100. That beneficial interest ceases to exist if and to the extent that the property is used for the stated purposes, but not otherwise. The application of the property for the stated purpose is a power vested in the transferee, not (usually at least) a primary purpose trust.

55. In Raulfs v Fishy Bite Pty Ltd at [49], Campbell JA (Meagher and Barrett JJA agreeing) referred with approval to the following statement in Young, Croft and Smith On Equities (2009, Law Book Co) at [6.1020]:

Cases in this area will often depend on a close analysis of the facts, and in particular, whether the person who provided the money annexed a trust or equitable obligation that it was only to be used for the nominated purpose. The mutual intention of the parties ... will be important. A trust will not necessarily arise just because a lender inquires (sic) into the purpose for which a loan is sought and money is paid over for that particular purpose.

56. Importantly, the test is not merely whether the parties intended the money to be at the free disposal of the borrower: Compass Resources at [59]-[60]. Nor is it sufficient to show that the parties intended that the funds advanced by way of loan were to be used only for a specified purpose communicated between the parties; that is because a trust does not necessarily arise because money is advanced or lent for a particular purpose: Ralphs v Fishy Bite at [50]-[51]; Compass Resources at [59]-[60], [67]. As Lord Millett explained in Twinsectra at [73]:

A Quistclose trust does not necessarily arise merely because money is paid for a particular purpose. A lender will often inquire (sic) into the purpose for which a loan is sought in order to decide whether he would be justified in making it. He may be said to lend the money for the purpose in question, but this is not enough to create a trust; once lent the money is at the free disposal of the borrower. Similarly payments in advance for goods or services are paid for a particular purpose, but such payments do no ordinarily create a trust. The money is intended to be at the free disposal of the supplier and may be used as part of his cash-flow. Commercial life would be impossible if this were not the case.

57. Beech J expressed a similar view in Compass Resources at [67]:

… In my opinion, the test of the necessary intention is the composite test stated in the cases to which I have referred. Is it intended that the moneys not become part of the general assets of the company and be used only for the particular purpose? It is not sufficient, in order to establish a trust, to show that the parties intended that the moneys be used only for a particular purpose. Not every contractual obligation to use loan funds for a specified purpose gives rise to a trust of the moneys lent.

58. One important indicator of whether the parties intend to create a trust in the nature of a Quistclose trust is whether or not there is an intention that the subject monies be kept separate from other general monies of the recipient: Re Australian Elizabethan Theatre Trust at 505-506. In Quistclose, the borrower (Rolls Razor) had taken the step of establishing a special and separate account with Barclays Bank to receive the loan monies which had been provided to pay a dividend to shareholders. If the lender (Quistclose) had paid the monies into an existing account, it would not have been possible to deduce a common intention that the monies were to be held on trust until the purpose of the loan was achieved.

59. In Henry v Hammond [1913] 2 KB 515 at 521 Channell J said:

It is clear that if the terms upon which the person receives the money are that he is bound to keep it separate, either in a bank or elsewhere, and to hand that money so kept as a separate fund to the person entitled to it, then he is a trustee of that money and must hand it over to the person who is his cestui que trust. If on the other hand he is not bound to keep the money separate, but is entitled to mix it with his own money and deal with it as he pleases, and when called upon to hand over an equivalent sum of money, then, in my opinion, he is not a trustee of the money, but merely a debtor.

60. These remarks of Channell J were approved in Cohen v Cohen (1929) 42 CLR 91 at 101; [1929] HCA 15; Walker v Corboy at 397; and Georges (in his capacity as joint and several liquidator of Sonray Capital Markets Pty Ltd (in liq)) v Seaborn International Pty Ltd (as trustee for the Seaborn Family Trust) (2012) 206 FCR 408; [2012] FCAFC 140 at [41].

61. In Bellis v Challinor at [60], Briggs LJ observed that usually the question of whether the essential restrictions upon the transferee's use of the money or property have been imposed so as to create a trust turns upon the true construction of the words used by the transferor, however “where … the transferor says or writes nothing but responds to an invitation to transfer the property on terms, then it is the true construction of the invitation which is likely to be decisive”: at [59]. Briggs LJ continued at [61]:

In such cases the invitation usually comes from the transferee. In Twinsectra it took the form of a solicitor's written undertaking, the terms of which, as Lord Millett put it, were "crystal clear" in restricting the use of the money transferred for the specified purpose of the acquisition of property.

