Trustees of the Property of J.D. Cummins v Cummins & Anor

[2005] HCATrans 988

[2005] HCATrans 988

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S286 of 2005

B e t w e e n -

THE TRUSTEES OF THE PROPERTY OF JOHN DANIEL CUMMINS A BANKRUPT

Appellant

and

MARY ELIZABETH CUMMINS

First Respondent

AYMCOPIC PTY LIMITED

Second Respondent

GLEESON CJ
GUMMOW J
HAYNE J
HEYDON J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 6 DECEMBER 2005, AT 10.22 AM

Copyright in the High Court of Australia

MR B.A.J. COLES, QC:   If your Honours please, I appear with my learned friends, MR C.R.C. NEWLINDS, SC and MR P. KULEVSKI, for the appellant.  (instructed by Clayton Utz)

MR W. SOFRONOFF, QC:   May it please the Court, I appear with my learned friend, MR M.A. ASHHURST, for the respondent.  (instructed by Russell & Company)

GLEESON CJ:   Yes, Mr Coles.

MR COLES:   Your Honours, the issue in the proceedings concerned whether the Trustees had established sufficient evidence to make out the requirement in section 121(1)(b) of the Bankruptcy Act relating to the transferor’s main purpose.  By those provisions a transfer of property by a person who later becomes a bankrupt to another person is void in events which include the events that:

(b)      the transferor’s main purpose in making the transfer was:

(i)       to prevent the transferred property from becoming divisible among the transferor’s creditors; or

(ii)      to hinder or delay the process of making property available for division among the transferor’s creditors.

That provision, as your Honours may recollect, came into the Bankruptcy Act by amendments in 1996 and by transitional provisions in relation to those amendments became applicable to the estates of bankrupt persons whose bankruptcies commenced after the provisions came into being, so whilst it is the case that the relevant transactions occurred in these proceedings in August 1987 the bankrupt, who presented his own petition on I think 13 December 2000, is to be viewed, so far as the administration of his estate is concerned, and, of course, so far as the application of these provisions is concerned, by reference to these provisions.

GLEESON CJ:   What is the reference to the transitional provision?

MR COLES:   I think it is item 208 of the schedule of the1996 Bankruptcy Act, your Honour, but I will just get some assistance on it.  Yes, Schedule 1 of Part II which related to transitional provisions relating to amendments of the 1996 Bankruptcy Act contained item 208 which provided that the new section inserted by 208 apply to bankruptcies which the date of the bankruptcy is on or after the date of the schedule and item 208 of the relevant items, the subject of the amendment, was the substituted sections 120 and 121.

GUMMOW J:   They did not amend section 6.

MR COLES:   No, interestingly because the ‑ ‑ ‑

GUMMOW J:   Which talks about fraud whereas the new section 121 does not.

MR COLES:   Yes, that is right.  There is a slight, I suppose, textual disconformity between the remaining section 6 and the concept of prevent, hinder and delay that we suppose is an oversight.  “Prevent” replaced “defeat” in the non‑statutory ascription of contents to ‑ ‑ ‑

GUMMOW J:   There is no reference in this Act within the meaning of section 6 now, found in section 121.

MR COLES:   No, that is right.

GUMMOW J:   What is the significance of that for this concept of creditors?

MR COLES:   We respectfully think that the section 6 can work ‑ ‑ ‑

GUMMOW J:   I do not see how.

MR COLES:   It is fair to say, your Honours, we have not ourselves ascribed any content to it so far as the submissions are concerned, and it has not attracted of course the attention of any of the judges in the courts below, but it does refer not only to intent to defraud creditors but it does refer also to an intent to delay or defeat the creditors.

GUMMOW J:   Yes.

MR COLES:   So what is missing, as I said, your Honour, is while we have “delay” or “defeat”, we do not have “prevent”, but we would not have thought does not very much matter for present purposes.

GUMMOW J:   Yes, thank you.

MR COLES:   The general collocation was I think “delay” or “defeat”, and “prevent” perhaps has come in – in effect, what section 121(1)(b) does perhaps is substitute a judicial explication of what was long regarded by some as the content of the expression “defraud”, “defraud” being long established – being an element or a notion that did not carry with it the necessary ingredient of personal dishonesty or the like.  Indeed, one could, on the well‑known authorities, intend to defraud creditors by having a whole innocent intention if in the particular circumstances it produced the result that there was a relevant depletion or subtraction from the debtor’s property in circumstances where, in effect, he had to be honest before he was generous.

As I say, your Honours, the subject has not attracted, or found a place as a basis for distinguishing the cases that have, importantly for our purposes, welded in effect section 6, along of course with the Interpretation Act provisions relating to the singular and the plural and the like.  So that one has the conclusion that the reference to creditors includes of course not only present creditors but – and not creditors as a bulk or a mass or a class, but creditors, any one or more of them, and both present and past.  We respectfully suggest that it is so radical a departure from the settled leaning of the – or the settled operation of the ‑ ‑ ‑

GUMMOW J:   Present and past.

MR COLES:   And future - present and future, more accurately.  One would not likely have inferred or attributed to the legislature of 1966 the intention to displace what by then had grown up as the received meaning of the relevant provisions.  Your Honours, there was no doubt that the Trustee, in seeking to establish the bankrupt’s main purpose, bore the burden of proof and the issue, of course, was whether the sparse or some might say meagre evidence which was adduced or which was claimed to be available to the Trustee was sufficient for the purpose, or whether it simply failed to rise to the level of creating a plausible inference from which the courts could confidently proceed.

Your Honours, in volume 4 of the appeal books your Honours find the judgments both of the primary judge whose reasons we would respectfully commend and adopt and also the reasons of the Full Court, which by majority allowed the appeal.  Commencing, if it is convenient, your Honours, at page 1649 of the appeal book volume 4 in the judgment of the primary judge ‑ ‑ ‑

GUMMOW J:   There are several of those judgments ‑ ‑ ‑

MR COLES:   This in fact is the judgment which the primary judge described as judgment no 5.  This is called, as I think the ‑ ‑ ‑

GUMMOW J:   It is reported in 124 FCR 67 ‑ ‑ ‑

MR COLES:   Yes, indeed, if your Honour pleases.  I am grateful to your Honour.

GUMMOW J:   The next and last is reported in 134 FCR 449.

MR COLES:   Quite so, your Honour, and they deal fortunately with, for the purposes of the present appeal, discrete topics.  The former of the two judgments, the one to which I am now inviting your Honour’s attention, concerns the analysis leading to the conclusion of main purpose.  The second of the two judgments deals with a point which only arises on the appeal if our first submissions find favour.  That is the consideration of whether in the particular facts of the case, to put it compendiously, the suggested application of the doctrine of resulting trust was - or the suggested presumption of resulting trust said to be applicable - in effect was rebutted.

GLEESON CJ:   Could I just clear up one aspect of the history of these decisions, Mr Coles, which is a bit complicated.  There was a no case to answer submission and that issue was decided against the present respondents.

MR COLES:   Yes.  In the main, so far as the present subject of the appeal is concerned, yes, there were immaterial aspects which ‑ ‑ ‑

GLEESON CJ:   Then there was a concession made, was there, that in view of the election to call no evidence it followed from the decision on the no case argument that there would be a finding against the present respondent on the section 121 issue?

MR COLES:   No, I do not think the respondent conceded that, your Honour.

GLEESON CJ:   What is puzzling me is this.  We know that the no case to answer argument was decided in part upon a misapprehension of fact about the matrimonial relationship between Mr and Mrs Cummins.

MR COLES:   Indeed, a condition of evidence which was not the full picture, yes.

GLEESON CJ:   Was not true.

MR COLES:   Yes.

GLEESON CJ:   We know, do we not, that the judge drew an inference of fact that was wrong and that by the time he came to give his final decision in relation to the last matter he was aware that at the time of the hearing of the no case argument Mr and Mrs Cummins had separated.

MR COLES:   That the facts had been different, that is right, yes.

GLEESON CJ:   His erroneous belief that they were living together had been taken into account in applying Jones v Dunkel, I think.

MR COLES:   I have perhaps two matters about that, your Honour.  His erroneous belief was, of course, erroneous in objective fact.  It was not for the reasons he gave, in our submission, erroneous on the basis of the material he had before him, as he explained ‑ ‑ ‑

GLEESON CJ:   I just wanted to understand, in having regard to the procedure that was followed of this sequential decision making where, if at all, Justice Sackville took account of the fact that he later became aware that Mr and Mrs Cummins had separated in relation to his decision making on the section 121 issue and the significance he attached to the failure of her to call him to give evidence.

MR COLES:   The passage in what is called Prentice v Cummins (No 6), the judgment dealing primarily with the resulting trust issue, records his Honour’s observations about his – we will turn that up.  Can I say, however, and his Honour records that he had reached the ‑ ‑ ‑

GLEESON CJ:   That is at page 1695, paragraph 21.

MR COLES:   That is precisely the passage, your Honour, which I had in mind.

GLEESON CJ:   It may be because I have not read all the judgments in sufficient detail, but I just do not see the step he took from saying there is a case to answer to the conclusion that he resolved the section 121 issue in favour of your client and how, in taking that step, allowance was made for the fact that there was a misapprehension of fact in relation to the first decision. 

MR COLES:   Can I perhaps indicate this, that the misapprehension of fact may have some relevance on one view to the Jones v Dunkel area of discourse but, importantly, when we are looking at the judge’s first judgment, which is the section 121 issue, his Honour, of course, came to the conclusion that there was sufficient evidence available in the Trustee’s case to authorise the inferences which he drew from the proved facts as to the main purpose without need at all to resort to the Jones v Dunkel inference so that so far as one is looking at the main purpose discourse, the Jones v Dunkel area did not really come into play in his Honour’s reasoning.  His Honour, of course, went on to say, “Well if I’d looked at Jones v Dunkel I would have ‑ ‑ ‑

GUMMOW J:   The matrimonial relationship was continuing in 1987, was it not?

MR COLES:   Yes, and one of the things his Honour mentions in the passage referred to is that on the pleadings it was admitted that the parties were occupying the relevant transferred residential property as a matrimonial home. 

GLEESON CJ:   I only raise this because of its possible significance to the fact that Mrs Cummins did not call Mr Cummins as a witness in her case.

MR COLES:   If your Honours go back to 1692, which is again in his Honours second or, more accurately, his Honour’s sixth judgment called in the reports, Prentice v Cummins (No 6), your Honours will see in paragraph 11 on page 1692, his Honour records that:

At the resumed hearing, the respondents accepted that, given my reasoning on the no case submissions, no further issues ‑ ‑ ‑

GLEESON CJ:   That is what I earlier referred to as a “concession” and you corrected me.  It is not a concession, it is an acceptance.

MR COLES:   It is an acknowledgment, I suppose.

GLEESON CJ:   You can explain the difference later. 

MR COLES:   I am anxious not to overstate the proposition, so that is the circumstance as his Honour viewed the matter at the time.  If your Honours have volume 4, 1649, his Honour sets out the two transactions, two of three intended transactions, the third of which was not put into effect for reasons explained in the evidence.  On that page his Honour shortly describes how, in August 1987, the bankrupt transferred both his interest as a joint tenant in the Hunters Hill property for a recited consideration of some $205,000‑odd, a consideration which exactly amounted to 50 per cent of an independent valuation which the solicitor retained to put the transaction into effect…..and recited that Mrs Cummins, on the evidence, had paid the stamp duty and valuer’s fees. 

That was the first transaction, the transfer of the house property, and when I come to the resulting trust side of the case I will say more about the significance of the property to the parties.

The second transaction, just to identify it, was a transaction brought about on the same day whereby the bankrupt transferred his shares in Counsels’ Chambers Limited for an amount of $360,000.  Those shares, as his Honour pointed out, provided for the bankrupt to be entitled to occupy a double room in Counsels’ Chambers, and the transferee in that case was not Mrs Cummins but was a company acquired by, in effect, his wife and himself, called Aymcopic, acquired as a shelf company some week or so before and a company which, around the same time, became the trustee of a family trust.  Elsewhere, the evidence indicates that the directors of the company were the bankrupt himself and a colleague and the transfer was, in effect, duly stamped and registered and as the judge recorded the two transactions were obviously linked in the sense that they were contemporaneous and intended to serve much the same purpose.

There was a third piece of property to which the bankrupt was entitled and which he had acquired in about 1986 which entitled him to occupy another set of chambers, this time in a set of chambers in Parramatta, where the mechanism for the right of occupancy was apparently the holding of units in a unit trust.  The evidence indicates, and I will show your Honour how this was explained later, that it was then in August 1987 the intention of the bankrupt to transfer those units also but for various practical reasons and not the least of which the fact that his solicitor, as he later acknowledged, overlooked putting the transaction into effect.  That transaction never went through, and in the events that happened upon the bankrupt’s bankruptcy in the year 2000 the most substantial asset in his estate remained, or was, those units in his Parramatta chambers.

His Honour refers to – so much for the property, the subject of the transactions, and the means of putting them into effect.  If your Honours would turn then to page 1653.  His Honour had before him in evidence certain tax returns which the bankrupt had filed for a number of years.  The bankrupt had not filed, according to evidence given by his accountant, a Mr Morelli, any tax returns from about 1955, but in late 1999, according to his accountant’s evidence, he filed tax returns for the eight years that spanned the period tax year 1991-92 through to tax year 1998‑99.

GLEESON CJ:   He was admitted a solicitor in 1957 I see.

MR COLES:   Yes, that is right.

GLEESON CJ:   And he had not filed any tax returns since about 1955, when he would have been an articled clerk.

MR COLES:   Yes.

GLEESON CJ:   So except for such returns as he filed when he was an articled clerk, he never filed any tax returns during his professional career.

MR COLES:   His whole professional life was unattended by the filing of tax returns, that is right.  Now, significantly, when he came to file tax returns, under whatever impulse, in late 1999 with the aid of his accountant, he filed them going back only to the 1991-92 year and not for any years before then.

HAYNE J:   What was the then statutory obligation to maintain records under the Tax Act?  What period of records had to be maintained?

MR COLES:   At that time, your Honour, under – I will give your Honours a section – persons were required to maintain tax records I think for a period of seven years.

HAYNE J: Section 262A of the Income Tax Assessment Act 1936.

MR COLES:   Examination of that section in more recent times shows, perhaps unsurprisingly, that it has become much more extensive and for many purposes the period seems to have been reduced to five years but at that time it was seven years.  The evidence of the accountant, your Honour, indicated that the returns were not easy to prepare in the sense that the accountant indicated that he had a good deal of difficulty getting any comprehensive information from the bankrupt, or I think his secretary, and there was a certain, one rather supposes, conjectural element about the returns he was able to prepare.

GUMMOW J:   The majority of the Full Court seems to have thought that the clerk would know all these things, which may be true in other States.

MR COLES:   It might be true in Melbourne, I suppose, your Honour, where the clerks do – as we understand it – do keep the barristers’ financial records but there was nothing to indicate that that was so at the Bar in Sydney.  His Honour recorded on the same page that – the returns were in evidence and indeed are in evidence in the appeal books but in summary his Honour recorded that whilst not all the receipts were derived from practise as a barrister the great bulk of his income was derived from its source.  He recorded it in the next paragraph, 64:

None of the returns discloses the sale or disposal of any substantial assets during the period . . . The returns do not indicate that the Bankrupt derived any substantial income from a source other than his practice as a barrister.

GLEESON CJ:   There is a curious discrepancy between the gross receipts for 1996 and the gross receipts for the years before and after that.  Was that explained in the evidence?

MR COLES:   No.  It could not have been because the only evidence was the returns themselves.  As a matter of, I suppose, speculation, the bankrupt may have had a sabbatical or something but the answer is no, it was not explained.  His Honour then recorded that the state of the bankrupt’s estate, according to his statement of affairs after he had become a bankrupt which he apparently filed on 30 January 2001, his assets, in substance, were the Parramatta unit trust units valued at $100,000 together with a motor vehicle and some shares but seemingly no other significant, let alone significant income producing assets, forming part of his estate.

His Honour considered a number of matters including the submissions of the parties and analysed the content of the statutory provision, but if I can take your Honour to 1667 his Honour commenced to examine the question of the bankrupt’s liability to tax in 1987.  I just mention that, your Honour.  He then went on to consider the no case principles to which we will need to return later but if I can just go quickly to his Honour’s reasons and conclusions.  That really commences – if one could conveniently go to the foot of 1673 where his Honour describes what appeared to him to be an:

overriding factor in this case that cannot be pushed into the background or minimised.  It is that by August 1987 the Bankrupt had not lodged –

returns and he recorded – this is at line 27 on page 1674 – his Honour’s evaluation of the matter included this:

Moreover, the Bankrupt plainly had no intention of “coming clean” in 1987 (it was to be another twelve years before he lodged any tax returns).  These facts make it much easier to infer that the Bankrupt was prepared to take measures which he well understood were designed to prevent the Commissioner recovering tax due . . . 

The most obvious and, to my mind, irresistible inference from the evidence is that, whatever mechanism the Bankrupt used to rationalise his pattern of tax default, he was fully aware of the fact that with each passing year his liability to the Commissioner was increasing.  In other words, his indebtedness to the Commissioner, contingent only on the issue and service of assessments, must have been very much in the forefront of the Bankrupt’s mind.

GLEESON CJ:   Mr Coles, what was the reason for the uncertainty in the first complete sentence on page 1674?  I am only asking for reasons of our writing a judgment.  Do people not know for how long he had been a barrister?

MR COLES:   I am having difficulty with it, your Honour, because I think the evidence did indicate - can I tell your Honour why I think his Honour said that?  His Honour did not simply rely on a presumption of continuance, as it were, or did not rely at all really on the assumption that from the date of his admission, a date which was proved, he necessarily practiced continuously.  His Honour had before him a succession of business records in the form of property transfers, in the form of bank documents and so forth, where over a long period of time the bankrupt was always described as enjoying the occupation of barrister and it may be his Honour has picked the first of the dates on those objective documents as the very latest date after which the conclusion would necessarily be drawn that he was so practicing.

As I say, your Honour, the evidence showed the date of his admission but the documents which recorded progressively and fairly, we would say, often enough his status as a barrister in land titles documents and business records may not - the earliest of those might have been 22 years before rather than the longer period.  So that is not a significant area of doubt, your Honour, just his Honour’s preciseness or precision we would say in not jumping to conclusions about just simply based upon the date of admission.  The date of his admission was uncontroversial.  It was April 1961.

Now, importantly then for present purposes is what his Honour said commencing on appeal book volume 4, page 1675.  His Honour in paragraph 125 of judgment on that page recorded a submission:

that there was insufficient evidence to justify the conclusion that the Bankrupt had incurred a substantial contingent or potential tax liability in 1987.  Indeed, at one point, Mr Brereton –

submitted that there was no evidence he might have even exceeded any threshold.  His Honour dealt with that in discussion commencing at 126:

These submissions seem to me to overstate the deficiencies in the evidence.  By 1987, the Bankrupt had been in practice as a barrister for at least twenty-two years and probably more.  He had been appointed a senior counsel ‑ ‑ ‑

GLEESON CJ:   Why would you fail to file a tax return if you were showing a loss?  That would be a good reason for filing a return, would it not?

MR COLES:   Yes, it would.

GLEESON CJ:   To make sure you got the benefit of the loss.

MR COLES:   Yes, it would.  We wanted the benefit of the carry forward, the section 80E, I think it was in those days, and of course the obligation was an obligation on one’s assessable income, not the net income after the deductions were taken off.  His Honour records then that:

He had been appointed a senior counsel in 1981, six years before the asset transfers took place.  Mr Brereton did not dispute that I could take judicial notice of the fact that appointment as a senior counsel is and was at the time a recognition of a barrister’s professional attainments and expertise.  Moreover, by 1987 the Bankrupt had acquired the Shares which were worth $360,000 and entitled him –

worth $360,000 of course at the time of transfer -

as a practical matter, to occupy a “double room” on a floor of barristers’ chambers.  In 1986, the Bankrupt acquired units entitling him to occupation of another set of chambers in Parramatta for the purpose ‑ ‑ ‑

GUMMOW J:   We can all read this, Mr Coles.

MR COLES:   I am sorry.

GUMMOW J:   Why did you lose in the Full Court?  That is what you are complaining about.