62. The description of the transferee’s invitation in Twinsectra as “crystal clear” was based on Lord Millett’s finding at [75] that the solicitor, Mr Sims, who was acting for the transferee of the money, “undertook that the money would be used solely for the acquisition of property and for no other purpose; and was to be retained by his firm until so applied” (emphasis in original). Whether BBY undertook to Ficema that the $3 million advance would be used solely for the Aquila trade and for no other purpose and was to be retained by BBY until so applied, is one of the critical issues addressed below.

The Aquila trade and Ficema’s $3 million loan

63. The evidence about the Aquila trade was primarily documentary with some testimonial evidence from Mr Maharaj and Ms Yuen. The evidence about the $3 million loan primarily came from Ken Rosewall, with some evidence from Mr Collier, of a telephone conversation with Glenn and Ken Rosewall concerning the funding arrangements he was instructed to put in place between Ficema and Westpac. Mr Maharaj and Ms Yuen gave evidence of their communications with Glenn Rosewell concerning this loan and the identification of the account into which the loan was deposited. There was also documentary evidence of the administrative arrangements in relation to the loan. Glenn Rosewall was not called by Ficema to give evidence.

64. Each of the witnesses was cross-examined, except Mr Maharaj. I make the following findings in relation to the credibility and reliability of the witnesses.

Assessment of the witnesses

65. Mr Maharaj and Ms Yuen were both disinterested witnesses with no personal stake in the outcome of the proceedings. Mr Maharaj’s evidence was unchallenged, and I accept his evidence as credible and reliable.

66. Ms Yuen was an impressive witness. There was no challenge to her credibility, which I accept. I reject the challenge in cross-examination to her reliability. She did not prevaricate when giving evidence; her answers were responsive, straightforward and direct. I accept her evidence without hesitation

67. Mr Collier did not have an independent recollection of events unassisted by his file note (Ex K), emails and telephone logs, other than that he recalled having a telephone conversation with Glenn and Ken Rosewall in June 2014, and that he arranged a temporary overdraft facility for Ficema with Westpac (T199-200). Whilst I accept that he was attempting to give honest evidence in his affidavit, given the lapse of time since the events in issue his affidavit evidence was not entirely reliable. It was readily apparent from cross-examination that his affidavit was based on his reconstruction of events from his file note and other documents, rather than an independent recollection of events. He made appropriate concessions in cross-examination as to the accuracy of his affidavit evidence.

68. The parties diverged as to whether the evidence of Ken Rosewall should be accepted. The plaintiffs submitted that he was not an impressive witness and that his evidence was unsatisfactory, giving several examples. Ficema submitted that he was a frank witness whose evidence was truthful and should be accepted, taking into account that he is of advanced years, has seen several years of litigation following his involvement in the BBY companies, and has never made any claims of commercial sophistication.

69. In assessing Ken Rosewall’s evidence, I have had regard to my notes of the impressions I formed at the time of his giving evidence and upon reading the transcript immediately after the trial concluded. I have reread the transcript of his evidence. Notwithstanding his advanced age, his relatively limited commercial sophistication, and the emotional strain of the collapse of the BBY Group and this litigation, I find that Ken Rosewall was an unsatisfactory witness. His evidence generally was unreliable as it was affected by self-interest and poor recollection. His poor recollection of events included, most importantly, the critical conversation with Glenn Rosewall on 11 June 2014 (Phoenix time) (T157.23-25 and .45-48) and he did not recall the telephone conversation with Mr Collier and Glenn Rosewall on 12 June 2014 (Sydney time). He accepted at his public examination in September 2016 that he did not particularly recall the events in question in June 2014 (Ex J, T 685.46-48), and there is no reason to think that his recollection had improved four years later at the trial, yet he was slow to make obvious concessions in cross-examination, including as to inconsistencies between his affidavit evidence and his earlier testimony at his examination under s 19 of the Australian Securities and Investments Commission Act 2001 (Cth) in March 2016. He was also less than forthcoming in his affidavit, which unlike his evidence at the ASIC examination and his public examination, did not mention the word “loan” being used in his conversation with Glenn Rosewall in June 2014. The well-known remarks of McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 319 are apposite: the human memory is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time.

70. Additionally, I find that in parts his evidence was unpersuasive and somewhat argumentative in attempting to downplay the concerns he held in 2013 and 2014 as to financial difficulties in which the BBY Group found itself. I do not accept Ken Rosewall’s affidavit evidence that in January 2014 he was not concerned about BBY’s ability to repay loans to Ficema and that his offer to halve the 15 per cent interest payable on those loans was for reasons unrelated to BBY companies’ financial position. This evidence cannot be reconciled with his evidence given at his public examination that he was the one who suggested the rebate of 50 per cent of the interest payable on the loans because he was concerned about the financial position of the BBY companies at the time, which he accepted in cross-examination was a truthful answer. (T161.10-12; 163.18-22) Notwithstanding those answers, he sought to justify the last sentence in par [44] of his affidavit as “partly true” (T163.36). That was an example of the witness not being prepared to make an obvious concession.