MR COLES:   That is right.  I should go straight really to the Full Court’s reasons and offer your Honour some observations about what we ascribe to be their deficiencies.

GLEESON CJ:   Well, you lost in the Full Court because of what appeared on page 1757 paragraph 91, did you not?

MR COLES:   Yes.  Now, the Full Court’s judgment on this area of the matter, or this particular aspect, starts on 1738.

GUMMOW J:   It is reported by the way in 209 ALR 521.

MR COLES:   Thank you, your Honour.  I should have remembered that.  At 1755, line 35 their Honours turn to the evidence upon which his Honour relied for inferring and concluding that the bankrupt’s main purpose was to prevent assets being divided.  At 1756 his Honour sets out in paragraph 90 the passages to which I have referred in the primary judge’s reasons.  Your Honours will see in summary those reasons really amount to this.  His Honour said one, he has been in practice for a large number of years, including six years before the transactions as senior counsel.  Secondly, the practice was carried on seemingly at two sets of chambers, each of which were valuable and one in particular was quite valuable, worth $360,000, and his Honour said that leads to an inference that he had a substantial assessable income, as set out on page 1756.

His Honour then said that any doubts about the appropriateness of inferring that the bankrupt must have had a substantial income would be allayed from the information contained in the tax returns, which your Honour has seen, and he records that.  The primary judge said, as appears in what is set out in 1757:

the returns support the inference available from other evidence that in 1987 the Bankrupt faced very substantial tax liabilities –

which his Honour was not prepared to quantify, but said “substantial” could be at least several hundred thousand dollars.  Now, paragraph 91 the Full Court say:

There was no need for his Honour to make any findings about the bankrupt’s precise income, but in our opinion, the evidence did not establish that, on a balance of probabilities, the bankrupt had a contingent liability to the Commissioner for any tax, let alone several hundred thousands of dollars.

GLEESON CJ:   Did the evidence show when he obtained a double room?

MR COLES:   No it did not, your Honour.  The evidence showed he had bought the double room, your Honour.

GLEESON CJ:   Was that in Selborne or Wentworth?

MR COLES:   It is not clear, your Honour, but can I show your Honours what the evidence did show.  If your Honours would go back to volume 1, in the notes kept in a file by the bankrupt’s solicitor, who was instructed at the time to implement the transaction, your Honours will see that at page 337 there is a notation.  The solicitor there recorded – this is a transcript of his file notes, or a file note on 21 August 1987, about nearly a week before the transaction went forward:

Counsel’s chambers – he purchased both parcels of shares before 19/9/85 –

a date which your Honours will probably recollect, although somewhat irrelevantly to this bankrupt, was a date prior to which there were no significant capital gains tax consequences.

So we know that he had owned them for a little over two years at least before the transaction in question in 1987, and we know significantly that the instructions he gave to his solicitor was that he had purchased them.  Later your Honours will see that the Full Court thought that he might have acquired them by some other means than purchase or by some other means than purchase from his own moneys, but the limited instruction he gave his solicitor on that topic was that he had purchased them, we would say, himself.

So far as the Parramatta units are concerned, if your Honours go back to 333 in the same volume, the notation at line 7 recorded by his solicitor was that:

He bought Parramatta units in 1986 $30,000 in all (after CGT commenced/Counsel’s chambers to check).

So that was a note the day before the CGT check was made in relation to the two parcels of shares in Counsels’ Chambers.

Their Honours commenced their reasoning, if I can take your Honours to paragraph 92 on page 1757.  Having recorded the conclusion in the paragraph before that “the evidence did not establish that . . . the bankrupt had a contingent liability . . . for any tax, let alone several hundred thousands of dollars”, their Honours then said:

If there had been evidence that some or all of the Shares or the units referred to in paragraph [126] . . . had been paid for out of the bankrupt’s professional earnings, the case would have been very different.

We pause there to say that the evidence such as it was indicated that he was the holder of the shares, that he used the shares and units for his professional practice.  The likelihood that there was any inference more probable than that he acquired and paid for them himself was not, we would respectfully think, a great one.

GLEESON CJ:   What were the competing possibilities?

MR COLES:   We ask rhetorically that same question, your Honour.  The competing possibilities, according to the Full Court – and we ascribe error to this conclusion as well – was that, if your Honours go to the top of the next page, their Honours put it this way:

It is often the case that the purchase of income-generating assets is funded by loans.

They speculate, in our respectful submission, impermissibly on the prospect that the bankrupt might actually have funded the acquisition of the assets used in his business, that is to say the shares and units for his chambers, by borrowings, perhaps secured borrowings.

GLEESON CJ:   Why is that a competing possibility?  You have to pay off the loan presumably.

MR COLES:   With respect, our very point.  We say that it advances the matter not one centimetre to say that the prospect that the bankrupt acquired the relevant shares by loan is any different to whether he purchased them out of his savings.  If you borrow money, as we put in our submission, you have to pay it back.  I suppose one could – indeed, there is some evidence, I am reminded, that he had in fact left – as indeed the Full Court points out ‑ ‑ ‑

HAYNE J:   Is not the fundamental proposition that the Full Court makes that it is not shown to be more probable than not that a person admitted as a barrister, describing himself as a barrister, maintaining two sets of chambers for more than 20 years, did not make a net income, whether from practice at the Bar or elsewhere, of more than, what was it, $3000 or $4000 a year from time to time, the tax-free threshold?

MR COLES:   Whatever threshold is set just above the earnings of paperboys in the community.

HAYNE J:   It is the tax-free threshold which is the critical amount, is it not?

MR COLES:   Yes.

GUMMOW J:   We do not have that, do we?

MR COLES:   No, we do not, but we would think - his Honour did not make any finding about it.  He did not need to.

GUMMOW J:   We do not need to; it is a matter of law.

MR COLES:   The issue is whether he made a substantial income which would have more probably than not generated – on this aspect of the case.  There is another aspect but on this aspect of the case, the issue is whether it is more probable than not in the facts as described he would have made an assessable income of some substantial amount.

GLEESON CJ:   What you need is enough income to generate a purpose of the kind for which you contend.

MR COLES:   Yes, that is right.  We do not shrink from what the dissenting judge in the Full Court said, that on the facts broadly, as your Honour Justice Hayne has described them, it would beggar belief to prefer a contrary inference as more probable.

HAYNE J:   The competing inferences seem at first blush to depend upon resort to capital which by hypothesis cannot be in the name of the bankrupt for, if it were, why is one to assume that that is not income‑producing capital or access to some other source of income not otherwise identified other than the possible generosity of his wife?

MR COLES:   The proposition now put by our learned friend goes perhaps a little to answer your Honour the Chief Justice’s earlier questions, our learned friends now put a proposition in terms, although it was not quite so directly indicated by the majority of the Full Court itself that Mrs Cummins might out of her wealth, which was suggested to be substantial and was suggested to be independent, have funded these acquisitions.

GLEESON CJ:   That is where Jones v Dunkel would cut in, is it not?

MR COLES:   That is where Jones v Dunkel cuts in strongly, in our respectful submission, but even before it does, it could not, in our respectful submission, ever reasonably be said that there was an equal competing inference or an inference of equal degree making it at least as likely a probability that she had done so.

HAYNE J:   And the further fact which my recitation omitted and perhaps is of some significance is that the person concerned was judged of sufficient professional eminence and ability to warrant advancement of silk during the course of this period. 

MR COLES:   Which, as your Honour has seen, was accepted by our learned friends as a recognition of his expertise and attainment in the profession.

HAYNE J:   That is what it comes to, is it not?

MR COLES:   It is what it comes to.

GLEESON CJ:   And to have a double room in the building.  There were not many double rooms available in the building.

MR COLES:   A matter which a judge sitting in Sydney, under section 144 of the Evidence Act could take judicial notice of.

GLEESON CJ:   Is that right?  Was the evidence that he had a double room?

MR COLES:   Yes.

GLEESON CJ:   Or a room and a half.

MR COLES:   No, it was a double room.  There are two parcels of shares times 3,000 and that was supported by some other evidence that he later sold 2,000 of the shares.

HEYDON J:   Everyone knows that if you occupy office space in central Sydney, it has to be cleaned, lifts have to be maintained, you could not be there for many years without someone paying that.  People do not do that unless there is the hope of gain.

MR COLES:   That is a rational inference.  You cannot practice any profession without incurring some overheads and liabilities, if only for books and so forth.  Can I say, although our learned friends perhaps take it a little further than the Full Court itself was prepared to take it by the supposition that Mrs Cummins might have been the source of funds, we would respectfully say, your Honour, that suppositions of her generosity are at lease not wholly consistent with her resulting trust case in these proceedings. 

GLEESON CJ:   Mr Coles, the Full Court said there was an insufficiency of proof – and they might have been right or they might have been wrong about that, we will have to decide that – but they also said there was a competing case, as it were, with a trail left in documents as to reasons why these things were done and this gets back to the concept of main purpose.

MR COLES:   It does.

GLEESON CJ:   Did any of the judges in the Federal Court address the possibility that there might have been two purposes - one to defeat, if I can use that general expression, the Tax Commissioner, and another to quarantine the barrister’s home and professional chambers against the possibility of an action for professional negligence and did anybody in the Federal Court ask whether, if those two purposes existed, the proper conclusion would be that one or the other was the main purpose?

MR COLES:   In terms, particularly as to the latter part of your Honour’s question, no.  Plainly, however, both courts, the primary judge and the Full Court, were pressed with submissions from the respondent that it should be inferred from little more than the fact of the Giannarelli litigation being available for – understanding from law reports, that the bankrupt might, and it was elevated to the level of a hypothesis at least of equal degree of probability with the main purpose to defeat creditors ‑ ‑ ‑

GLEESON CJ:   The question I have asked you assumed that a Giannarelli purpose would not be within section 121.

MR COLES:   Yes, your Honour.

GLEESON CJ:   But just making that assumption for the moment, and I realise it is not self-evidently correct, how would you set about deciding which of the two purposes was the main purpose?

MR COLES:   Well, again, the process involves the drawing of the inferences from the proved facts.  It is not a self-evident proposition that a professional person necessarily wants to quarantine their assets against the prospect of future creditors, or perhaps for all we know present creditors, who may have professional negligence claims against them when one knows, for example, that insurance is available against that outcome.  One would need more than just a conjecture from the prospect that he might have – for example some evidence, if I can adapt for a moment the Full Court’s line of reasoning, some evidence that he may have had dissatisfied clients, past and anticipated, might suggest that he had a Giannarelli type of purpose.  There was none.

Some evidence that he had at least read the Giannarelli decision and knew about it might have gone some distance in that regard but there was no evidence beyond the – the Full Court was prepared to suppose that the history of ‑ ‑ ‑

GLEESON CJ:   It does not matter if there was a note made by his solicitor at the time, was there not?

MR COLES:   Yes.

GLEESON CJ:   But he was talking to his solicitor about Giannarelli.

MR COLES:   No, no, indeed.  Perhaps I should take your Honour to those notes now because they are of some general interest, in our respectful submission, in weighing up contextually what your Honour – if your Honours start at 281 of volume 1, if I can just trouble – it is not a lengthy excursus.  One matter of importance, your Honour, is that when he went to see his solicitor, or when he instructed his solicitor more accurately, to implement these transactions, there is nothing in the solicitor’s notes at all that records a concern of the, what I will the Giannarelli‑purpose kind.  Equally, it must candidly be said there is nothing in the solicitor’s notes that records an apprehension, or indeed records a disclosure, of potentially substantial and persistent income tax default.

But there is certainly much in the solicitor’s notes that records a concern about the operation of section 121 of the Bankruptcy Act and its State analogue, section 37A of the Conveyancing Act, and does so in terms where the author of the note, Mr Harris the solicitor, was conscious of the fact that the circumstances, we would suggest, of the transaction he was being asked to implement might put upon the disponees the need to justify the disposition under what in the current Act is subsection (4).

Now, interestingly, your Honour, I mention in passing there is no attempt by the respondents in these proceedings either to plead or make out a case of transfer for value in good faith and without notice, such as might have been done at the time the solicitor was ruminating on these notes.  The next observation we wish to make is perhaps, although it might be suggested the solicitor was doing this on some sort of pursuit of knowledge for its own sake or some sort of self-credited continuing legal education, it seems to us the greater probability he was doing it because of the instruction from and the need to advise the bankrupt in relation to the chances of the transaction ultimately withstanding scrutiny.  The note on 281, we would respectfully suggest, makes that plain enough.

The transaction must be structured, we would suppose, whatever that may have entailed, so that Mary, who was plainly Mrs Cummins, must be a purchaser.  That is of course, we would think, the solicitor was thinking there so that she could make out the defence of bona fide purchaser for value without notice, and a defence of course which, if the notes mean what they appear to say rather suggests that the assumption was there was an –

alienation of property with intent to –

to defraud creditors –

unless – or as the solicitor records it – except where the alienation is to the “Purchaser in good faith” without notice and for that reason “Mary Must be a Purchaser”.

GLEESON CJ:   Was it in 1998 that there first appeared records in bank notes, for example, that properties were held in the name of Mrs Cummins for legal reasons in view of her husband’s occupation?

MR COLES:   Yes.  There are two notes.  They are both in 1998, and in connection, it seems, with transactions where Mrs Cummins was on her own behalf the applicant for loan accommodation.  As our submissions indicate, we rely on notations of that kind in a number of ways.  We say if we rely on the, in effect, plain acknowledgement that it is unlikely in the light of those notes that the bankrupt himself, as was suggested in the Full Court, might, unbeknowns to anybody, and notwithstanding there is no indication in his report as to affairs or his tax returns or those of which he filed of other property, that he might for some reason, at least between 1987 and 1992, have had this large fund of unidentified property which he was secreting or sequestering carefully against a future liability for tax, notwithstanding his disinformation in that regard.

The note at 283, likewise, records the ruminations about the necessity for valuable consideration and whether the debt could be safely forgiven, in effect, and draws attention significantly, we would think, to Williams v Lloyd, of course a leading authority of this Court, as to when not in particular circumstances, circumstances wholly unconnected with the facts of this case, we would respectfully think, when there will not be drawn an inference that the transaction was attended by the relevant intent.

GLEESON CJ:   Would a purpose of quarantining assets against possible future liabilities for professional negligence be a purpose which fell within section 121?

MR COLES:   In our respectful submission, ordinarily so.  The distinction must be drawn between those who by reason of their intentions to carry out their commercial activities in a certain way, appreciating the prospect of creditors being the result and desiring to subtract from their assets the fund available to pay those future creditors, a circumstance which produces or justifies, on the authorities, the drawing of the relevant inference, distinguished on the other hand with – and with respect, Williams v Lloyd is a very good example of perhaps the more exceptional case where the gentleman concerned - and there was some evidence about this in that case - the gentleman concerned was not going to any – if your Honours have Williams v Lloyd (1934) 50 CLR – the gentleman concerned had retired from his business and was, or apparently had come under the influence or at least made the acquaintance of a person whose commercial integrity was questionable.

What he intended to do was to in effect invest money in the enterprises being promoted by the rogue.  His family were – and members of the family actually gave evidence about this which makes all the difference, in our respectful submission, to the effect that the insistence of the bankrupt’s wife certain assets were made over to family members with the intention not to put them beyond reach of the bankrupt’s future creditors but simply to isolate them or immunise them from being at risk to be invested in the new venture.

The difference is that if you anticipate you will have prospective trade creditors from your new business of a hazardous kind, then the disposition will very likely attract the inference of intention.  If on the other hand you are willing to go into a new business but only to, for example, hazard or put up as the capital for that business a limited portion of your assets, keeping the other part away from the new business, and you do not in that new business anticipate there will be creditors and you do not have any creditors at the moment, then the inference of intent will not be drawn.

GLEESON CJ:   Suppose a medical practitioner says, “I’d like to go into practice as an obstetrician and gynaecologist but I can read the law reports, so I’m going to transfer my house to my wife”.  What is the consequence of that?

MR COLES:   That is a very difficult one, your Honour, but we would simply say that if the evidence is that the risks of what I will call the new business or new profession are such that they generate in the disponer an anticipation that he will have creditors arising from that new business in the future, then he falls squarely within the Mackay v Douglas sort of area, that is to say an intention could be inferred.  You would need to look at all the circumstances, we would emphasise.  On the other hand of course, if a person – one could take, say, the example of a person who has decided to go into gambling.  He says, “I’ve got a million dollars at my disposal but I want to become a professional gambler.  I’m going to put $500,000 of that into a settlement for my wife and children and thereby immunise that fund from my future commercial activities”.  Then readily enough you could probably draw the conclusion – and that is really the Williams v Lloyd situation, I think – where you are simply disabling yourself rather than disabling your creditors from access to property of your own which you might otherwise improvidently dispose of, bearing in mind of course a gambler does not, unless he gambles on credit, necessarily have creditors; he loses his money. 

So one can imagine that there are cases where wishing to do no more than quarantine your assets - in other words to put a limitation on the extent to which you are prepared to make your assets available as part of the capital of your new business is one thing.  Doing a transaction which has the intention of making sure any creditors, if there are any, of that new business are impaired in their access to what is disposed of is another, in our submission.  So Williams v Lloyd seems to us to be a special sort of case explicable on the fact that the man was not necessarily contemplating having creditors in the new business.  He was simply contemplating that he would be appropriating some assets to a speculative venture where the assets could be lost.  Appropriating assets to a speculative venture where they could be lost is not the same as contemplating in a close way the prospect that you will have creditors of that business.  You may simply lose your money without having creditors.

Again, your Honours, the example of the obstetrician may be problematical in a sense because, although at some expense an obstetrician of course can obtain insurance for the ‑ ‑ ‑

GLEESON CJ:   At very high expense nowadays.

MR COLES:   At very high expense, yes.

GLEESON CJ:   Was there any evidence as ‑ ‑ ‑

MR COLES:   Could we say one way of perhaps testing it – and I appreciate your Honours will not in this case be laying down the bright line over which one may not step – but one could probably safely say that if one is in a situation where one does not have existing creditors and one does not have in the circumstances as presently existing anticipated creditors, that is to say you have no apprehension of claims pending against you a fortiori where you have not actually started or embarked upon the profession but merely ‑ ‑ ‑

HAYNE J:   Justice Dixon referred to it at 50 CLR at the head of 372:

the bankrupt was in a perfectly sound financial position and had nothing to fear ‑ ‑ ‑

MR COLES:   Yes, that is exactly it, that was the situation in that case.  What he had to fear was the loss of his capital in the new venture.

HAYNE J:   Just so, but the transaction undertaken by a person at a time when that person is in a perfectly sound financial position having nothing to fear may at the least tend against drawing the conclusion that the transaction was done with intent to defraud.

MR COLES:   Yes, I respectfully agree with that, your Honour.  The passages relevantly in Williams v Lloyd are 371 over to 372 and if I could, for completeness, your Honour, also mention in the particular facts of that case what fell from Justice Evatt at page 377 because an explanation of Williams v Lloyd is, of course, that as a result of evidence being given, not only was the inference displaced but, according to that judge at least, there was affirmative proof of the absence of the relevant intention.

I just remind your Honours, in paragraph 10 of our written submissions in reply we draw attention to the fact that this particular bankrupt is not at all in any sense like the deceased, Mr Williams, in Williams v Lloyd who had nothing to fear at the time of the dispositions.  We say the hypothetical person which the respondents refer to in their submissions, which is closer to but not entirely congruent with your Honour the Chief Justice’s example of the prospective gynaecologist, simply is not a description of the type of bankrupt in this case because we respectfully say he had been in all likelihood involved in a hazardous venture, quite apart from the hazards of practising law, but the hazardous venture of practising law without the attendant necessity of lodging tax returns and that, in effect, became in substance a component of the manner by which he pursued his profession.

Of course, it was not a passive non-lodgment.  The bankrupt, we would respectfully say, must have had a settled and definite resolve at the time of the transactions that he would not be lodging tax returns in the future borne out convincingly by the fact that it was not until 1999, some 12 years as the primary judge pointed out, that he did so.  Accordingly, the hazards of his having accrued and, most importantly, being in a position of being likely to accrue, a matter the Full Court rather tended not to concern itself with, liabilities for tax, in our respectful submission, puts him in more in the hazardous trader class than the new investor class.

GLEESON CJ:   Was there any evidence about whether Mr Cummins carried insurance?

MR COLES:   There are some deductions in his tax returns for insurance but we cannot say they are professional.

GLEESON CJ:   Was there a time when insurance became compulsory for barristers?

MR COLES:   Yes, but it was not until 1995, your Honour, according to our understanding.

GLEESON CJ:   I see.

GUMMOW J:   In Williams v Lloyd, Justice Starke dissented at 362 and he said in effect it was open to the primary judge to look at all the facts and decide what he decided.  How did the majority in Williams v Lloyd manage to reverse the primary judge?

MR COLES:   I do not think I can do better than point to the passage at 371 to 372 in the judgment of Justice Dixon and, indeed, the passages in Justice Evatt’s.  Justice Starke’s observation that:

It is difficult, in the face of evidence such as this, to regard the dispositions made by the bankrupts as genuine provisions for his family -

was the particular colour he took from the circumstances.  He, being prepared and it must be, I suppose, an evaluative exercise in each case, how much importance or how much significance do you ascribe to such matters as retention of possession, the covertness or secrecy of the transaction itself, the false recitals in documents and so forth.  They are matters for evaluation, we suppose, in every case and indeed it is part of our criticism of the Full Court in this case that they gave them but scant consideration.

GLEESON CJ:   This may be a consideration that is on the margin of the present case but just in case we have to address it, how concrete do the creditors referred to in section 121 have to be?

MR COLES:    Well, point one I suppose, your Honour, the section is not confined to the existing creditors in defined amounts and it is not confined to existing potential creditors in the sense that their claims have fallen due, albeit not matured into verdict or judgment or assessment, and it extends to future creditors even though the matters in which those future creditors’ claims have their origin have not yet occurred so long as, always, it can be fairly inferred that persons of that kind are anticipated in the circumstances because the - and the corollary, I suppose, of that is that when one is looking at the bare fact of the subtraction of substantial items of property from the bankrupt assets, and one is wondering why he did that, one is at the same time recognising that the very act of subtraction makes unavailable, axiomatically, the property from those present and future creditors.

The question then to resolve or at least to inform issues of intent is to what degree, at least in the case of future creditors, might it be supposed the bankrupt ought to have contemplated or anticipated their claims or claims of the nature or kind that ultimately emerged.  Of course, in the present case that is very easy because there is not the slightest doubt, in our respectful submission, that the bankrupt could have otherwise than contemplated the emergence for the years to come.  Whatever was the position for the years past, for the years to come he was going to be accruing substantial tax liabilities.  He must have had in contemplation the Commissioner as a prospective creditor for the future years even if perhaps assuming the Full Court of the Federal Court was right, he had for some reason no need to worry about his liabilities to the Tax Office before 1987.

HAYNE J:   Now, Justice Evatt’s reasons in Williams v Lloyd at 377 appear to put into two very separated boxes an intention to make a reasonable provision for the family, one box, and the other box, putting property out of the reach of creditors.  That rather suggests two things - first, a focus on divination of intent, but secondly, singularity of intent rather than mixed intentions and the like.  Now, under the provision now in question, or its analogues or predecessors, is the question of identification of creditor or creditors rolled back up into the identification of the relevant motive intention purpose?

MR COLES:   Well, I think I would have to accept, your Honour, that the two notions are, practically speaking, inseparable at least if one is looking at evidence which depends largely on inference.  It may be otherwise, perhaps, if one is evaluating more direct evidence, but if the matter is one of inference from rather limited facts then intent and the existence of actual or prospective creditors must be very closely related if not almost identical.

HAYNE J:   Well, how does that fit with – must it fit with - the notions that we see in Justice Dixon’s reasons about “perfectly sound financial position”, “nothing to fear”?

MR COLES:   Both in that case and in the present case it is the “nothing to fear” that is the very important part.  It is more important than the “perfectly sound financial position” part in some respects.

HAYNE J:   Does it for the purposes of this case turn, as I understand your submissions, on the proposition that the tax man was there and it was open to infer that there was a not insignificant liability that could have been crystallised at once ‑ ‑ ‑

MR COLES:   Yes, and that is ‑ ‑ ‑

HAYNE J:    ‑ ‑ ‑ at the time of the transactions which it is sought to impugn.

MR COLES:   Not only, we emphasise.  It is open to infer that as at 1987 there was a substantial and crystallised liability which had not ripened into a formal assessment, but equally open to infer that it was the bankrupt’s expectation or anticipation that as the years went by and he pursued his settled resolve not to file tax returns while he was deriving income, there would be an accruing liability for the future against which he desired to protect himself.  It is not difficult to infer, in our respectful submission, in 1987, firstly, that the bankrupt would propose to persist in not lodging tax returns and, as the primary judge pointed out, he managed to maintain that persistence right through the years, 1991 through to 1999 when he obviously did have a very large assessable income.  So not difficult to infer back in 1987 he had that present subsisting resolve, and equally not difficult to infer at all that persistence in that resolve would carry with it the accrual of an anticipated creditor for those future years.

So even if one could live with the reasoning of the Full Court as to the period up to 1987, there is the secondary position, or the equal position – and perhaps it is in some respects a more significant one with which the Full Court did not really deal – namely, that there was this expectation of an anticipated and accruing prospective liability for the years to come.

GLEESON CJ:   Did the outcome in Williams v Lloyd turn upon the fact that it was her idea and not his?

MR COLES:   Yes, largely.

GUMMOW J:   That is what Sir Owen Dixon seems to be saying at 372.  He says:

The source of the dispositions was the wifely and motherly view –

et cetera.

MR COLES:   Her intention prevailed over his intention since.

GLEESON CJ:   Why would that matter?  Why would it matter in a given case if the idea of transferring the family house to the wife came from the wife or the husband?  Let us suppose a man is about to go into a speculative business and before he does so he transfers the matrimonial home to the wife.  Why does it matter whether the idea of doing that came from him or from her?

MR COLES:   Normally it does not, but all I can say is it may, depending on the facts of a particular case, become an important matter.  As a matter of generality, if I may respectfully agree with your Honour the Chief Justice, it does not matter.  As a matter of principle, it does not matter.  As a matter of fact-specific analysis, it may in a given case have some significance.  If one finds that the origin of the transaction, as, for example, in the case of the mariner who had newly taken a wife and newly come into an inheritance and wanted to make provision for that wife and gave evidence to that effect on oath in an affidavit and was not cross‑examined and was accordingly believed, then one has that sort of evidence of the actual intention.

If I can respectfully say this, your Honours, that the cases describe – and I think really if I can ask your Honours to look at it, the case which I think our learned friends place some reliance on, the case of Mercer is a very good illustration in that respect because it illustrates what has in the authorities long been a tension between what you can infer on the one hand where there is not much evidence and what you can find as a fact on the other hand where there is both the available inference but also some admissible evidence.  Ex parte Mercer.  In re Wise 17 QB 290. I do not think it is on our list.

I will not ask your Honours to look at it but that was a case where the appellant’s creditors’ entire claim proceeded on inferences to be drawn from a circumstance that the settlor had disposed of recently acquired valuable property in favour of his wife recently married at a time when a lady to whom he had become engaged had just told him that she was suing him for breach of promise, a claim which on the evidence he asserted he did not take particularly seriously.  One would rather question on those facts why the inference would not be immediately drawn.  That is indeed exactly what the court said.  They said at first instance the mariner swore an affidavit saying at the date of the settlement, “I was solvent and could pay my debts and therefore no consequences”.  The court said on those facts you would still draw the inference that the intention to defraud the creditors in the accepted sense was there. 

Later on appeal and in subsequent progress of the case, the mariner disponer swore a further affidavit in which he gave a more detailed account of the transaction and a closer attention was paid to the text of the settlement itself which had gifts over back to the bankrupt in certain events and was less persuasive of an inference.  Because the bankrupt was not cross‑examined on his affidavit and the court said that his evidence was capable of acceptance, the inference available from the facts otherwise unexplained was not drawn.

All that case indicates is that there is often in the old cases a tension between the extent to which the inference might be sought to prevail, the inference from the disposition, the size of it, the circumstances surrounding the existence or not of creditors actual or potential on the one hand, and on the other the sworn evidence of the bankrupt or, in the case of Williams v Lloyd, the bankrupt’s family, the bankrupt then ceased.  The court has necessarily open to it, must have open to it, the judicial task of deciding that in the particular facts of the case the court believes the sworn evidence of the bankrupt.  That is so.  Now, of course the inference being the usual tool, we would think, by means of which these things are proved just does not have any room to operate or, if it has room to operate, it has no necessarily compelling reasons to prevail over the sworn evidence which the court accepts.

So, in our respectful submission, one needs to bear in mind that many of these cases which have produced many of the observations referred to have been cases where, as in Williams v Lloyd, there was evidence bearing on the real intention and many other cases where there was not because the matter was left to one of inference of intention from all of the circumstances, it being not uncommon for bankrupts and their disponees to decline to give evidence.

I told your Honour that the compulsory insurance came in in 1995, and there is certainly evidence that this will be found at appeal book volume 2 at page 629, certainly evidence which says no more than this.  There are insurance certificates from 1995, and the relevant Bar Association officer recorded that prior to 1995 “indemnity insurance was not compulsory” and that the Bar Association “have no record of whether or not you had cover”.  So the matter was in a state of – that was apparently in response to an inquiry that Mr Cummins himself made to the relevant membership officer of the Bar Association.

I was, I think, your Honours, making some short submissions as to our responses to the Full Court’s criticism of the primary judge’s reasons and I have dealt with the proposition of the Full Court that you just could not infer in effect that he might have purchased his own business or assets out of his own moneys because his own moneys might include borrowed moneys, a proposition which we say is not tenable.  Their Honours then reason at 1758, at the foot of the page in paragraph 97, they said it was a deficiency in the Trustee’s case that they did not:

call any evidence from any officer of the Commonwealth Bank which held a mortgage over the Hunters Hill home and which might have been given as collateral security for borrowings to acquire the units relating to the Parramatta chambers –

presumably in 1986.  That unfortunately, from the perspective of the Full Court, in our respectful submission, overlooked evidence which appears in volume 1 at page 286, we would think, or overlooked the thrust of evidence that would suggest at 286 that the position were otherwise.  At 286 your Honours will see a letter to the solicitor, Mr Harris, on 13 August 1987, a little under two weeks before the transfer went ahead.

HEYDON J:   From Mr Harris.

MR COLES:   I am sorry, from Mr Harris to the bank, the Commonwealth – obviously the same bank which the Full Court thought was the bank which held a mortgage over the Hunters Hill home, and Mr Harris records his understanding:

that there are no monies presently secured by the Mortgage and it is our clients’ wish to register a Discharge thereof.  Would you please arrange for a Discharge to be executed –

and I think there are some notes from Mr Harris in effect confirming that his discussion with the bank had produced the information that there was in fact no mortgage then held, that is to say in 1987, over the Hunters Hill home and, therefore, contrary to the Full Court’s supposition, even if the supposition were permissible, that might have been collateral security for the acquisition of units.  Their Honours said at the top of page 1759:

there was simply no evidence about the source of funds for this acquisition –

In our respectful submission, if by that their Honours mean that there was no straightforward, objective and plain evidence that identified the source then that may be correct or not.  But there was certainly, in our respectful submission, more than sufficient evidence to infer that in all probability – or that the most likely inference was the bankrupt had acquired his shares in the units and his shares in Counsels’ Chambers as well from his earnings as such and that those earnings were substantial.

In paragraph 100 on page 1759 their Honours in the majority of the Full Court allowed that:

It might well be expected that, on average, a barrister who had been in practice for 22 years, including six years as senior counsel, would have enjoyed a large taxable income.

With respect, their Honours there seem to be acknowledging the availability of that inference but they say:

But, in our opinion, the respondents needed to adduce some evidence (albeit slight) of the likely level of taxable income which this particular barrister enjoyed, ie did he fit the stereotype average?  Or even, was it likely that he did?

In our respectful submission, their Honours really demand too much.  There was a very good reason why the Trustee’s evidence – two good reasons, in one sense – why it would be supposed that the Trustee’s evidence could not have included evidence of the bankrupt’s actual or stereotypical levels of taxable income at times up until 1987.  Of course, the first and most obvious reason is that the bankrupt did not have any tax records for that period so there was no evidence that could have been supplied.

GLEESON CJ:   Although your clients are the Trustees, the person in whose interests you are substantially appearing is the Commissioner.

MR COLES:   Yes.

GLEESON CJ:   That being so, would you please let us have within a week of the conclusion of this hearing a list of the minimum limits below which it was not necessary to file an income tax return between 1957 and 1992?

MR COLES:   Yes.  I can tell your Honour, in general terms it ‑ ‑ ‑

HAYNE J:   And if that requires reference to the relevant Gazette notices published under 161, there should perhaps be reference to where those Gazette notices are to be found.

MR COLES:   I can do that, your Honours.  I can tell your Honours by way of forecast, that information I think will supply something to the effect that in the relevant time span your Honour has described the thresholds were, I think, in the $400 mark in the earlier period and they rose to something slightly under, I think, $5,000 by - £104, I am reminded in the first of the years and I think about $4,900-odd in the last of them.

GLEESON CJ:   Thank you.

MR COLES:   Of course their Honours, in our respectful submission, would also, or should also have borne in mind that there was some evidence, as I said before, given by the bankrupt’s accountant that suggested that his own account – the bankrupt did not really keep terribly clear or plain books and records and it seems, in our respectful submission, on the part of the Full Court to demand too much to in effect reconstruct.  At one stage they really suggested the Trustees might be constructing a sort of assets betterment statement but one asks rhetorically, on what?

If the answer is on the bankrupt’s records, well, they were insufficiently reliable, according to his own accountant, to do that.  If you say, well, the Trustee should have produced evidence of his taxable income, they were disabled from doing so by the bankrupt’s non‑keeping of tax returns for that period.  Then they say, your Honour, at 1759:

We do not think that, in those circumstances, it was open to his Honour to allay any doubts . . . by extrapolating backwards for a period of between four and eleven years –

That is to say, they deny wholly that his Honour, the primary judge, was entitled to look at the levels of taxable income or assessable income for the periods 1 July 1991 through to, I suppose, 30 June 1999 and draw any inference at all as to what might be the condition of his earnings not more than some four or more years before.

We quarrel with that proposition, your Honour, and we deal with it in the written submissions but it is, in our submission, an undemanding proposition that evidence may be – if the issue is what were the proceeds – what were the results of trading in a business at an earlier time and one knows from evidence what were the proceeds of trading from that business at some later – presumably not too distant time – then there is an available inference if the – subject to the condition – there is proof that the business was maintained in much the same sort of way, but ‑ ‑ ‑

GLEESON CJ:   Did the majority in the Full Court, at least by implication, arrive at the conclusion that during the whole of his time at the Bar, he must have been being supported by his wife?

MR COLES:   They never said that but that is the only possible inference, I suppose, that would have been consistent with their conclusion.

HAYNE J:   And supported not only as to matters on revenue account but supported also as to the acquisition on capital account of chambers. 

MR COLES:   Yes.  On the hypothesis no doubt it is hardly far-fetched to suppose on the Full Court’s reasoning that he went to work every morning with The Herald under his arm and did the crossword and came home in the early afternoon having in neither of his chambers any business sufficient to justify his endeavours to earn an income which, in our respectful submission, is not the most likely outcome.  One would simply not maintain two sets of chambers for the purposes of pursuing a futile - one could conceivably infer that a person of private means might have one set of chambers as somewhere to go or as I think, John Mortimer put it, somewhere to get you out of the house.

GLEESON CJ:   One would also have hoped that having regard to the people who were on the Bar Council in 1981, it might have been difficult to take silk.

MR COLES:   Can I just remind your Honours, the submission which the majority in the Full Court utterly denies at the foot of page 1759 is, in our respectful submission, supported by the authorities we have referred to in footnote 20 of our written outlines of submissions.  TNT Management v Brooks was an orthodox exercise of looking at the position of crashed vehicles after an accident and supposing what might have been the condition of things at the time the accident occurred, granted not very long before. 

HEYDON J:   That is very far-fetched.  I would not rely on that case if I were you.  It is significant that there is no page reference given in Justice Gibbs’ judgment.

MR COLES:   It is just the outcome of the case but I agree with your Honour.  More to the point are the two cases referred to in this Court’s decision, Kizbeau Pty Limited v WG & B Pty Limited which is a valuation case where the Court said why would you speculate on events when down the track you know the outcome and called in aid two New South Wales decisions, Selman v Minogue and McAllister v Richmond Brewing Co which were in effect deceit cases.  The issue was, when the defrauded purchaser of a business gave evidence of his own takings in circumstances where he said he had run the business much the same way as the vendor he supposed had run the business, could you rely on the purchaser’s own takings from a business to found some sort of inference as to what were the vendor’s takings from the business, in order to found a basis for a submission that there was a case to go to the jury as to the vendor’s deceit in overstating those takings. 

In our respectful submission, it is not a long jump to say that as a matter of commonsense you would not suppose, in this case, that all of a sudden Mr Cummins came into relatively large sums of money for the first time only in the 1991/1992 tax year and that everything else before was toil and drudge but unrewarding and unrewarded.  After all, in the inquiry, one is looking to see if there is an inference which may be drawn and at that stage one is looking to see whether the proved facts render more probable than not that condition of affairs.

GLEESON CJ:   On the Full Court’s finding he certainly displayed an unusual amount of perseverance.

MR COLES:   Indeed, so much so, in our respectful submission, that if the proposition were seriously to be advanced that his wife, as it were, funded him to pursue his dream then she or he would have come along and told us something about it.

HAYNE J:   As to the taxation liabilities, for my own part I would be assisted by having a better understanding than I do now of the penalty regimes that applied during these periods, which would give some indication of if a person owed $100 in tax in year such and such, whether what now is general interest charge and the like, penalties, et cetera, would end up, as I rather suspect it might, with $100 turning into something rather larger than $100 after a little while.

MR COLES:   I do actually have that information, your Honour.  I can either attempt it now ‑ ‑ ‑

HAYNE J:   It is better on paper I would suggest, Mr Coles, rather than orally.

MR COLES:   I was going to say that it may be more convenient to your Honours and indeed to our learned friends, if I were to give it to your Honour in a ‑ ‑ ‑

GUMMOW J:   At some stage the provisions in the Tax Administration Act 1953 changed.

MR COLES:   Yes, that is quite important because ‑ ‑ ‑

GUMMOW J:   You should know that.

MR COLES:    ‑ ‑ ‑ it was 1980 – those provisions, your Honours, came in I think with effect from the 14 December 1984 and they created rather a new world order for what theretofore had been something of a rather more relaxed view, at least penalty wise, but I can give your Honours I think the information Justice Hayne has in mind in a tabular form more conveniently I suspect than ‑ ‑ ‑

GUMMOW J:   It had better include those matters I just requested.

MR COLES:    Yes, thank you, your Honour.

GLEESON CJ:   Was there any evidence of how many amnesties there were between 1955 and 1999?

MR COLES:   There was not, your Honour, no.  The other matters that the Full Court referred to are generally discussed in our written submission and I perhaps need not elaborate upon further.  Two matters, however, need to be put in relation to the Full Court’s overall conclusion.  We have said, of course, that they really did demand too much in point of proofs of negatives and the like.  One instance of that we have given in our written submissions is that they, for example, say that slight evidence might have been produced of a search of the bill of sale register to show whether his shares were incumbent or not.

GUMMOW J:   Yes, I saw that.  Well, we can forget about that.

MR COLES:   It just goes to show, in our respectful submission, that the Full Court was under a misapprehension as to the sort of information that such searches could reveal and their supposition that the proofs of the Trustee should be judged in the light of the deficiencies in the Trustee’s evidence really required of the Trustee too much.  We accept, of course, that the evidence was, as the primary judge said, sparse, but we say, your Honour, as the primary judge said, that the question remains not what other evidence, if any, the Trustee could have produced but the only question is what evidence did the Trustee produce and was it enough to ground the inferences relied upon?

The two other matters that we wish to emphasise, one I have mentioned already is this, that the Full Court limited itself unreasonably, in our respectful submission, to the position up to 1987 without considering what thereafter was to ensue and secondly, of course the Full Court over‑valued the submission based on, ultimately, in our submissions, speculation derived from Giannarelli v Wraith.