71. There were other difficulties in accepting Ken Rosewall’s affidavit evidence; he asserted in par [88] that he did not have any concerns about the BBY companies’ ability to pay their debts as and when they fell due throughout 2014. (Affidavit, par [88]) His affidavit evidence was contradicted by the evidence earlier given on oath at his public examination that: (a) he was of the view that BBY was in a “financial crisis” back in September 2013, which he accepted in cross-examination was a truthful answer and that remains his view (T170.48-171.6, 171.20-.24); (b) he was “very worried” about BBY after June 2014 (Exhibit J, T695.20-25), which he again accepted in cross-examination was a truthful answer (T172.40-.50); and (c) that he had an increasing concern that BBY “would financially fail, that is, become insolvent” (Exhibit J, T695.45-50), which after initially answering in cross-examination that he did not remember exactly giving this answer at his public examination, accepted that he must have said it as it was on paper (T173.10) and that the answer given in the public examination was true (T173.38-45). When pressed on the accuracy of his affidavit evidence at par [88], Ken Rosewall denied that he had an increasing concern that there was a prospect that the company (BBY) could not pay its debts as and when they fell due by June 2104. Given his earlier evidence under oath at his ASIC examination and public examination, I cannot accept that evidence as either credible or reliable (T174.8-11).

72. Overall, I do not accept Ken Rosewall’s evidence unless it is against Ficema’s interest or is corroborated by contemporaneous documents.

The facts

73. The evidence of the circumstances of the Aquila trade and the $3 million loan from Ficema is as follows. On Wednesday 11 June 2014, Mineral Resources provided a security deposit of $29 million to BBY, and BBY executed a “buy” order for $192 million of Aquila shares at an average price of $3.74. Settlement was due on Monday 16 June 2014.

74. The Aquila share price closed on 11 June 2014 at $3.61. On 12 June 2014, the ASX made a margin call on BBY for $40 million ($18 million initial margin, $7 million variation margin, and $15 million Capital-Based Position Limits (CBPL) margin, relating to BBY’s counter-party settlement risk). The CBPL margin was required to be met from BBY’s own funds, not those of its client, because at the time BBY was a self-declaring participant and the CBPL margin was to protect the ASX from a counter-party failure by BBY. BBY could not meet the CBPL margin call and the ASX agreed that, to avoid a default by BBY, the ASX would delay making the full CBPL call of $15 million but would make an additional Cover CBPL call of $5 million as a “general requirement additional cover” under rule 14.6.1 of the ASX Clear Operating Rules (the Operating Rules), which it made at 10:40 am on 12 June 2014.

75. After a telephone discussion with Glenn Rosewall, Mr Maharaj emailed Glenn Rosewall in Phoenix, Arizona at 2:30 pm on 12 June 2014 (11 June 2014 Phoneix time) advising him of the position in relation to the Aquila trade and the CBPL call:

Hi Glenn – as discussed here is a summary of where we are with the AQA and cbpl call.

St George have covered the margin to today but tomorrow we will need an extra 10m in additional margin funds for Friday/sat/sun/mon repaid by the ASX on Tuesday.

We can fund 5m of this margin but will need an additional $4 to $5m Friday morning rtgs. Can you please urgently speak to Ken on drawing on his facility for a few days. We will pay interest plus a fee.

Please call me in the morning to discuss. We will need to fund the margin by 11am, Friday morning. (Emphasis added)

76. Following this email, Mr Maharaj received a phone call from Glenn Rosewall who requested that he inform the ASX that he had spoken to Ken Rosewall and that he would be arranging an urgent loan from the shareholders to cover the margin. Mr Maharaj gave evidence that Glenn Rosewall told him:

My Dad has a line of credit with Westpac he can draw on that facility to provide us with some funding. I will also speak to April [Yuen] about borrowing from my super account.

77. Ken Rosewall gave affidavit evidence, which was admitted, subject to a limitation under s 136 of the Evidence Act 1995 (NSW) as evidence of what was said and not the truth of the conversation, that whilst in Phoenix, Arizona, on about 11 June 2014 (Phoenix time) Glenn Rosewall told him that something was happening with the Aquila transaction and the BBY Group urgently needed $3 million in order to proceed with the transaction; asked him to arrange Ficema to “transfer” this money to the BBY Group “so we can pay this”; told him that “[w]e only need the money for a short period of time and it will be returned to Ficema within a week”; and also told him that “Arun” (being Mr Maharaj) was assisting and organising it.