We say, your Honour, that even if there had been a sufficient factual basis for a supposition that the bankrupt knew anything about Giannarelli v Wraith and the risks that it was contended it might have represented for barristers other than those in Victoria, then that paramountly would have been something which generated no more than an inference, the resolution of which would have been assisted by calling the bankrupt to give evidence about that matter, which he did not do.

GLEESON CJ:   Mr Coles, New South Wales has, since the middle of the 20^th century, been different from all the other States, or was different from all the other States in relation to the procedures for appointing Queen’s Counsel.

MR COLES:   Yes.

GLEESON CJ:   The principal point of difference was that in the other States the Attorney‑General’s decision was made usually on the recommendation of the Chief Justice, and in New South Wales it was made on the recommendation of the President of the Bar Council.

MR COLES:   The Bar, yes.

GLEESON CJ:   Is this in writing anywhere?  When, for example, a system changed from Queen’s Counsel to Senior Counsel in the time of Premier Fahey, is there any record to which we can refer to explain the system, the history of the system of appointment of Queen’s Counsel in New South Wales?

MR COLES:   Yes.  Your Honour will in fact find on the Bar Association web site – I can supply either a print copy or ‑ ‑ ‑

HAYNE J:   Material to which we may properly have resort, Mr Coles.

MR COLES:   But there is nothing in the evidence, your Honour, in this case as to the ‑ ‑ ‑

GLEESON CJ:   Is there anything in the Australian Law Journal for example about it?  I know that if you go to the history of the New South Wales Bar you will find some ‑ ‑ ‑

MR COLES:   Yes.

HAYNE J:   No regulation as there was in Victoria, Mr Coles?

MR COLES:   No, it is not done by regulation.  I am not sure because there was nothing before the primary judge about the matter.  So far as matters of sufficient notoriety as to which judicial notice may be taken, there are probably – I would expect at least an ALJ article.  As I say, your Honours went – well, the information is otherwise available perhaps in ways your Honours would not find as admissibly accessible.

HEYDON J:   A speech by the Chief Justice to the last 12 Queen’s Counsel when they were received in the Banco Court would be a document which has authority that cannot reasonably be questioned.

MR COLES:   Absolutely.

HEYDON J:   And 144(1)(b) of the Evidence Act would apply.

MR COLES:   Yes, absolutely.  We would say so, your Honour.  The last matter really, your Honour, is where…..concerns Jones v Dunkel.  As I reminded your Honours already, Justice Sackville reached his conclusion without needing to rely on Jones v Dunkel at all.  He found the inferences that were available to him sufficiently persuasive to be able to resolve them as a matter of probability without resorting to the confidence which the drawing of those inferences would have enjoyed by recognition of the non‑calling of the witnesses.

What the Full Court, in our respectful submission, did is - seemingly the Full Court must have recognised that the inferences which the trial judge thought were available, were available – albeit they did not think the evidence was in various ways good enough, and they undoubtedly weighed, as they must less there be a vacuum, a supposed competing inference, that is to say the Giannarelli v Wraith one, one would have thought then, your Honours, that on the – and this perhaps is a matter of impression from the reasons, but one might have thought that confronted with inferences of at least, on the Full Court’s view, equal degree, the Full Court might have then been able to resolve that by a technique which called into play the Court’s decision in Jones v Dunkel.

One point of importance perhaps that divides the parties – and our written submissions deal with it – in support of its desire to advance the no case submission which it put to the primary judge, the respondents made an affirmative election not to call evidence.  We see no reason in the light of this Court’s authority in Jones v Dunkel why an election of the kind made in this case, which is indistinguishable, in our respectful submission, from the election made in that case, produces any different result.  In Jones v Dunkel of course, there was the election – a company, an application for a verdict by direction, carrying with it the plain indication to the Court that the defendant was not calling evidence.

HAYNE J:   What is the inference in respect of which you say Jones v Dunkel can be prayed in aid?  The inference about level of indebtedness, the inference about purpose, or what?

MR COLES:   The ultimate inference that the – firstly, the underlying factual matters that it is more likely than not that the bankrupt, for example, up to and including 1987, enjoyed a substantial income.  That inference could more confidently be drawn by the bankrupt’s, and for that matter Mrs Cummins, giving evidence on the topic or – I am sorry, by their failure to give evidence.

GLEESON CJ:   Perhaps a more specific inference on the road to that conclusion might be related to the possibility that she had supported him for some 30 years.

MR COLES:   Yes, exactly.  If the inference said to weigh in equal balance ‑ ‑ ‑

GLEESON CJ:   And paid for the children to go to school.

MR COLES:   Paid for the children’s education and purchased the chambers and generally supported him in his aspirations, then that, in our respectful submission, would be the plainest type of case where one would expect the person supplying that support to have given that evidence and the absence, it would be then said, of that person from the witness box enabled the primary judge and enabled the Full Court more confidently to draw the inference firstly that that evidence was simply not available to be given or that if that person had been called, it would not have advanced the suggested inference.  Accordingly, that is one aspect of it.  The second aspect I suppose of Jones v Dunkel would arise, namely the other inference, assuming it to be otherwise available, could then be more confidently drawn by the primary judge.

Lastly, your Honours, I should move in view of the time to the second part of the appeal which concerns the interest of the parties in the Hunters Hill property.

GUMMOW J:   What I cannot quite understand it is, was it necessary for the majority in the Full Court to get into this question, given their primary decision?

MR COLES:   No, it was not.

GUMMOW J:   It was not, was it?

MR COLES:   It was not.  A way in which we formulate one of our criticisms is to say ‑ ‑ ‑

GUMMOW J:   So if you are right on what you have been telling us, we do not need to get into this.

MR COLES:   No, that is right.

GUMMOW J:   If you are wrong, what then happens on your first point?

MR COLES:   I suppose I lose, your Honour.  If I am wrong on – if the conclusion is that you just could not draw the inference of the bankrupt’s accrued or prospective tax liability, I suppose we lose.

GLEESON CJ:   If the Full Court had simply decided the case against you on the section 121 argument and not said anything about this other point, then presumably Mr Sofronoff would be here arguing still that Justice Sackville was wrong in concluding that half of the proceeds of sale of the Hunters Hill property should go to your client.

MR COLES:   Yes, that is right.  It is correct, as your Honour and Justice Gummow really say, that the Full Court did not need to discuss Jones v Dunkel at all, but our point really there is that Jones v Dunkel supplied an available tool to the Full Court to help them resolve the problem.

GUMMOW J:   I am not worried about Jones v Dunkel.  I am worried about resulting trusts.

MR COLES:   Yes.  On the issue now of resulting trusts, your Honours, the Full Court simply did not need to deal with any Jones v Dunkel – I am sorry, your Honour ‑ ‑ ‑

GUMMOW J:   You have a mind block.

MR COLES:   I am now addressing submissions, your Honour, on the Hunters Hill ‑ ‑ ‑

GLEESON CJ:   The Full Court did not deal with it but if they had not dealt with it, Mr Sofronoff would be making us deal with it.

MR COLES:   Exactly.  Your Honours, the Full Court did not need to deal with it, we all agree.  Could I then deal with it in this way.  We have set out in our written submissions the factual basis.  Your Honours will see the transfer of the property for $31,000 – that is the Hunters Hill property – to the parties which appears at page 204 of the appeal book.

GLEESON CJ:   I gather you do not challenge the Full Court’s correction of Justice Sackville in relation to the amount that Mrs Cummins contributed?

MR COLES:   No, I do not.  It is – I will not say de minimis, your Honour, but it is not worth taking your Honours’ time to survey something that is available, in our respectful submission.

GLEESON CJ:   When they bought the Hunters Hill property, was it developed or was it vacant land?

MR COLES:   It was vacant land for about a year, we think.  Your Honours will find two mortgages.  One is the trading bank mortgage and that is at appeal book 220, which is the mortgage granted by the Trading Bank of the Commonwealth Bank to Mr Cummins and Mrs Cummins:

In consideration of certain cash credit accommodation granted or to be granted from time to time to

John Daniel CUMMINS and Mary Elizabeth CUMMINS AFORESAID ‑ ‑ ‑

GLEESON CJ:   This is what I would like to understand a little better than I do at the moment.  When Mr and Mrs Cummins bought that Hunters Hill property, was it 1971?

MR COLES:   Yes.

GLEESON CJ:   In 1971 it was either vacant land or it had an old house on it that they knocked down.

MR COLES:   Quite.

GLEESON CJ:   So that presumably the amount that they put into the purchase of the real estate in the first place was relatively minor compared to the cost of the dwelling house that they erected on it.

MR COLES:   Of the overall expenditure on the project, yes.

GLEESON CJ:   Yes.  How was the overall expenditure on the dwelling house shared between the two of them?

MR COLES:   You find that, we think, your Honour, in part in the next mortgage which is the building mortgage, as I have called it, and that is at page 235.  Before your Honours come to it your Honours will see from the trading bank mortgage no sum is secure but it is common ground, your Honour, that the – just if I may mention this along the way through – it is common ground, I think, that the document at 227 records the deposit of $15,000 on the day of that mortgage which also corresponds with the day of completion of the purchase so that that mortgage secured at least the sum of $15,000 on its execution.

The building mortgage appears at 235 and is dated, I think, about a year later.  It is dated 16 July 1971.  The mortgagors again are:

John Daniel CUMMINS, Barrister of Hunters Hill and
Mary Elizabeth CUMMINS, his wife –

The suburb is given as Hunters Hill and that is said to be a mortgage:

in consideration of the sum of eight thousand dollars ($8,000) –

Then if your Honour goes to page 237 of the appeal book – I am afraid this is something of a trial to read but at the foot of the page on appeal book 237 there is a covenant No 41:

Where the loan is for the purpose of enabling the Mortgagor to erect a dwelling house on the said land the following provisions shall apply:-

(a)      The Mortgagor will forthwith commence to erect on the said land and will continue to erect with necessary

·    expedition and will complete within six months from the date hereof (strikes lockouts and other unforseen circumstances ‑ ‑ ‑

GLEESON CJ:   What I really wanted to ask, Mr Coles, is how much did the house cost to build.

MR COLES:   The only indication is the figure of $33,500 given in that clause. 

GLEESON CJ:   You can build a house in Hunters Hill for $33,000?

HEYDON J:   You could in 1971.

MR COLES:   This is 1971.

GLEESON CJ:   How much did the land cost?

MR COLES:   It cost $31,000, so it would not be disproportionate to build a house for the same.

GLEESON CJ:   Anyway, you say the inference is that the house cost $33,000 ‑ ‑ ‑

MR COLES:   By implication, the agreement between the parties and the bank was that it did.

GLEESON CJ:   Now, as between the two of them, who paid what part of the $33,000?

MR COLES:   We do not know and no one gave any evidence on that.  The only evidence, your Honour, is that the $8,000 secured by the savings bank mortgage, the building mortgage, was necessarily contributed equally because so advanced.  There is no evidence as to the difference between the $33,500 minimum cost of the house and the $8,000 advanced by the bank to procure its construction.

GLEESON CJ:   In the apportionment exercise that was done at first instance on an appeal, were they apportioning only the cost of the vacant land?

MR COLES:   Yes.

GLEESON CJ:   What did they do about the cost of the building?

MR COLES:   It was not taken into account, your Honour. 

GLEESON CJ:   Why not?

MR COLES:   I think the point was made that if one is looking at intentions so far as presumptions of resulting trusts are concerned or intentions of the parties as joint tenants to own equally or to own in trust one for the other in proportions referable to their respective contributions, one fixes the moment of intention at the time of acquisition, not at the time of development.

GLEESON CJ:   Yes, but in judging their intentions you would take into account what they were intending to do with the land, which is build a dwelling house on it. 

MR COLES:   Yes, quite. 

GLEESON CJ:   It seems a touch artificial, does it not, to work out the proportions in which they respectively contributed to the cost of what is going to be land with a matrimonial home built on it to concentrate exclusively on the proportions in which they contributed to the cost of the vacant land.

MR COLES:   We respectfully agree entirely, your Honour.  We can point to the fact that $8,000 came from the savings bank.  We say there is no explanation of where the remaining $25,000 came from but it obviously came from somewhere.  There are no other encumbrances on the title.  If it matters, Mrs Cummins’ tax returns for the years at the time do not self‑evidently support surplus income for the remaining $25,000 – that may be a matter of some conjecture – so we suppose, your Honour, the parties must have found, presumably equally, the remaining $25,000 if Mr Cummins did not in fact on a better inference on one view pay it all himself.

GLEESON CJ:   Is this a point at which Jones v Dunkel also may have some work to do?

MR COLES:   In our respectful submission, it is.  The entire resulting trust proposition, in our respectful submission, sustains serious review in the light of Mrs Cummins’ election to give no evidence on that particular topic.

GUMMOW J:   What about Shephard v Cartwright.  Does that have anything to say here?

MR COLES:   I cannot tell your Honour at the moment.  It seemed to me that it did, but I will have a think about that, your Honour.

GUMMOW J:   As to the use of subsequent events.

MR COLES:   Yes.  Well, in the case of inferences as to intention in relation to proportionate ownership of property, or interest in property, the law has tended against receiving evidence of subsequent events lest their shares bear one proportion one day and a different proportion another day, depending on what they say further down the track.  So we have not pressed to the forefront.  But we respectfully adopt the Chief Justice’s observation that a contemporaneous – I am sorry.  Your Honours will bear in mind the building mortgage is a year down the track.

GUMMOW J:   Yes.

MR COLES:   So it is not contemporaneous with the acquisition of the property.  We suggest, however, that it nevertheless founds an inference not so much as to their intention but as to a fact from which their intention can be inferred, namely the fact to be inferred from the building mortgage is that it was more probably than not their intention at the time of acquisition that the property should be acquired as a matrimonial home.  Now, that is not saying anything about prospective evidence as bearing on intent, but it is simply saying evidence down the track bears on a condition of affairs from which the intent at the time can be drawn.

GUMMOW J:   What you are saying may be perfectly correct, but it is not a distinction which is made in Calverley v Green.  Maybe it should have been.

MR COLES:   Well, I did not – well, it might have arisen actually, your Honour.  Perhaps it could have been available in ‑ ‑ ‑

GUMMOW J:   That is what I am worried about.

MR COLES:   Yes.  Well, it was not.  As I say, your Honour, we simply submit on the facts of this case that one can infer states of fact by later evidence, even if the fact so inferred as to the earlier time is a fact which in turn leads to an inference as to the parties’ intention for acquisition.

HEYDON J:   One thing that Shephard v Cartwright does permit is an admission.  On page 106 of volume 1 there seems to be a report by a solicitor of an admission by Mrs Cummins that it was half shares.  Do you rely on that?

MR COLES:   We rely on that most strongly in this case.  We say whatever else one may find about the circumstances of acquisition and so forth, there is a compelling admission by Mrs Cummins in August 1987 itself.

GUMMOW J:   Well, you had better take us to 106, had you not?  I am not sure you have looked at it.  Lines 3 and 4.

HEYDON J:  

Mary says . . . it would be John’s former half share in the property ‑ ‑ ‑

MR COLES:   Yes.

HEYDON J:   And Mary is only saying, “I have half a share in the property”.

MR COLES:   I confess I have not put any significant reliance on the file note of Mrs Cummins’ solicitor as late as 2002, which is well after the case of course is under way.  I think, your Honour, between the two occasions – in the period between Prentice v Cummins (No 5) and Prentice v Cummins (No 6) ‑ ‑ ‑

HEYDON J:   Hang on, that is well before Justice Sackville’s judgment though.

MR COLES:   I am reminded of this Court’s decision in Charles Marshall v Grimsley, which we can give your Honours the reference to after lunch.  We would say that – can I ‑ ‑ ‑

HEYDON J:   Admissions can be damaging ‑ ‑ ‑

MR COLES: I am sorry, it is in our submissions, your Honour, in footnote 60. It is 95 CLR 353. The relevant point in time we say is the period before and at the time of purchase. Subsequent declarations will be admissible only as against the parties that made them, and that seems to be supported by Charles Marshall v Grimsley (1956) 95 CLR 353.

GLEESON CJ:   It is pretty apparent, is it not, from the amount of the price that Mrs Cummins agreed to pay, that at least she thought that Mr Cummins had a half interest in the property because she had agreed to pay him half of the current value?

MR COLES:   Yes, of course.  And there was no contemporaneous release of that obligation.  Stamp duty was paid importantly by her on that full value ad valorem of that half value.  If she had wished to maintain that she had some greater interest, she would have saved a lot of stamp duty by taking a transfer for that lesser interest.

GLEESON CJ:   Did they have the one solicitor acting for both of them, Mr Coles?

MR COLES:    Yes, the one solicitor acting for both.

GLEESON CJ:   Maybe there is a limit to how much you can read into that.  He was originally going to give her his interest in the property and then somebody told them they would be up for some penalty stamp duty rates if they did not do it ‑ ‑ ‑

MR COLES:   That does not seem to be right, with respect, your Honour.  Our researches show that what used to be Sixth Schedule stamp duty which was the type of problem this Court had under consideration in Archibald Howie, for example, but Sixth Schedule duty had gone by as early as 1980.  It went with the abolition of death duty, so there was no problem.

GLEESON CJ:   What is the explanation of why the idea changed from a gift to a transfer for consideration?

MR COLES:   Because it was desired in the light of Mr Harris’s contemplations of section 37I of the Conveyancing Act and section 121 of the Bankruptcy Act that Mary had to be a purchaser for value for consideration because otherwise she would have no chance of making out the defence, which we emphasise she does not rely on, under the Act.  Now, that is not insignificant because we, of course, invite your Honours as we invited ‑ ‑ ‑

GUMMOW J:   I suppose the bankruptcy seems to have been in people’s minds.

MR COLES:   Yes, very much, but not only that but when one of course executes documents in relation to land under the Real Property Act in New South Wales, one is of course committing to a public register a particular instrument which records for the world to see that disponer A transferred for an identified sum of money which can no doubt be independently verified as something approximating a market interest.  So the world is being told by these parties on a public register that this was a bona fide transaction for value.  In other words, and we perhaps do not need to go this far, readers of the register or perhaps unsatisfied creditors who may be minded to search the bankrupt’s dealings will be told on public register that this is a genuine transaction.  The consideration of $2,000-odd is followed by the words, “the receipt whereof is hereby acknowledged contrary utterly to all fact” and yet the public has been told, “Don’t bother bringing proceedings to set aside this transaction because on public record you will get nowhere because it’s a bona fide transaction for value”, and that is part of the elements, part of the pretence, part of the disingenuousness of the transaction which is in the pot, as it were, when one is drawing inferences of intention, in our respectful submission.

HAYNE J:   Now, on the question of contributions going into the house, was this the first matrimonial home?

MR COLES:   No, your Honour, it was probably about the second or third.

HAYNE J:   Is the difference between cost price of building and amount borrowed on the savings bank mortgage - is it available to understand that as being contributed out of equity from the former matrimonial home?

MR COLES:   We do know when the former house was sold.

HAYNE J:   Is that the transfer that is at pages 242 and 243 of the appeal book, or is that some other transaction?

MR COLES:   Yes.  I will just give your Honours in a minute the address but this is the sale of – apparently completed at the end of 1971.  One might surmise the completion of that sale, or one might infer, had something to do with the contemporaneous transaction in relation to the construction of the other property. 

HAYNE J:   Is this Ferdinand Street?

MR COLES:   Yes.

HAYNE J:   So it is recorded on the exhibit note at 241. 

MR COLES:   Volume 10626, folio 154 is 12A Ferdinand Street, which is the title reference on page 242.

HAYNE J:   But Mr and Mrs Cummins were co-owners of that property.

MR COLES:   Yes.  Significantly, your Honour, when the balance of proceeds of sale came to be paid, those proceeds of sale went into a joint account.

GUMMOW J:   That is important.  Where do we see that?  That is what we need to know really.  This is the proceeds of Ferdinand Street, is it?

MR COLES:   Yes.  The primary judge made a finding about it.  We have that in the evidence, your Honour.  If your Honours have appeal book volume 1, 230, it records that on 22 December 1971 a cheque was deposited for $45,064.15 into the John Daniel Cummins and Mary Elizabeth Cummins fully drawn loan account.  The date 22 December 1971 is significant because if your Honours have appeal book page 242, that is of course the very same date as the transfer of that Ferdinand Street property for a…..consideration of 58,000, so it is a very ‑ ‑ ‑

GLEESON CJ:   Did they continue to live at Ferdinand Street while they were building the house on the property with which we are now concerned?

MR COLES:   Yes, that is the plain inference, your Honour.  I do not think it is even particularly controversial.

HAYNE J:   Do we know the nature of the co-ownership in Ferdinand Street, whether it was joint or in common?

MR COLES:   We know it was in joint tenancy.

HAYNE J:   It was joint?

MR COLES:   Yes, it had been acquired as part of an arrangement with a third party, a Mr Howarth.  They were joint tenants as to I think two shares and he as to another, but as between themselves they were joint tenants.  So it is plain, your Honours, that at least out of the proceeds of sale of one jointly owned matrimonial property, we would say, they regarded then back in 1971 the proceeds of sale as belonging to themselves beneficially and for shares because deposited to their own joint account.

HAYNE J:   If you take account of the numbers we have just been looking at if that were ultimately proved to be of any relevance at all, what sort of proportions do you come up with?

MR COLES:   I will have to try and be a little accurate.

HAYNE J:   May this not rather suggest that our focusing on proportionate contributions is demonstrating that a lawyer has been given a calculator, which is always a dangerous first step?

MR COLES:   We do not, your Honour, shrink from the submission that to describe parties in a longstanding matrimonial relationship as entitled in proportions of 76.3 per cent of the matrimonial home is bordering on the grotesque ‑ ‑ ‑

GLEESON CJ:   To calculate the respective contributions of Mr and Mrs Cummins to what was ultimately sold or ultimately transferred in 1987, by reference only to the proportions in which they happened to contribute to the purchase of the vacant land on which they always intended to build a house, is likely to produce an artificial result.

MR COLES:   A distorted and artificial result.  The reality being, as we would respectfully suggest the evidence your Honours have just been looking at suggests, the reality is that more likely than not the $8,000 savings bank loan, what I call the building loan, in effect covered the period from July to December and the real cost of the building works was no doubt funded out of the joint deposit.

GLEESON CJ:   When did they move into occupation of the Hunters Hill land?

MR COLES:   We do not know, your Honour.

GLEESON CJ:   Of course there is no information as to how much it might have been extended or developed or improved between 1971 and 1987.

MR COLES:   No, there is not.  There is an available inference that since it remained their matrimonial home, and indeed was uncontroversially acknowledged as such on the pleadings ‑ ‑ ‑

GUMMOW J:   Any indication of the age of the children of the marriage?

MR COLES:   We know their names, your Honour.  I do not think the notes in question descended to knowledge of their ages, but you could probably work out, for example, making certain assumptions about the date of marriage and when Mrs Cummins re-entered the workforce, when they were of school age, I would have thought, your Honour.

If I can invite your Honours’ attention then to Calverley v Green 155 CLR 242, which is a decision of this Court in 1984, the parties were, as in the present case, joint tenants and they had contributed in the present case unequally to the acquisition of the relevant property. Unlike, however, the present case, they were not husband and wife. If your Honours would kindly look at – and I will perhaps give your Honours ‑ ‑ ‑

GUMMOW J:   This is land plus house, is it not?

MR COLES:    Land plus house.  Page 251 ‑ ‑ ‑

GUMMOW J:   There is not that complication of subsequent building activities?

MR COLES:    No, that is right.  At 251 in the judgment of the Chief Justice, he records something that, in our respectful submission, needs to be steadily borne in mind because, although it is easy to say, it may be easy to overlook:

the presumption of the resulting trust, may be rebutted by evidence of the actual intention of the purchaser at the time of the purchase –

and he goes on to say, as indeed did the other Justices:

Where there are two purchasers, who have contributed unequal proportions, but have taken the purchase in their joint names, the intentions of both are material.

Which may be relevant, your Honours, if one is looking also at Jones v Dunkel considerations.  In the judgment of Justices Mason and Brennan commencing at 253, there appears at 255 some observations at the foot of the page in the last six lines:

Equity presumes a trust in favour of the person who contributes the whole . . . though the strength of the presumption varies from case to case . . . and may be confirmed, rebutted or qualified by evidence of his intention –

and perhaps I should read to your Honours at the top of the next page:

The presumption is displaced if the legal joint tenant who does not contribute any of the purchase price is the wife of the joint tenant who does.  Then the presumption is that she takes her legal interest as a gift, not in trust for her husband –

So, in effect, the presumption of advancement displaces the presumption of resulting trust, but closer to the circumstances of the present case.  But if we may respectfully say so, the relative ease with which the presumption of advancement may displace the presumption of resulting trust is not an immaterial observation and when one is looking at the sort of situation in which the presumption of advancement arises, that is to say, necessarily, or typically in this sort of situation, as between husband and wife.  An important passage referred to in some of the judgments is at 258 in the joint judgment.  Perhaps coming down about half the page, their Honours say:

Unless an equitable presumption of a trust is displaced by a counter‑presumption or it is rebutted or qualified by evidence of the intention of the party paying the purchase price or of the common intention of the parties who contribute that price, the presumption determines the conclusion to be reached . . . Once it was found that both parties had contributed to the purchase price, the conclusion had to conform to the relevant equitable presumption unless it was displaced, rebutted or qualified.

And then their Honours cite the oft quoted passage:

When two or more purchasers contribute to the purchase of property and the property is conveyed to them as joint tenants the equitable presumption is that they hold the legal estate in trust for themselves as tenants in common in shares proportionate to their contributions unless their contributions are equal -

Now, important for our purposes is what commences in their Honours joint reasons at page 259.  Again, at the top of the page their Honours refer to the presumption as a basic one, although they say it may be displaced or qualified.  Interestingly, they call into play not a counter‑presumption, but what they say at least at this part of the judgment as:

qualified by an inference of the kind espoused by Lord Upjohn in Pettitt v Pettitt.

They set out from his judgment in that case:

“ . . . where both spouses contribute to the acquisition of a property, then my own view (of course in the absence of evidence) is that they intended to be joint beneficial owners and this is so whether the purchase be in the joint names or in the name of one.  This is the result of an application of the presumption of resulting trust.  Even if the property be put in the sole name of the wife, I would not myself treat that as a circumstance of evidence enabling the wife to claim an advancement to her, for it is against all the probabilities of the case unless the husband’s contribution is very small.”

GLEESON CJ:   How do these principles stated in Calverley v Green pick up, if at all, the kind of contribution by a wife that is now commonly recognised, at least in a matrimonial law context, in the form of being a homemaker and looking after the children, thereby enabling the husband to pursue to the fullest extent his income earning capacity?

MR COLES:   They have got no place to play at all. They do not count as contributions under the equitable principles, as we understand them, your Honour. It is because of statute that the forms of contribution which your Honour has described, for example, section 79 of the Family Law Act, come into play.

GLEESON CJ:   But the kind of contribution that I have just been referring to is relevant as a fact on intention, is it not?

MR COLES:   Absolutely, yes, but it is not relevant as a contributor to the ascertainment of the numerical proportions.

GLEESON CJ:   But a recognition of the kind of contribution that I have just mentioned and the fact that it is not readily calculable explains why a married couple would be likely to have an intention of joint beneficial ownership, does it not?

MR COLES:   Completely, and the proposition is cemented, we would say,  ultimately, your Honour, by the recognition that the joint tenancy has as its terminal moment the application of the doctrine of survivorship.  After all, we would say survivorship is the necessary intended consequence most likely to be expected by husbands and wives in that situation and it is wholly unlikely that right up until the very last moment, when either death or severance intervenes, the parties reserve some sort of respective position whereby they might at any moment, just some nanosecond before death, be reserving an entitlement to assert some fractionally, no doubt awkward, outcome for the disposition of the property.

GLEESON CJ:   If what they clearly intend is that if one of them gets run over by a bus the other is going to get the whole property, it is not easy to relate that to an intention that one should have 25.6 per cent and ‑ ‑ ‑

MR COLES:   Well, quite.  The intention to effect survivorship unless qualified most strangely by a reservation at some other stage to do something else is very odd, in our submission.  Indeed, you would not readily suppose an intention right up to the moment of death or severance to assert an interest when given at least the uncertainties of the former.  The opportunities to be asserting proportion of contributions are more often than not going to be very limited.  In other words, to put it bluntly, the notion of survivorship is wholly at odds ordinarily with the intention of reserving proportionate interest.  However, having said that one has to bear in mind that equity having just determined that it has a dislike of joint tenancies has nevertheless of course evolved the rule.  So it remains a fact that perversely in the context we are dealing with but at least, to adopt Lord Upjohn’s notion, if all you do know is that there is a joint tenancy and a disparity of contributions, then the disparity of contributions trumps the state of the legal title.  The point is, in our respectful submission, you do seldom know as little as that and you ordinarily know a lot more.

GUMMOW J:   Yes, the whole point of presumptions is that you have to start somewhere and particularly in situations like insolvency and death where all the actors will not be there.

MR COLES:   Will not be there.  Yes, your Honour.  That is right.  May we say, your Honour, that it seems even odder, with respect, having identified that the parties took title as joint tenants but then recognise that they made contributions disproportionately that the original fact that they took as joint tenants has no other relevance whatsoever, seemingly, but to provide a foundation or a base for a later inquiry about the several contributions.

In our respectful submission, a better view would say you may certainly start with the state of the title.  You may then look at the contributions, but when you are evaluating as a whole the totality of the factors that bear on intention, the fact that the state of the title has not ceased to be wholly irrelevant in that inquiry a fortiori where, as in this case it is a matrimonial home, whether it is not, but a fortiori where, for example, the evidence indicates that the parties have a history of property acquisition, both as joint tenants and as tenants in common, they have a history of – or at least an apparent access to legal advice in connection with one or more of those transactions where there is an inevitable supposition that if they did not know for themselves, because they had tried each – what the differences between tenancy in common and joint tenancy were, then some solicitor must have explained it to them, and then when you add to that the proposition that they were after all spouses in a long-term marriage.

GUMMOW J:   What is the historical ‑ ‑ ‑

MR COLES:   One is left with a very firm view, your Honour, in our respectful submission, that one thing they did intend was a joint tenancy.

GUMMOW J:   I understand that.

MR COLES:   In its equitable sense as well as its legal one.

GUMMOW J:   What is the reason given for the equitable dislike of survivorship?

MR COLES:   I think because merchants…..that one did not want the notion of survivorship enriching the business partner of the co‑owner to the expense of the co-owner’s family.  Perversely, it may work the other way in its more modern application.  We cannot – Lake v Craddock and that sort of thing rather tells us that equity in effect set its face against joint tenancy, but not, in our respectful submission, at least comparatively with equity’s general approach to things, in a way which would in effect give pre‑eminence to the dislike against the evidence of what more likely than not would have been the party’s real intentions.

So we would say, your Honour, there is much to be said – could I complete the references.  On page 259, we respectfully point to what seems to be an acknowledgement ‑ ‑ ‑

GUMMOW J:   But what you were just saying would be right in partnership, in the partnership aspect of life, would it not?

MR COLES:   If partners took title jointly in the days before one bothered to describe them as joint tenants or tenants in common, the law might impose upon them the consequence of the joint tenancy and then equity would be needed to relieve against that consequence.

GUMMOW J:   I understand that completely, I think, but how is that reasoning then carried over into the matrimonial field?

MR COLES:   We respectfully think, your Honour, that because, perhaps for the reasons the Chief Justice really identified, namely that these matters are done under statutory jurisdiction in other courts ‑ ‑ ‑

GUMMOW J:   No, but I am talking about ‑ ‑ ‑

MR COLES:   It is not often the problem comes up.

GUMMOW J:   Not now, but 50 or 60 or 80 years ago how was this carried into the matrimonial rule??

MR COLES:   I am not sure.  I think just through ‑ ‑ ‑

GUMMOW J:   Just by oversight.

MR COLES:   Well, a perception that to do otherwise would not be consistent is the only reason we can think of, your Honour, simply carry forward the logic, albeit inapplicable, of the earlier view.

GUMMOW J:   But there had to be some equity to provoke this attitude.  It is not at all clear what it is in the situation we are looking at here.

MR COLES:   It is very unclear, your Honour.  It may be the key to it in more modern times is to recognise with increasing leniency the rebuttability of the presumption.

GUMMOW J:   That is what Lord Upjohn seemed to be edging his way to.

MR COLES:   Yes.  That is really where we have put the proposition in these proceedings, that so readily available are the inferences of the intentions, one need not go much further.  Can I just invite your Honours’ attention to – I see the time – what appears in the paragraph commencing “It may be conceded that Lord Upjohn’s inference reflects the notion”.  In our respectful submission, there is by no means a discouraging acknowledgement on the part of their Honours of the availability of that proposition.  We would place some emphasis upon what appears on page 260 of the report commencing:

Therefore, it is unnecessary now to decide whether Lord Upjohn’s inference should qualify the presumption of advancement . . . but it can be said that the antiquity of the presumption of advancement does not preclude the elevation of such an inference to the level of a presumption to be applied where the absence of the spouses’ common intention leaves room for its operation.

We would particularly emphasise the importance of that dictum on their Honours’ part.

GLEESON CJ:   Is that a convenient time, Mr Coles?

MR COLES:   Yes, your Honour.

GLEESON CJ:   We will adjourn until 2.15.

AT 12.47 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.17 PM:

GLEESON CJ:   Yes, Mr Coles.

MR COLES:  If your Honours please.  Before the luncheon adjournment I had referred to certain passages in Calverley v Green.  I do not think I need to refer your Honours to others.  We took the liberty before your Honours came in this morning to supply copies of certainly pages only of Scott on Trusts.  If your Honours have those handy, could we draw attention to a number of passages – what appears on page 167 under the heading “Purchase in the name of the payor and another” records:

It is stated in the Restatement of Trusts that the fact that the payor takes title to property in the names of himself and another jointly is an indication of an intent to make a beneficial gift of an undivided interest to the other person; and the other person does not hold his interest upon a resulting trust for the payor . . . intended.

GUMMOW J:   What you were saying earlier, Mr Coles, about the derivation of this principle is borne out by what is said in White and Tudor’s Leading Cases in Equity, 9^th ed (1928) volume 2, page 885 and in Pomeroy, paragraph 408, namely, the mercantile origin of it.

MR COLES:   If your Honour please.  Yes.  If I could offer these additional references that have occurred to us over the luncheon adjournment?  In Delehunt v Carmody (1986) 161 CLR in the judgment of the then Chief Justice the point, probably in the passage from 472 onwards the impression one has from his Honour’s observations is that there has been in effect a seamless and uncritical reception into the sort of topic with which that case was concerned which was, of course, a de facto couple contributing to a property just simply absorbing the earlier state of the law. 

In Rimmer v Rimmer [1952] 2 All ER 863 the remarks of Lord Romer commencing at 869, particularly over the page, suggest that where his Lordship really poses the question or really offers the observation that:

cases between husbands and wife ought not be governed by the same strict considerations, both at law and in equity, as are commonly applied to the ascertainment of the respective rights of strangers when each of them contributes to the purchase price of property, and, secondly, that the old‑fashioned doctrine that equity leans towards equality is peculiarly applicable to disputes of the character of that before us where the facts, as a whole, permit of its application.

That role would suggest that his Lordship had in mind that what he was offering was an observation really for the first time about that state of affairs and that in the particular situation – of course, one bears in mind finally that the notion that - I should add, your Honour, in Rimmer v Rimmer as referred to by Professor Scott in section 443 recalling the proposition of where a husband and wife purchase a matrimonial home, each contributing to the purchase price, and title is taken in only one of them, it may be inferred that it was intended that each of the spouses should have a one‑half interest in the property regardless ‑ ‑ ‑

GUMMOW J:   Sorry, where are you reading?

MR COLES:   I am sorry, your Honours do not have that, unfortunately, in the extract we handed up but it comes from Scott on Trusts, section 443 in volume 5.

GUMMOW J:   Yes, we have 443.

HEYDON J:   Only the start of it, you have chopped out the next page.

MR COLES:   The reference is to note ‑ ‑ ‑

GLEESON CJ:   When you bear in mind that a very substantial part of what I might call the ultimate development of this property into a matrimonial home involved not just the original purchase price of the land but also the cost of a house and improvements, presumably the fact that no record was kept, or one would infer no record was kept from its absence, of their respective contributions, would itself support an inference of an intention of equality.

MR COLES:   Yes, the absence of any necessity to retain documents in good order that could specifically identify with greater precision the respective contributions, yes we respectfully agree with that, your Honour.  Just completing without particular elaboration the references in the Scott extract we have handed up:  page 183 on the second half of the page and especially at page 239 where the absence of any specific agreement in relation to the matter is referred to and in picking up really on what your Honour the Chief Justice no doubt has in mind, it is recorded that:

It is often a purely accidental circumstance whether money of the husband or of the wife is actually used to pay the purchase price to the vendor, where both are contributing by money or labor to the various expenses of the household.  It is often a matter of chance whether the family expenses are incurred and discharged or services are rendered in the maintenance of the home before or after the purchase.

Although many of the cases involve the purchase of the matrimonial home, similar considerations are applicable to the purchase of other land or even to the purchase of personal property during the period of the marriage.

And lastly we would refer to a particular passage at page 242 of the extract where the learned author says:

If one of the spouses pays the purchase price for the home and takes title in the names of both of those tenants by the entireties it will be presumed that no resulting trust arises and that they hold beneficially as well as legally as such tenants.  It is immaterial which paid the purchase price because it is presumed that a gift and not a trust was intended.  But the presumption of gift may be rebutted by evidence of a contrary intention. 

Your Honours, perhaps the last passage is at page 265, at paragraph 454.6:

Where two or more persons pay the purchase price for land in equal shares and the title is taken in their joint names, they are entitled to equal interest in the land.  In such a case they hold the legal title as joint tenants or tenants in common, as the case may be, and no resulting trust arises.

I have taken your Honours before to the passage relating to ‑ ‑ ‑

GLEESON CJ:   Yes.  How long do you expect to require to complete your argument?

MR COLES:    I am all but finished, your Honours.  The particular circumstances which led to the equitable rule really were confined to areas where in effect equity insisted on a tenancy in common seemed to be confined to areas where there were unequal contributions of money; secondly, to areas where the joint owners of the assets were mortgagees and could be expected to take out what they put in; and the third area, of course, was merchants. 

It just seems to us because those no doubt were fairly common areas encountered no doubt more frequently in forensic life than might have been the position of parties, for example, to a marriage, then the principles which they evolved had, I suppose, a consistency and a pervasiveness which led them easily into the realm we have just been describing.  As we point out, it may be that Lord Roma was the first person to ponder why this was so without coming to a particular answer.

To go back to what your Honour Justice Gummow had asked us previously, we are unable to identify there was any particular affirmative reason for equity’s reception of the principal interrelations outside the three I have just described and it does rather seem more as a matter of osmotic reception rather than as principled policy application.  Subject to any other respects in which we can assist your Honours, those are the submissions for the appeal.

GLEESON CJ:   Thank you, Mr Coles.  Yes, Mr Sofronoff.

MR SOFRONOFF:   Thank you, your Honour.  Your Honours, could I take you first to section 121 of the Bankruptcy Act.  Could I say these things about it.  The first is that a trustee like these Trustees claiming under it will need to do at least relevantly two things for this proceeding:  identify the property that was transferred and identify the transferor’s main purpose.  The previous law only obliged a trustee to establish that a transfer was done with an intent to defraud.  So there might have been multiple purposes or multiple intentions.  The law has changed and, in our submission, made it stricter and more difficult for trustees because the trustee must establish ‑ ‑ ‑

GUMMOW J:   That is not what the Harmer Report would have suggested, would it?

MR SOFRONOFF:   I am sorry, your Honour?

GUMMOW J:   The Harmer report would suggest that 121 was designed to make it easier for trustees.

MR SOFRONOFF:   Yes, but the words, your Honour, require proof of the transferor’s main purpose.  Secondly and really by way of footnote, your Honour Justice Gummow raised section 6 where it refers to defrauding creditors.  Section 6 still has utility because section 266 makes it an offence to dispose of property with intent to defraud creditors.