78. Ken Rosewall deposed that he responded:

Ok, if you need it, I can do it. You and Peter [Collier] can work out the details.

79. I do not accept that Ken Rosewall’s affidavit evidence of his conversation with Glenn Rosewall is reliable or complete. In cross-examination, Ken Rosewall candidly acknowledged that at the time of this conversation he was on holidays and was not focused on BBY-related matters (T144.32-34). He could only recall having one conversation with Glenn Rosewall about the need for $3 million in relation to the Aquila transaction (T145.17-19). He agreed that his evidence given at his public examination in September 2016 of his conversation with Glenn Rosewall was truthful, namely, that because of the financial stress of the arrangement with Aquila getting done, Glenn Rosewall asked him “if the $3 million could be arranged on a loan basis just for the week” (T146.12-17). He accepted that both he and Glenn referred to the money Glenn was asking for as a loan or a short-term loan; he said that the loan was agreed to be returned within ten days (T146.49, 147.1-2 and .27-29). He was prepared to cause Ficema to advance the money on the basis that it would be repaid within a short period of time (T147.35-37). The main consideration from his perspective was that the “loan would be repaid within a week or ten days, or thereabouts” (T147.39-41)). He accepted that he was not told the details of why the money was needed, other than that it had something to do with the Aquila trade (T150.44-47)), and that he was not aware of the details of that transaction (T145.30-32), including the ASX margin calls until he returned to Australia several weeks later (T149.24-150.2). He did not ask where the funds went after the transfer from Ficema to BBY on 16 June 2014 (T154.36-155.4) and he did not know whether the monies advanced were even used in connection with the Aquila trade (T150.11-24).

80. As the plaintiffs correctly submitted, there is a telling omission in the affidavit, importantly, the word “loan” is not mentioned, yet in cross-examination Ken Rosewall readily agreed that both he and Glenn each referred to the money requested as a “loan or short-term loan” (T147.27-29). He also gave the following evidence:

Q:   Can I suggest this to you, Mr Rosewall: the conversations you had with Glenn about the $3 million that was needed from Ficema at this time were along the lines of “BBY needs some money on a short term loan basis because of a problem with an Aquila trade”? It was about as much as that, wasn’t it?

A:   Yes. (T151 (29-34))

81. And after ultimately accepting that he did not have a specific recollection of the conversation with Glenn Rosewall (T157.47-48), Ken Rosewall gave the following evidence of his conversation with Glenn Rosewall:

Q.    What I want to suggest to you, Mr Rosewall, is that the real tenor of the conversation was that your son, Glenn, said to you, "There's a problem with the Aquila trade, we need $3 million. Can you lend it to us, please?" And your answer was, "Yes, as long as it's paid back to me within a short period of time." That's right, isn't it?

A.    That's right, yes.

82. That evidence was consistent with the answers given by Ken Rosewall at his ASIC examination on 15 March 2016 (Ex H, p 110, 102-103), in which he said:

Q:   So you said that Glenn asked you whether you could loan $3M from Ficema, is that correct?

A:   Right.

…

Q:   Did you know about the request from the ASX regarding margin calls for the Aquila trade?

A:   … No.

83. Although Ken Rosewall had no recollection of another conversation with Glenn Rosewall concerning the Aquila trade, I find that following their conversation in Phoenix, Glenn and Ken Rosewall had a telephone conversation with Mr Collier on 12 June 2014 (Sydney time). In his affidavit, Mr Collier deposed that Glenn Rosewall told him that: (a) the BBY Group was completing a transaction on 16 June 2014 and it needed a short-term $3 million loan where the monies would be placed into a BBY Group trust account by Friday, 13 June 2014 in order for the BBY Group to satisfy a condition under that transaction; (b) he had spoken to his father about it and Ken Rosewall had agreed that Ficema would provide a short-term loan to BBY in order for it to satisfy the conditions of the transaction; (c) the money would need to go in by 13 June 2014 and would be repaid early the following week; and (d) that Ken Rosewall said to him “Peter, please call Mark Mason at Westpac to arrange it all”, and that he agreed to do so.

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Appendix 1 (176723, rtf)

Appendix 2 (108963, rtf)

Appendix 3 (155143, rtf)

Amendments

28 January 2022 - Inclusion of "Representation".

Decision last updated: 28 January 2022