If one then, against the background of that section, considers what was the case that the Trustee sought to bring here, how did Mrs Cummins seek to defend it.  Then one goes to volume 1 and to page 8 where the relevant part of the statement of claim appears.  Your Honours will see the purchases pleaded in paragraph 4, the original purchase in 1970, then in paragraph 6 the impugned transfer is pleaded, and in the second line your Honours will see that it was a “transfer of all Mr Cummins legal and beneficial interest in the Property”, without identifying what that was, but that interest was identified in particulars which appear at page 21, paragraph 3(a), the second-last line:

legal and beneficial interest in a half share of the Property –

so it was 50 per cent undivided share that was being alleged to have been owned by Mr Cummins and to have been transferred.

Then the main purpose is pleaded in paragraph 9 in the terms of the statute, and particulars are then given of that allegation and they include his practising as a barrister, his failure to lodge tax returns, an inference that the Commissioner of Taxation was a creditor, or at least a contingent creditor, and the solicitor’s conduct and then finally that Mr Cummins in his public examination stated that his intention was as is set out in the italics there.  Your Honours will see that it relates to concerns about negligence claims as a barrister and giving advices, not the Giannarelli v Wraith issue when that arose.

Then, your Honours, if you go to page 31 you will see the defence to that claim.  Paragraphs 3 to 5 are admitted subject to one exception that is not material.  Then in paragraph 5 of the defence, as to paragraph 6 in which the transfer had been alleged, Mrs Cummins pleaded the matters that I would invite your Honours to read in paragraph (b).  As a consequence of those matters, she alleged in subparagraph (e) at the top of page 33 that she was the sole beneficial owner, she had paid in substance all of the money for the property and he was on the title, she alleged, in (vii) only because without his name on the title the bank would not lend the money.  This was 1971 after all. 

If one then goes to the way that the matter proceeded before Justice Sackville, one needs to go to volume 4 and I am making this track, your Honours, because the issue of who failed to call what witnesses and the consequence of that is a live one in this appeal.  Everybody, we would submit, was to some extent playing tactics in the proceeding before Justice Sackville and our side made an application that there was no case to answer in certain respects.

GLEESON CJ:   What was the tactical advantage to be gained from that if it required an election not to give evidence?

MR SOFRONOFF:   I suppose, your Honour, it is the election not to give evidence that if you prefer not to give evidence and you believe that the other side’s case is so weak that you need not risk worsening your position.

GLEESON CJ:   But if Mrs Cummins maintained that she provided the whole of the money to acquire and develop that property, what advantage was to be gained by testing whether or not what I might call a prima facie case had been established by the Trustees?

MR SOFRONOFF:   Your Honour, I cannot answer that directly because I do not know what moved those who decided to take this step but I can hypothesise that, on the one hand, if the application is made and one feels a strength about the terms of the application then one balances that as against, on the other hand, exposing one’s client to cross-examination about a number of matters. 

GLEESON CJ:   If what is alleged on pages 31 and 32 in the defence is true, you would have thought that Mrs Cummins would have been in a hurry to get into the witness box and put the true complexion on what might otherwise have been given a misleading appearance by the limited information provided in evidence on behalf of the Trustees.

MR SOFRONOFF:   Your Honour, there were two issues that were alive.  One is what was the interest of the bankrupt in the property notwithstanding his presence on the title and the second was, if that goes against her, what was his main purpose?  If it was sensed by those appearing for Mrs Cummins that the Trustee was fatally weak on the main purpose point, then one could see a decision being made, albeit believing that she has merits on her side with respect to her true ownership of the property, one could see a decision being made that it is worth making the application.

Your Honour would appreciate that in part the application succeeded, there were parts of the application that were successful, parts that were not, which brings us here.  But one cannot, in my submission, come to the conclusion that there was nothing in her defence in that respect and that those advising her believe there was nothing in it and that she was bound to lose.  One cannot draw that conclusion, the more so because as we come to the cases, in our submission, it is not proper to draw an inference adverse to a party making an application of no case to answer that that party does not call evidence but makes the election.

If I could briefly say why we say that, I will develop it later.  Such an inference is drawn because evidence that might be reasonably expected to be called is not called and there is no explanation for not calling it.  If the evidence is not called, and it is explained why it is not called, the inference does not arise.  When one makes an application of no case to answer and a judge requires the party to make the election, there is no opportunity to explain why that evidence was not called.  We know why it was not called, you have made the election, but there is no opportunity to explain that, for example, although it might look like Mr Cummins was in her camp, in fact he was not in her camp, which is the example here or he might have been dead and the judge would never know but would assume that because the election was made, the Jones v Dunkel style of inference can be raised.

In our submission, once the application is made and if the judge, in the exercise of the judge’s discretion, requires the election to be made and it is made not to call evidence, so be it, but what we are testing then is the, I will call it the plaintiff’s case.  We are not testing whether that plaintiff’s case can be bolstered or strengthened by the failure of the other side to give evidence, that omission to give evidence having been the result of an election.  So that was the position when the parties joined issue, and then the application was made to his Honour and his Honour considered whether he should require an election to be made.

If I could take your Honours to page 1638 in volume 4, your Honours will see in paragraph 8 in the middle of the page that his Honour is there echoing that his initial attitude was that the respondents:

could make no case submissions . . . but only if they elected to call no evidence.

Then there was a debate about whether they would be required to elect to give no evidence at all on any aspect of the case, or merely on the aspect of the case, the subject of the submission.  There was debate about that, and then your Honours will see between lines 35 and 45 that the debate was overtaken by a concession by our learned friends that the election could be limited to the evidence in respect of the three issues.

Then if you go to page 1639, paragraph 10 on that page, his Honour is defining the question for himself:

If the Trustees fail to satisfy me that the evidence is sufficient on one or more of those issues, their claim, to that extent, must be dismissed.  If they do satisfy me, however, the case will proceed, but with the respondents bound by their election not to call further evidence on the issues the subject of the no case submissions.

So it appears that what his Honour is doing is taking the approach that the no case submission will involve a conclusion if it is adverse to the maker of the submission to our side, that a prima facie case will have been made out, but that his Honour would not at that point give judgment on it and the case will proceed.

If we go then to page 1639, in paragraph 10, your Honours will see that his Honour said:

the practical result of the Trustees satisfying me that the respondents have a case to answer on those issues is likely to be that the Trustees will succeed in relation to them, although some questions of quantification may remain.

What his Honour was referring to by the word “quantification” is identification of the property, that is to say it would remain to be seen what Mrs Cummins owned, whether it was all of the property or part of it or 50 per cent of it, as his Honour ended up finding.  So what his Honour was embarking upon was a consideration of a preliminary point.  Assuming there was any property to transfer, whether the main purpose in transferring the property was within section 121.

If your Honours then go to page 1644, his Honour recorded at paragraph 32 that on this aspect of the case the transfer of the interest in the land, my learned friend, Mr Brereton, accepted that because they were co‑mortgagors, co‑borrowers, then the bankrupt’s beneficial interest was limited to - the highest that the respondent’s case could be placed was that the beneficial interest of the bankrupt was limited to approximately a quarter share, although the pleaded case was that he had nothing on the case led by the applicant Trustees at that point; they had made out a case to that degree.

Then his Honour at paragraph 36 on the next page said that:

the only remaining issue in the no case submissions . . . is whether the Bankrupt’s main purpose –

was the one that fell within section 121.  He determined, as your Honours have seen, that there was a case to answer on that issue and the case then went on.  Mrs Cummins was called and she gave evidence but not on the issue of what property she had in the land.  She was not allowed to do that and it was accepted that she would not be permitted to do that, so ‑ ‑ ‑

GLEESON CJ:   What, if any, significance in his reasoning on the no case issue did Justice Sackville attach to what was then his belief that the parties were living together?

MR SOFRONOFF:   He attached this significance to it; that he could more comfortably join the inferences against Mrs Cummins because Mr Cummins had not been called.

GLEESON CJ:   And when he found out later that that was incorrect was there any reappraisal of the evidence?

MR SOFRONOFF:   No.  What he said, in a passage to which we will come, was that although facts might later be found to be untrue courts decide cases upon the facts before them and once those facts are found that is the end of the issue.

GLEESON CJ:   Yes, but the only decision he made was that there was a case to answer.

MR SOFRONOFF:   Quite and, in our respectful submission, he was wrong to take that approach because that kind of consideration is right with respect to a concluded piece of litigation.  We do not revisit that piece of litigation because we find that the facts were wrong.  Courts decide on the basis of the evidence before them but in this case the case had not finished and so when he discovered that Mr Cummins was in fact not in her camp, in our submission, his Honour should have reconsidered the position irrespective of that inference.

GLEESON CJ:   Was he invited to do so?

MR SOFRONOFF:   No, and to be complete about it, his Honour, in his reasons, sought to approach the task of judging what inferences arise, first, by disregarding the failure to call Mr Cummins or Mrs Cummins and then by giving effect to whatever inferences might be drawn by the failure to call them and he concluded that in each case he would have drawn the same inferences.

HEYDON J:   Do you have a reference to support what you said just after being asked a question about three minutes ago by the Chief Justice in relation to the use that a judge made of his belief that the couple were married, happily, at the time of the no case submission?

MR SOFRONOFF:   Page 1683, your Honour.  It begins at 1682, at the foot, and it goes to halfway on 1683.  Could I take your Honours a little bit further on to seek to exemplify how his Honour approached the task before him given the way the parties wish to proceed with it?  At page 1695, at the foot, the question arose as to what evidence could be laid in the rest of the case and my learned friend Mr Brereton, on our side, submitted that:

the election made by the respondents required the case on the s 121 claims to go to the Judge, as the finder of fact, with no further evidence from either party.

His Honour rejected that.  Your Honours will see at paragraph 24 on page 1696 that the respondents had elected to call no further evidence but the Trustees would not be bound by that election.  They had made no election and so they would be entitled to, for example, cross‑examine Mrs Cummins on any issue and, indeed, on issues relating to the subject matter of the no case submission in order one supposes to bolster the case.

So it was a one‑sided proceeding thereafter, although I must say our learned friends did not cross‑examine on any of those issues.  So in the result, with respect to that, no unfairness resulted.  But if one goes to 1697, your Honours will see in paragraph 29 that his Honour considered that there would be no:

injustice flowing from the Trustees’ entitlement to cross‑examine Mrs Cummins on all issues –

He was not satisfied that there was any injustice.  But although it never took place, of course, the injustice would have been that the judge would have heard evidence taken from Mrs Cummins by cross‑examination without having had the balancing effect of evidence being led from her in‑chief, so it would be a one-sided affair.  If one goes to 1698, he concluded that Mr Brereton could not complain about having been misled because our learned friend:

Mr Coles made it clear that if the procedure were adopted he would be at liberty to cross‑examine Mrs Cummins (assuming she gave evidence) on all issues –

So in the event there was no cross‑examination of Mrs Cummins on these issues and she did not give any evidence in relation to any of those issues either, her evidence indeed was very brief.  If one goes to page 1712, one can see the importance which the judge then attached to what he regarded as her failure to provide an explanation for various things.  There are a number of places in the case where what I will call the Jones v Dunkel point emerged as a significant one and your Honours have heard this morning from our learned friends that that point was germane to a number of the important issues with which his Honour had to grapple. 

At the top of page 1712 his Honour regarded the transfer itself in 1987, the terms of it for value as an acknowledgment by Mrs Cummins of the 50 per cent beneficial ownership of the property by her husband and he does that, your Honours will see, in the first line because of the absence of an explanation or at least also because of an absence of an explanation.  At 1713 at the top of the page he is:

strengthened in the conclusion I have reached by the fact that Mrs Cummins has elected not to give evidence in relation to the Hunters Hill Property cause of action.

If one goes back to 1712, paragraph 74, halfway down he is dealing with:

the fact that Mrs Cummins was prepared to agree to pay half the assessed value . . . suggests that she regarded him as having a joint beneficial interest in the Property.  She was also prepared to pay stamp duty . . . I do not think it is to the point that the price was not ultimately paid and perhaps was never intended to be paid.

So she, of course, gave no evidence about any of that and his Honour drew what he could from it and was reinforced in his approach by what he regarded as her election not to give evidence.  If one goes to 1714 at line 15, just below line 15:

Accordingly, the respondents’ failure to adduce evidence from Mrs Cummins on matters within her own knowledge justifies applying the principle of Jones v Dunkel to determine what inferences should be drawn –

Finally, your Honours, it is clear then that, if one goes to page 1710, in deciding the issue of the resulting trust his Honour identified, at line 40, paragraph 66, that there are a number of factors and, indeed, he ended up dealing with four of them.  The first is that they are married.  The second is that the property became the matrimonial home and we can put them to one side.  Over the next page, thirdly, he has regard to the fact that they had previously acquired properties as joint tenants and he drew from that something.

GUMMOW J:   I thought you were here to defend the Full Court.

MR SOFRONOFF:   I am, your Honour, but ‑ ‑ ‑

GUMMOW J:   It is a sort of a “Don’t talk about the war” at the moment.

MR SOFRONOFF:   I do not mean it to be that way, your Honour, but it is alleged against us by our learned friends in their outline of argument and I think in their notice of appeal that the Jones v Dunkel point is a good one against us and so it is necessary for me to go to the record to see how the Jones v Dunkel point arose and how it was dealt with and how, in our submission, correctly the Full Court dismissed it.

GUMMOW J:   It may be a good point but may not be a necessary point.

MR SOFRONOFF:   I appreciate what your Honour is putting to me as I apprehend it that even if one puts aside the assistance to be gained from Jones v Dunkel there might arise an inference that their Honours in the Full Court and Justice Sackville could have relied upon anyway but I am meeting the case against us that Jones v Dunkel is available in the circumstances of this proceeding.  I need not dwell on it too long but I need to dwell on it to some extent, your Honours.

We can see, at page 1711, at the top of the page the third issue is the property that was purchased and at the foot of the page, his Honour says that the “Hunters Hill property was not a one-off occurrence”.  Over the page, the fourth aspect of it was the acknowledgment that I have dealt with.  If we go to the foot of 1712, we can see that his Honour thought the first two factors, the marriage and the matrimonial home, was not enough, but when all four factors are taken into account, they justify the conclusion.  The last two are points that he reached with the assistance of Jones v Dunkel so if that falls away, one needs to consider what inference should properly be drawn, absent a Jones v Dunkel.

GLEESON CJ:   If your argument is right, you can always disarm a Jones v Dunkel argument by making a no case to answer submission.

MR SOFRONOFF:   You could in some cases, your Honour, but one must not assume that in every case where you are considering making a no case submission you do not want to call any of your witnesses.  It may be that there is one witness you do not want to risk but there are other witnesses whom you would like to call and on balance you would wish to not have that witness exposed to cross-examination, so you make your submission.  So it is true you have protected that witness from any Jones v Dunkel point but that might not be a point that would be seized upon as a live one by anybody.  Your true purpose might be that you do not have a witness that you wanted to have and that it will never dawn on anybody, unless you are to run with your case, that you had that hole, that weakness, in your case.  So it will not always be the case that by running a no case to answer submission first, your sole purpose is to avoid a Jones v Dunkel or secondly, that even if it is, it will be detectable if the consideration were to be that this cannot be the law because there would be a way of obviating a useful fact‑finding aid for judges.  That might be so in some cases but not in all cases. 

Could I deal with one more feature.  At page 1717, your Honours will see in paragraph 93 that his Honour, having been apprised of Mr Cummins’ true relationship to his wife, he declined to draw any Jones v Dunkel inference by that stage, but if we go back to 1682, we have already seen at 1682 to 1683 that he had drawn that inference because of the failure to call Mr Cummins.  So, in the same trial, the judge has both drawn and not drawn the inference in relation to the same witness and, in our submission, that cannot be right.  So, if one comes back then to the position, as we would advocate it ‑ ‑ ‑

HEYDON J:   Is he not drawing a distinction between certain types of issue?  He says at page 1717:

I do not draw any Jones v Dunkel inference against the respondents by reason of the Bankrupt’s failure to give evidence on this issue.

MR SOFRONOFF:   Yes.  That is the issue in relation to a share that Mr Cummins held in a company that ran a business of Mrs Cummins.

HEYDON J:   Is that contradictory of the earlier passage that you just referred to?  Is that not another issue?

MR SOFRONOFF:   His Honour is not – no, it is not contradictory, in the sense that he is dealing with two issues ‑ ‑ ‑

HEYDON J:   That is the end of that point of yours, is it not?

MR SOFRONOFF:   No, your Honour, because in each case what his Honour is doing - in the same trial he is concluding that the inference is available with respect to one issue but not available with respect to a different issue.  If it is available, assuming the witness is one that ought reasonably be thought of as able to offer some evidence in relation to it, then it should be available on all issues or no issues.  Of course our position would be forensically stronger if it was the same issue, the house property, but the fact that it is different issues does not take away the force of the point, that it is, in our submission, an unorthodox way to proceed to hear part of the case, to draw the inference and then to hear the rest of the case before giving judgment, and decline to draw the inference.

HEYDON J:   Have you any authority in support of this contention that to run a no case submission is an explanation within the principle of Jones v Dunkel for a witness not being called?

MR SOFRONOFF:   Your Honour, could I put it this way?  I do have authorities I want to take you to, but could I put it this way?  I do not say that the authorities suggest that to make a no case submission furnishes an explanation.  Rather, what the authorities say is that if one makes a no case submission the Jones v Dunkel inference ought not be drawn.  Our analysis of that is that for the reason that the second part of the reasoning that leads to the inference, a failure to explain, is not available.

HEYDON J:   That does not seem to be the way Justice Windeyer saw it in Jones v Dunkel itself.

MR SOFRONOFF:   Well, the two cases we rely upon are, firstly, Jones v Dunkel – which I will deal with – and the second one is the Protean decision that is in our list of authorities.  So may I, just before going to those, just say a couple more things, your Honour?

So the two issues that his Honour had to deal with relevantly for this appeal were what was the main purpose and, secondly, what was Mrs Cummins’ interest in the property.  If we go to page 1766, paragraph 127, I would invite your Honours to read that.  That, in our respectful submission, is a correct statement of the law, and I will go to the cases in a moment.

HAYNE J:   What is the utility of the no case procedure that is there identified in cases where the moving party is put to an election so that the judge is called on to decide the case having regard to the whole of the evidence that is to be available?

MR SOFRONOFF:   I am sorry, your Honour.  I did not understand the last part of your Honour’s question.

HAYNE J:   Well, if a party making a no case procedure is put to an election, the judge decides the case with the evidentiary material complete.  What is the utility of the no case procedure that the Full Court is there identifying?

MR SOFRONOFF:   Your Honour, the cases vary and as in this case a no case submission might be made with respect to several but not all of the issues in the proceeding.  They may be several issues, not all, but the ones that would take the most time for a defendant to call evidence by way of rebuttal.  So if one proceeds by way of a no case submission and if it is successful, that will be the end of the case with respect to those issues but not others in respect of which further evidence will be led.

May I draw your Honours’ attention to this aspect of the proceeding.  There are failures, if I can presume to call them that at this stage, by both sides to call evidence.  Mr Cummins theoretically might have been called by either side.  Mr Harris, the solicitor who was involved in the transaction, could have been called by either side and Mrs Cummins of course would have more likely have given evidence for herself.  We can put to one side Mr Cummins having been called by our learned friends with respect to giving evidence of his subjective intention.  We understand why they would not wish to do that and why no adverse inference would be drawn against them, except the obvious one that he might assert incredibly, they would say, what was his subjective intention and that it was outside section 121.

GUMMOW J:   What is the basis for having these no case submissions when there is not an order at least for separate decisional questions?

MR SOFRONOFF:   What is the statutory basis, your Honour?

GUMMOW J:   Yes. 

MR SOFRONOFF:   It is ‑ ‑ ‑

GUMMOW J:   This is not the world Sir Victor Windeyer was addressing in Jones v Dunkel.

MR SOFRONOFF:   If I could just find my notes, your Honour.  It is Order 35, rule 1.  His Honour Justice Sackville in another case decided that – the case is ACCC v Amcor Printing [2000] FCA 17 ‑ and his Honour decided that Order 35, rule 1 furnished ‑ ‑ ‑

GUMMOW J:   That is not reported is it, that case, Amcor?  I could not find it, no.

MR SOFRONOFF:   I am told it is not.

GUMMOW J:   It is only electronic.

MR SOFRONOFF:   I am told by Mr Ashhurst it is not.  The rule provides that the court can give the appropriate judgment at any time and based upon that that is regarded as the source of the Federal Court’s power to hear a no case submission.

GUMMOW J:   It is just as well Justice Callinan is not here.  This is case management run wild. 

MR SOFRONOFF:   Well, could I add to the ‑ ‑ ‑

GUMMOW J:   And all jumbled up with Jones v Dunkel in another universe, in another time ‑ ‑ ‑

MR SOFRONOFF:   Could I add to the jumble, your Honour, by ‑ ‑ ‑

GUMMOW J:    ‑ ‑ ‑to produce what does not seem to be a fairly sensible result.

MR SOFRONOFF:   Well, yes.  Your Honour, could I add to that by saying that Order 35, rule 6, empowers the Federal Court to dismiss a proceeding without prejudice to a party’s right to bring a further proceeding.  So it is a modern form of non-suit.

GUMMOW J:   A modern form of non-suit?

MR SOFRONOFF:   Well, it is tantamount to a non-suit in that, as your Honours will recall in Jones v Dunkel, his Honour Justice Windeyer distinguished between an application to direct in effect for a judge to determine that the case should go directly to a jury with a directed verdict that the plaintiff loses, and on the other hand an application for a non‑suit, and that the former generally required and implied that the applicant for the directed verdict was not calling any evidence.  The latter, the non‑suit, left that party at liberty to call further evidence but by the same token, the respondent to that if the respondent failed was at liberty to bring a fresh proceeding if it could find further evidence to do it.

HAYNE J:   Is this in the nature of motion for judgment or motion for partial judgment?  Is that what is happening?

MR SOFRONOFF:   What appears to have been the approach that his Honour actually took was to regard the respondent as electing to call no evidence whatsoever as having been invited by the respondent to determine whether the evidence at that stage added up to an answerable case but leaving it at liberty to the applicant, the appellant, to call further evidence at least through cross‑examination, which in a case like this might be important.

Your Honours, may I seek to make this point.  Each side did not call certain witnesses.  On our side let us say Mrs Cummins is the principal one and on the other side let us say Mr Harris, the solicitor in the transaction, was a person who they might have been expected to reasonably call who might have shed some light on it.

HEYDON J:   But why?

MR SOFRONOFF:   Why, your Honour?

HEYDON J:   Yes.  They had nothing to do with Mr Harris, whereas Mr Harris had been Mr Cummins’s solicitor.

MR SOFRONOFF:   Mr Harris was a person who had been examined by them under section 81, I think it is.

HEYDON J:   So had Mr Cummins.

MR SOFRONOFF:   And so had Mr Cummins, but Mr Harris was a person who the judge was informed pursuant to a direction would have part of his transcript tendered and he himself would be subpoenaed to attend to give evidence.  So, at some stage they thought that he would help them.

HEYDON J:   Just because you issue a subpoena to a potential witness does not mean you think that witness may help you necessarily.

MR SOFRONOFF:   That is true, your Honour, but it does give rise to a thought that that witness who is, after all, a solicitor who engaged in the transaction in 1987 might have something, he having been examined and the judge having been told that it is intended to tender his transcript, that he might have something to add of value to the applicant’s case.  He was not the parties’ solicitor.  The judge found, correctly, in our submission, that Mr Harris was Mr Cummins’s solicitor, not Mrs Cummins’s solicitor, took instructions from him and dealt with him.  Any communications were between them, not Mrs Cummins.  If one asks who might have shed some light on the diary notes which were tendered and the inferences that might properly be drawn from them, well, he was the one who could interpret them and explain the circumstances.

HEYDON J:   A lot of people could shed light on things but the question is:  is the solicitor in any particular camp?  That is one way in which the test is put.

MR SOFRONOFF:   Yes.

HEYDON J:   He does not seem to be in the applicants at trial’s camp.

MR SOFRONOFF:   Of course, your Honour, he is not in their camp in the sense that there are no circumstances which would make him tend to be loyal or co‑operative with them.  However, the Trustee in Bankruptcy has no people in that category, he is friendless in that sense, but that does not mean that the Jones v Dunkel inference can never arise because to say a person is in somebody’s camp is merely a slogan, in my respectful submission. 

The true question is:  what could one reasonably expect them to call in aid of their case?  What sticks out in that fashion, if anything, and if something does appear in that fashion, has there been an explanation for the omission to call that evidence?  Mr Harris, it appears, was a person who having been examined and whose transcript was foreshadowed to be tendered but never was but whose notes were tendered would be in that category, in our submission.

Your Honours, could I say this.  The use by a judge, in our submission, of the failure to call a witness will vary depending upon whether the person who called the witness is the party who bears the onus of proof, particularly in a case which inevitably must be a circumstantial one, and a case where the party who fails to call the witness is a person who is responding to a circumstantial case and fails to call a witness who it might be thought might have been able to rebut or explain that evidence.

We have in this case both instances, in our submission.  Against us it is said that enough was led to justify an answer, and Mrs Cummins was not called.  Against them we submitted to Justice Sackville and we persuaded the Full Court that the applicants might have been expected to call some obvious lines of evidence if they wished to establish the steps necessary to set up their purpose, the main purpose, and they did not do it.  In that context, it is necessary for a judge to consider whether the inference should be drawn upon less than the full materials that might have been expected, and the decision of the New South Wales Court of Appeal in Ho v Powell and also in Cook’s Construction, to which I will come, is authority for that proposition.  So we have both here.

His Honour dismissed our submission at trial that something ought to be based upon the failure of the applicant to call some obvious lines of evidence, but his Honour accepted totally the significance of the failure of Mrs Cummins to give evidence on her behalf, notwithstanding that it was in the context that I have explained of a no case to answer submission.

Against that, your Honours, those two aspects, could I first go to the decision in Protean, where the issue relating to no case submissions and inferences to be drawn by a party not calling evidence as a consequence of an election is set out as clearly as one could find - Protean (Holdings) v American Home Assurance [1985] VR 187 at 215 in the reasons of the Chief Justice. His Honour is setting out the possible choices that a trial judge has when being asked to consider a submission. He sets those possibilities out between lines 20 and 35, and at line 35 ‑ ‑ ‑

HAYNE J:   On the hypothesis that there is no election called for.  See line 17:

Where a trial judge entertains a submission that there is no case to answer without requiring an election –

and is not the third possible result at lines 34 and following one of those to which his Honour is there referring on the hypothesis no election called for, or do I misread the report?

MR SOFRONOFF:   Perhaps I misread it, your Honour.  I will re-read it.  No, your Honour’s reading of it is correct, with respect, but it does not alter anything because if the position were – that was the position his Honour was considering, but in either case his Honour is considering the position upon the understanding, the theoretical understanding in this case, that no further evidence will be called, and she is asking herself if that evidence is sufficient.  If it is correct as his Honour states it, as we respectfully submit it is, that no inference should be drawn in that case, then it makes no difference that the judge is informed by the exercise of election that no evidence will be called.

In either case, the judge is considering the case in an evidentiary vacuum with respect to the applicant on the no case.  Justice Fullagar agreed at page 236 at about line 35 and Justice Tadgell appears to be of the same view at page 238, lines 20 to 30.

GUMMOW J:   You had better look at page 238, line 20, had you not:

in no sense dependent on election or no election.

MR SOFRONOFF:   Yes, I am looking there and below it.  He deals with the election and that it:

is not a right of the respondent party, for the fate of the submission of the moving party, once made, is in no sense dependent on election or no election.  This is so because the question the Judge will need to consider if he rules on the submission does not alter according as to whether or not an election is made.

GUMMOW J:   And line 35.

MR SOFRONOFF:   Well, that is the consequence of it.  But if your Honour looks at lines 25 to 30 the issue for the judge in each case will be – his Honour says:

The question will be whether the respondent party, carrying the onus of proof of the issue the subject of the submission, has failed to discharge it.

So his Honour is equating the position where an election is required and made with one where an election is not required.  In each case the technical question is, has the respondent satisfied the onus of proof or led sufficient evidence?  In our submission, the reason that is correct, or could I say the reason, as we read that case, the dicta are correct, is that Jones v Dunkel itself was a case where the case had gone to the end, the defendant called no evidence, the defendant was in court, the jury was about to leave and the question was raised whether the jury could take into account the failure of the defendant to give any evidence bearing upon a matter that he must have known about, and the High Court concluded that the jury ought to have been told that it could take ‑ ‑ ‑

GUMMOW J:   I still do not know and have not been able to identify what is the footing on which this debate is taking place.  Are we construing the common law procedures as they existed at some point of time or jury trials?  Are we construing something in the Federal Court Rules or are we just in the stratosphere called case management?

MR SOFRONOFF:   No, your Honour, in my submission, what we are doing is analysing what ought to be the proper procedure in the Federal Court under Order 35 given that his Honour in a previous case concluded that this procedure was available under that – that that rule justified this procedure and that it has been adopted in this case and other cases and, in our respectful submission, the consequence of the way his Honour then went about fact finding ‑ ‑ ‑

GUMMOW J:   But what is your submission on the rules?

MR SOFRONOFF:   On the rules?

GUMMOW J:   Yes, what do or do they not permit?

MR SOFRONOFF:   They permit a submission like this to be made appropriately with or without an election being made but in either case not permitting the judge, absent any other feature, to draw an adverse inference because no evidence is called and, as the judge is considering the case, the judge knows no evidence will be called.

GUMMOW J:   Because?

MR SOFRONOFF:   Because the principle in Jones v Dunkel as applied thereafter has been that where evidence that might be expected to be called is not called and no explanation is given for that ‑ ‑ ‑

GUMMOW J:   That is what I am trying to get out of you.  Why do you suddenly inject the rule in Jones v Dunkel at some stage?  What are the guiding principles meant to be in the operation of these rules of the Federal Court about trying cases?

MR SOFRONOFF:   The guiding principle ought to be the just and expeditious determination of cases on all the evidence.  I am not sure I understood the question that your Honour is putting.

GUMMOW J:   I still do not know why we keep getting back to Jones v Dunkel.

MR SOFRONOFF:   Because it is part of the appeal against us, and what is advocated by our learned friends indeed in oral submissions this morning is that Jones v Dunkel is available as an aid to this Court in accepting an inference as to Mr Cummins’ main purpose and with respect to Mrs Cummins ‑ ‑ ‑

GUMMOW J:   And you want to say it is not because to inject it would be to achieve a result which you say is incompatible with the scheme of the ministration of the Federal Court Rules.  Is that right?  Is that what it comes to?

MR SOFRONOFF:   Your Honour, yes, because the court aims to ‑ ‑ ‑

GUMMOW J:   The debate seems to be something about what Jones v Dunkel meant in 1950-something in another system of procedure, hence my puzzlement.  I am not immediately criticising you for it, I am just wondering how one is ever going to write a judgment about it.

MR SOFRONOFF:   Your Honour, one begins with Jones v Dunkel only because it is a case, albeit upon rules that no longer exist even in this ‑ ‑ ‑

GUMMOW J:   Because barristers love cases.

MR SOFRONOFF:   We do, your Honour, and judges like statutes, but what we have here is a logical proposition that is repeatedly being applied and it is called the rule in Jones v Dunkel.  His Honour applied it, the Full Court held it was inapplicable and our learned friends advocate to this Court that it is applicable.  I am merely addressing the principle of judicial reasoning by whatever name it is called and the principle of judicial reasoning appears, as his Honour applied it and as the Full Court declined to apply it, is that if on a submission of no case to answer a party is made to elect and elects, then one would not be justified in inferring that that election was made as a consequence of a fear that the evidence would not have assisted, that all of the witnesses who might have been called would not have assisted the applicant on the no case submission.  What his Honour did was to conclude that he could infer from the omission to call Mrs Cummins in the circumstances just such a thing.  In our submission, that is not correct. 

HAYNE J:   Why is that inference not to be drawn when a judge is confronted by a set of evidence adduced in a case which, by the fact of election by the party making a no case submission, is said to suffice to enable determination of the question?

MR SOFRONOFF:   Because a judge would not have the confidence that the inference is well grounded where the evidence is not called as a consequence of a procedural rule.  This case is the best example of it because his Honour took the obvious inference about Mr Cummins being in Mrs Cummins’ camp and discovered later that that inference was unjustified.

His Honour would have been on solid ground, in our submission, if at the end of the case Mr Cummins had not been called and, expecting an explanation as to why he was not called, no explanation was given.  Then his Honour would have been on solid ground in drawing an adverse inference.  In our submission, in the context of this procedure, such an inference is not safe and ought not be drawn absent something else.

GLEESON CJ:   Let us make it more concrete by reference to a particular issue of fact relevant to an issue in the trial, or in proceedings.  A fact relevant to an issue in the proceedings was whether, in the course of practising for 30 years at the Bar, Mr Cummins had made enough taxable income to put him in a position where he may have had a purpose to defeat a claim of the Tax Commissioner; that is a fact relevant to a fact in issue.

Now, the judge knows that Mr Cummins practised at the Bar for 30 years, that he took silk during that time, that he occupied a double room in either Wentworth or Selborne Chambers and then, when in 1999 for the first time he put in income tax returns, he disclosed a substantial income.  When the judge addresses the fact relevant to the fact in issue that I identified, what if any significance in drawing an inference does the judge attach to the circumstance that he has not heard from either Mr Cummins or Mrs Cummins about how they could possibly have lived over that period without an income from Mr Cummins?

MR SOFRONOFF:   Well, as to Mr Cummins, in our submission, the position is neutral because either side could have called them on that issue.  On the question of a subjective intent, that would be different of course.

GLEESON CJ:   What about Mrs Cummins?

MR SOFRONOFF:   Mrs Cummins is not, in our submission, a most obvious candidate for giving evidence in relation to that in that what is on the ‑ ‑ ‑

GLEESON CJ:   She must have been supporting him and the entire family for 30 years if that was the case.  She must have been paying the children’s school fees, she must have been paying for the food and the drink.

MR SOFRONOFF:   Your Honour, we would accept that the evidence before the court was sufficient upon which to draw an inference that he earned income.  We would accept that the evidence before the Court is sufficient to draw an inference that he earned some taxable income.  The question is was there evidence before the court in the context of a case where they did not call Mr Cummins or anybody else – or any other pieces of evidence.  Is there sufficient evidence in the case upon which a judge ought properly draw an inference that he earned such a taxable income that by 1987, but never before, he was motivated by a fear of the Commissioner coming to him.

On that aspect, in our submission, Mrs Cummins would not necessarily be an obvious candidate to give evidence.  Mr Cummins would be and Mr Cummins is an easy witness for the Trustees to call.  They could have, as they did in fact, as we know they did - they examined him – and these are objective matters which are not easily lied about, that is easily lied about conclusively, whereas we understand why his evidence as to subjective intention, whoever called it, would only have a limited weight.  His evidence about his assets at the time and after, and his evidence about his income is in a different category.  The inference would rather, we submit, be against them than against us.

May I summarise it in this way.  We would accept that the matters that your Honour put to me raise an inference that the man was earning an income and earning a taxable income but his taxable income in 1992 is one thing and it fluctuated to some degree.  His taxable income in the years immediately preceding 1987 is another thing and we just do not know what that was.  We do know from the evidence in the case, such as it is, that he had some liabilities to banks, that he paid some interest, that he owed $60,000, I think, on the shares.  There was a notation to that effect.  That is about all we know.

HEYDON J:   You cut your painter, as it were, with the Full Court when they said the evidence did not establish that the bankrupt had a contingent liability for any tax.

MR SOFRONOFF:   I would not wish to put it as highly as that in this Court, your Honour, that the evidence did not show that he – I will start again – that there is no available inference that he had a taxable income of any level but the evidence certainly does not go so far as to show that he had a taxable income of a level that in 1987, after 32 years of not putting in a tax return, suddenly considered himself in need to protect his home and his chambers, at least, if nothing else and particularly so, in our submission, when it could so easily either have been called or the failure to call could so easily have been explained.

We have attempted to list some of the things that could easily have been done and we apprehend some of the criticisms that are made of those steps with respect to clerks and so on, but nevertheless, one obvious source of information to provide evidence in relation to what Mr Cummins earned and what he owned before and after the dispositions is Mr Cummins.  There are other obvious sources.  Now, if they do not call that, fine, there might have been difficulties.

GLEESON CJ:   What would have been very important if anybody had really wanted to call all the evidence relevant to the facts would have included what he spent.

MR SOFRONOFF:   Yes.  Your Honours, Mr Morelli, an accountant, was the man who had prepared the tax returns from 1992 to 1999.  We do not know why he was asked to prepare the returns from 1992 to 1999.  On the view that his Honour Justice Sackville took, Mr Cummins was liable to tax for the whole preceding period.  There is evidence that Mr Morelli was asked to do that and to do the best he could from information that he obtained from Mr Cummins and documents in Mr Cummins’ possession.

There was no evidence led before the Court to suggest that there was any difficulty in doing the same exercise back to 1987.  There was no evidence to explain why Mr Morelli was not asked to do such an exercise back to 1987, merely five years earlier.  Mr Morelli’s exercise involved doing the sums on the worst case basis for Mr Cummins.  The evidence he gave and that Justice Sackville accepted, was that where there was a doubt Mr Morelli would resolve the doubt in favour of the Commissioner of Taxation.

So, why no evidence in relation to his income, which would have been, one would think, as easy to obtain as it was to obtain the 1992 income?  If there was a difficulty why no explanation ‑ ‑ ‑

HAYNE J:   For what years would it have been as easy?

MR SOFRONOFF:   1987 to 1992, your Honour.

HAYNE J:   Why?

MR SOFRONOFF:   I am sorry, I will start again.  Your Honour is right, with respect, 1987 to 1992 does not matter but 1987 and that year and the immediately preceding year, and perhaps the year before that.

HAYNE J:   Why?  Why would it be easy?

MR SOFRONOFF:   Why would it not be easy, in our submission, your Honour?

HAYNE J:   There is no obligation, even assuming that questions of obligation under the Tax Act have any relevance in this sort of discourse in this context, there was no obligation to keep records.  Third parties dealing with him did not have to keep records, at least for the Tax Acts purpose.

MR SOFRONOFF:   Your Honour, it may be that – leaving aside Mr Cummins ‑ ‑ ‑

HAYNE J:   That is the difficulty.

MR SOFRONOFF:   Well, I will come back to Mr Cummins, your Honour, I do want to come back to him, but leaving him aside for the moment, Mr Morelli was asked to and was able to form a view about the probable income in 1992.  There is nothing in the case to suggest the same exercise was not available for 1987 or 1986 and if it had been done it would have strengthened their case immeasurably and if it could not have been done, one would have expected some evidence to explain why it could not have been done.

GLEESON CJ:   Do we know how Mr Morelli went about the task of forming a view of what it was in 1992?

MR SOFRONOFF:   Yes, your Honour, if you go to volume 1, page 66. 

HEYDON J:   Page 89 is his affidavit.

MR SOFRONOFF:   Thank you, your Honour.  The key parts are probably, your Honours, at pages 90 and 91, paragraphs 5, 6, 7, 8, 9 and 10.  Now, your Honours, that being the best evidence available, his Honour, rightly, accepted that evidence as indicating in substance the kind of income Mr Cummins enjoyed and if that same exercise had been attempted for 1986, 1987, 1988, no doubt the same conclusion would have been reached.

HAYNE J:   Was there any question asked of this witness, Mr Morelli, about whether his retainer was confined to a particular period?  His affidavit speaks of income tax returns generally unlimited as to time.  Page 66, Justice Crennan was good enough to point out to me, the foot of 66:

For what years were you instructed to lodge . . . ’92 to 1999 ‑ ‑ ‑

MR SOFRONOFF:   Yes, and we infer he was instructed by Mr Cummins, but even that is not clear.  I am not sure if that is in the affidavit.

GUMMOW J:   He is referred by Mr Harris.

MR SOFRONOFF:   Yes, well, then it must have been Mr Cummins.  Yes, paragraph 4, he was retained by Mr Cummins and Harris had referred him.  So the Trustees, one might have thought, in addressing the central question, was his main purpose in 1987 in making the transfers his concerns about pending taxation liability, it would reasonably be thought, in our submission, had available to them Mr Cummins from whom they could get relevant information and Mr Morelli, or somebody similar, who could reconstruct that information and they not only did not call any evidence of that kind, they did not explain why they did not call it.  Could I deal with Mr Cummins briefly, because it has been raised now - it is a slight digression ‑ ‑ ‑

HAYNE J:   Just to revert to something that Justice Gummow was inquiring of you about the question of the route in the Rules may be affected by Order 32, rule 4 of the Federal Court Rules, “CONDUCT OF THE TRIAL”, which regulates order of addresses and the like in circumstances where, for example, “the opposite party elects not to adduce evidence” or “the opposite party elects to adduce evidence” so that may be compared with the old 1883 English Rules, Order 36, rule 36 where the English cases about no case to answer are noted in the White Book of the mid 1960s.  Yes, I interrupted you.

MR SOFRONOFF:   I was going to say about Mr Cummins, there is a thread of assumption through Justice Sackville’s reasons which does not appear in the reasons of the Full Court, in our submission, and it is this:  that one can draw an inference about what was operating in Mr Cummins’ mind as though Mr Cummins were like anybody else, but at least in one respect he was not like anybody else because he never filed a tax return and it is therefore not easy to compare the intention, the state of mind of a person who for 30 years did not file a tax return with the state of mind of a person who considers not filing a tax return.  So, in considering what was the true main purpose of Mr Cummins, in our submission, one cannot jump from the existence of a tax liability to inferring a fear on his part that the Commissioner would pursue him because this is a man who evidently lived a professional life under circumstances where he had not filed a return for 30 years and then did not for another 12.

GLEESON CJ:   What are the competing possibilities?

MR SOFRONOFF:   The competing possibilities are, your Honour, in this case two.  The first is that one that in fact he did think that the Commissioner might get him and he had better do something about it simply because of the existence of an impending tax liability of some order.  The second possibility is that he was concerned as evidently he had said in his examination that he might be sued by some client at some stage and he was protecting those assets or his assets against that possibility.

GLEESON CJ:   Just suppose that he had both purposes for the moment and just leave aside for the moment the question of which was the main purpose, how would the second purpose relate to section 121?

MR SOFRONOFF:   It would not because of the use of the word “creditor” in that section.  Could I come to this a little later, your Honour, but can I summarise it in this way.  The word “creditor” is used in that section and by dint of long authority, so the cases have it, the word “creditor” there does not mean merely a creditor with an existing debt.  It is a wider term and it will include persons who are contingent creditors or persons who are about to become creditors, for example, by the possession of a cause of action for unliquidated damages, the case that my learned friend referred to this morning, the breach of promise of marriage case.

So it extends to capture people like that within the definition of “creditor”.  But one person it does not capture is a person who is not even in sight as a potential plaintiff and a person who is not only unidentified but cannot even be identified as a class because there is no reason to suppose a debt of that kind, resulting from a judgment, will ever arise. 

We can contrast that with cases like Mackay v Douglas where a person going into a venture knows that there will be creditors of a class, the class being creditors who do business with the bankrupt so that we can identify those as a category at least and they will be creditors. 

In Mr Cummins’ case putting the property aside to ensure that if he is ever sued does not involve anybody who can properly be described as “creditor” within the meaning of the section.  In our submission, the authorities support that conclusion and it explains why in the result, in our submission, the applicant Trustees did not call evidence from Mr Cummins about that purpose because, not that it binds them in this Court or at all, but evidently it is not hotly contested that that purpose would be outside section 121.

Mr Ashhurst reminds me that we have listed those authorities from paragraph 45 in our written submissions and I will take your Honours in due course to just one of them - Dunwoody, a decision of the Court of Appeal of Queensland.  With respect to those two competing available purposes we would describe them as “logical possibilities”, a term that Sir Owen Dixon used in Bradshaw’s Case.  The question is whether either one of those two logical possibilities is more probable than the other to be the main cause.  In our submission, if the Trustees fail to establish that the Trustees had as a purpose at all to defeat the Commission of Taxation, or if they merely prove that he had two possible purposes but are not able to prove which one is the main purpose, then they equally fail.

In this case, with respect to his tax purpose, the improper purpose as I will call it, that has to be judged not only against the undoubted fact that he was a barrister of many years, therefore earned some income and would have had some kind of a tax liability, probably.  One also has to take into account that in the succession of years until 1987, as late as 1986, the year immediately before, he was buying property in his own name.  In 1986 he bought the Parramatta chambers shares in his own name.  Suddenly in 1987 he decides to effect these transactions and nothing occurred that can be pointed to in 1987 that might be thought to explain why he suddenly became concerned about his position as against the Commissioner of Taxation.

After 1987 he continued to acquire some pieces of property in his name and we have given the references to that at footnote 12 of our written outline.  In brief summary, he, from time to time, had cash in the bank as high as $200,000.  His tax returns show that he had a rental bond and received some rents which must have been from real property and he had some shares.  Now, our submission is that the onus lay upon the Trustees to establish, if the evidence was available, that he had disposed of substantially all his assets.  That is the case that is alleged against us, that he had disposed of all or almost all of his property. 

There is a source of information for that and that is Mr Cummins.  It is very hard for Mr Cummins to have falsely said, “I had a lot of property.  So you would not be justified in inferring an improper purpose because I had a lot of property”, because he would be asked what the property was and a lie would be quickly uncovered.  Now, that evidence was not called.  It would have been expected to have been called in this case.  It was not called and no explanation was given for why it was not called. 

In our submission then, when one looks at the evidence that was called in this case of his income, the inferred income, and of his assets, inferred from the circumstances, Ho v Powell and Cook’s Case, to which I will come directly, are authority for the proposition that a judge ought to be slow to act upon second-hand evidence, I think it is called in the cases, when primary evidence might have been available, is not called and there is no explanation for it.

Could I go to the decision in Ho v Powell (2001) 51 NSWLR 572, your Honours? The plaintiff cyclist is going along the road at night without a light on his bicycle and the defendant runs him over. Liability is not in issue. The question for the Court of Appeal was contributory negligence, and the onus as to that lay upon the defendant. The defendant did not give any evidence. So the question was whether the absence of the light on the bicycle was admittedly negligent, but was or was not a cause of the collision. The conclusion that their Honours came to was that it would have been easy for the defendant to have given evidence that he did not see the defendant because it was dark.

If he did not give evidence, the other rational possibilities become much more important.  One rational possibility that Justice Hodgson refers to at the foot of page 576 is that the appellant defendant “might have been distracted” by something so the light had nothing to do with it.  He might have been answering his mobile phone or he might have assumed that the cyclist, having seen him, was going to give way to him.  These are possibilities.  They become more than possibilities if there is a gap in evidence that might have been expected to have been called without explanation.  They are not so easily dismissed in those circumstances.

In our submission, in this case the absence of pieces of evidence of the kind that I have been elaborating upon places the Trustees in a similar position.  If your Honours would go to page 576 at paragraph 14 his Honour summarises it in the fourth line:

My own opinion is that the resolution of the controversy involves recognition that, in deciding facts according to the civil standard of proof, the court is dealing with two questions:  not just what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision.

He refers to an article that he wrote, and then to the famous dictum from Blatch v Archer which, in our submission, is at the heart of this aspect of the case.  He then deals with the facts of the case in paragraph 17, and at page 577, paragraph 19, the last five lines:

Having drawn the inference that his evidence would not have assisted the case that the absence of the light did contribute to the causation of the accident, the trial judge would then have been justified in concluding that the whole of the material before her did not make it more probable than not that the absence of the light contributed to the causation of the accident.

Here, we would submit, there are some pieces of evidence that Mr Cummins earned income, and there are some pieces of evidence that he disposed of two significant assets that he had an interest in, assuming he had an interest in the house.

HAYNE J:   Was there also evidence that he had given cash to his wife?

MR SOFRONOFF:   There was.

HAYNE J:   There was a disputed transaction, or series of transactions.

MR SOFRONOFF:   He gave her money which was repaid, were the findings.

HAYNE J:   But he had money to give her.

MR SOFRONOFF:   He had money, and as ‑ ‑ ‑

HAYNE J:   What order of magnitude of sum?  I thought it was something like 200,000, but perhaps I am wrong.

MR SOFRONOFF:   Just under, I think, your Honour, just under.  That, of course, bolsters the Trustee’s case that he had a substantial income but it weakens their case that he disposed of all his assets with a view to frustrating the Commissioner if he was ever caught.  It weakens it in a big way, in our submission, because we know from the evidence in the case, sparse though it is, that, as I have said, he had cash, he had shares and he had some unidentified real estate and there was no attempt to prove otherwise the absence of other assets in his hand unexplained.

GLEESON CJ:   Apart from the assertion by the Trustees in their statement of claim that he said upon examination that he was doing this because of Giannarelli.

MR SOFRONOFF:   Not because of Giannarelli, your Honour, because of actions for negligent advices.

GLEESON CJ:   But he said he was doing this because of liability for professional negligence – potential liability.  Apart from the assertion of that in the statement of claim and apart from what you might take from those bank records in 1998 that say that his assets are in his wife’s name because of his occupation, was there any evidence to support that as the inference in competition with the inference that the Trustees sought to have drawn?

MR SOFRONOFF:   One, we would submit, is that he was seeking to execute the transactions by way of gift.  His instructions to Mr Harris were, “I want to gift these things to my wife, on the one hand, and the trust on the other hand”.  So, he did not have in mind, evidently, that he might be given an assessment within a week or a month or some short period.  To answer your Honour’s question directly, there is no direct evidence of that character that your Honour put to me where in terms it is said that that is his motive.

GLEESON CJ:   Is there any evidence of any forgiveness of the debt that his wife owed him as a result of the transfer?

MR SOFRONOFF:   No.  I will ask Mr Ashhurst in a moment but my understanding is that it was merely never called up and indeed part of the case that was run but that was abandoned was that the failure to sue involved a transfer of a valuable asset that was abandoned later, so I think the answer is no.

GLEESON CJ:   Except insofar as inflation in land values operated after 1987, what did he achieve by way of protecting assets from anybody by transferring his interest in the Hunters Hill house to his wife for the full value of that interest?

MR SOFRONOFF:   With respect to people who might one day sue him, if our submission is accepted, they are not creditors.  Then, unless somebody sued him very quickly in New South Wales and got judgment then the voluntary settlements within the time limit would not apply and a then judgment creditor would not fall within section 121 so he would have succeeded in protecting his house, if it is his house, or at least his wife’s house, as we would put it, and his chambers.

GLEESON CJ:   But his creditors would have access to his assets which included the debt owed to him by his wife.

MR SOFRONOFF:   Only for so long as it was able to be sued for, six years.

GLEESON CJ:   What would stop it being able to be sued for?

MR SOFRONOFF:   Statute of limitations.

GLEESON CJ:   Six years had to expire before this could work, did it?

MR SOFRONOFF:   Yes, but your Honour will appreciate ‑ ‑ ‑

GUMMOW J:   It would be a demand.  Why did you just say six years?  It is payable on demand presumably, the debt from the wife.

MR SOFRONOFF:   I understand what your Honour is putting to me.  I will just check to see what the ‑ ‑ ‑

GUMMOW J:   I do not see at the moment what you have said is in answer to what the Chief Justice was putting to you, that is all.

MR SOFRONOFF:   It may not be, your Honour, but what he did on Mr Harris’ advice was rather than make a gift which would be caught only within the time limit, he did it for a stated consideration.

GLEESON CJ:   For full value?

MR SOFRONOFF:   For full value, yes, for the consideration in the transfer.

GLEESON CJ:   If you transfer your property to somebody at full value, how have you defeated your creditors?

MR SOFRONOFF:   Well, certainly subject to the limitation point you have failed because, as your Honour puts to me, there is the debt that is owed.

GLEESON CJ:   All you have achieved is to deprive your creditors of the benefit of any subsequent increase in the value of the property that you have transferred.

MR SOFRONOFF:   Yes, could I say this, though, your Honour, this is probably the answer.  There is a note or a letter from Mr Harris in which he says we need to do this by way of transfer for consideration and in due course we will arrange for the debt to be forgiven.  We will find that for you now.  So if your Honour is asking me what was ‑ ‑ ‑

GLEESON CJ:   That is why I asked you earlier whether there was any evidence of a forgiveness of the debt.

MR SOFRONOFF:   There was no evidence of an actual forgiveness, but there was ‑ ‑ ‑

GLEESON CJ:   You would have to do it by deed, would you not?

MR SOFRONOFF:   One would have to do it by deed and there is evidence that Mr Harris foreshadowed that such a forgiveness would occur to complete it.  So he, Harris, at least had in mind what your Honour put to me.

GLEESON CJ:   How does the reasoning of any of the judges in Federal Court address the fact that the consequence of these transactions was that his interest in Hunters Hill or in Counsels’ Chambers Limited - let us stick to Hunters Hill - had been replaced by a debt owed to him by his wife equal to the value of his interest in Hunters Hill?

MR SOFRONOFF:   It did not draw a lot of attention, your Honour.  If your Honours would go to page 1645, this is Justice Sackville, not the Full Court, paragraph 33 reflects the way the proceedings were constituted originally.  I do not recall the Full Court referring to this aspect of it because by that stage – I think I am right in submitting that by that stage it was accepted that the transfer was dressed up as one for a consideration that was never intended to be paid and was not.

GLEESON CJ:   But if your object is to defeat some creditor, whoever the creditor might be, by dressing it up as a transfer for full value all you have done is exposed your wife to the claim by the creditor.

MR SOFRONOFF:   Absent a forgiveness, without a forgiveness, which Harris envisaged would be given and we will find that note, your Honours.

GLEESON CJ:   What happened in 1999 to extinguish the right to recover the debt?  Subject to later increases in land value it would be the extinguishment of the debt that defeated the creditors, would it not?  If there had been a forgiveness of the debt, for example, a year later, what would have prevented property from becoming divisible among the transferor’s creditors would have been the forgiveness of the debt.  All that the transfer of real estate achieved was a change in the nature of the property that was divisible among the creditors.

MR SOFRONOFF:   Yes.

GUMMOW J:   One of the questions at 283 in volume 1:

is forgiveness of a debt a settlement?

MR SOFRONOFF:   Yes.  I recall that Mr Harris in his notes had raised the necessity to have a forgiveness and had raised that question for himself.

HAYNE J:   Now, the pleadings are perhaps elliptical.  On page 9 you have the alternative claim by the Trustee that Mrs Cummins still owes the purchase price – that is paragraph 10.  That is met by an answer at page 33,
paragraph 6.  She admits that:

she did not pay any money in consideration of the transfer of the Property.

Then you have a denial - negative pregnant, I would have thought – of paragraph 10.  But were the proceedings below conducted on the assumption that if the debt had not earlier been forgiven it was then statute barred as to which see Young v Queensland Trustees Ltd 99 CLR at 566 to 567.

HEYDON J:   Was not the position adopted by the respondents at first instance that there was no debt because Mrs Cummins refused to pay any money?  She was not going to pay any then and she was not going to be liable to pay any.

MR SOFRONOFF:   Yes.  She owned the property.

HEYDON J:   That is the pleading you took us to at the start of your address.  So how did matters go on from there then?  Did the Commissioner keep averring that there was an actual debt or did you shift position and say that there was a debt but it came to an end in some way?

MR SOFRONOFF:   No, your Honour.  As your Honour will recall, we did not lead any evidence and we had no position to shift.  They led the evidence that your Honours have heard and abandoned any pursuit of the debt on the footing evidently that it was statute barred by the time the proceeding came on for hearing.

GLEESON CJ:   Mr Sofronoff, if Mrs Cummins had in fact paid the consideration in 1987, there would be no possible case under section 121, would there?

MR SOFRONOFF:   Correct.

GLEESON CJ:   Let us assume that what happened was that the transaction occurred in 1987, she became indebted to her husband then in X dollars and some years later, by operation of the statute of limitations, the debt ‑ ‑ ‑

MR SOFRONOFF:   Became unenforceable.

GLEESON CJ:   It could not be sued on by the husband.  Then that which brought section 121 into operation would be the husband’s failure X years later to claim the debt, would it not?

MR SOFRONOFF:   Yes, assuming that falls within 121 or some other provision, but not the original transaction ‑ ‑ ‑

GLEESON CJ:   If, for example, there had been a formal forgiveness of the debt five years later, the transaction to which section 121 would have attached would have been the forgiveness of the debt.

MR SOFRONOFF:   Yes.

GLEESON CJ:   Which would have been a transaction for no consideration.

MR SOFRONOFF:   Yes.  What would follow from that, in our submission, is that if – may I just think about it for a moment.  What follows from it is that if, as the Trustees seek to have established, the parties were 50/50 owners of the property and Mr Cummins sold his share of the property to his wife who never paid the money, then the sale of the property did not defeat creditors.  Rather, if anything, it was the failure to pursue the debt that defeated creditors.

GLEESON CJ:   It has never been suggested this was a sham transaction, has it?

MR SOFRONOFF:   No.  No, on the contrary, one of the judges found that it was not.

GLEESON CJ:   Just remind us what happened in relation to the shares in Counsels’ Chambers Limited.

MR SOFRONOFF:   Well, they were easier – let me just find the passage, your Honour.  Justice Sackville’s conclusion about it appears at page 1684, paragraph 159.

GLEESON CJ:   Well, you get the same problem, page 1649, paragraph 49.  The shares were transferred to the trustee of a family trust in consideration of $360,000, but the trustee company did not pay the purchase price.  That just meant that instead of shares in Counsels’ Chambers, Mr Cummins now was a creditor of Aymcopic in an amount of $360,000.  Once again, that transaction of itself did not alter the value of Mr Cummins’ assets at all.

MR SOFRONOFF:   No, he held a chose in action – a different chose in action in the case of the shares.

GLEESON CJ:   Then what ultimately happened to the $360,000 owed to Mr Cummins by Aymcopic?

MR SOFRONOFF:   I think the answer is that it merely was not pursued, never demanded.

GLEESON CJ:   Then if the assumption is – and we might have to look in more detail at this – that some time later that debt became statute barred, then presumably the prevention of property becoming divisible among Mr Cummins’ creditors occurred - query whether the relevant transfer occurred - some years later.  Section 121 attaches to a transfer.

MR SOFRONOFF:   Yes.

GLEESON CJ:   The 1987 transfers were both for full value.

MR SOFRONOFF:   Yes.

GLEESON CJ:   Was the argument that the purpose of defeating creditors in making the transfer involved a purpose of some years later not suing for the debt.  Let me put it this way, suppose Mr and Mrs Cummins had divorced in 1990, before any statute of limitations had expired and there had been some kind of taking of accounts in relation to all the family affairs.  By that stage, as I say, subject to any changes in property values that had occurred between 1997 and then Mr Cummins’ assets would have been precisely the same in 1990 as they were in 1987.

MR SOFRONOFF:   Yes.

HAYNE J:   Or is the position that the case has proceeded on a tacit acceptance of what appears at page 1656, paragraph 73 in the first bullet point?

MR SOFRONOFF:   Your Honour, that is ‑ ‑ ‑

HAYNE J:   Let me say why.  It seems to be tacitly accepted.  Go, for example, to page 1677, paragraph 132.  Mr Brereton contends “one of the Bankrupt’s motives for divesting himself of two valuable assets”.  That is divesting not transforming.  It all gets very messy at this point.  It begins to look as though there may have been some unstated assumption.  No consideration was ever paid – well, we will not go and look into questions of sham but is that the conventional basis on which this case has been fought, there was a divesting?

MR SOFRONOFF:   Your Honour, it appears to have been assumed that the transaction as it was entered into was a transfer which if it was made for the improper purposes the main purpose fell within 121 and that appears to be the foundation of what is said at 132 but the reason it cannot be said that it was common ground that the transaction was a sham, which is how far our learned friends would have to go, is that ‑ ‑ ‑

HAYNE J:   That is what that submission in the bullet point is, is it not?

MR SOFRONOFF:   That is a submission that was made but his Honour does not conclude that the transaction was a sham.  Whether it was Justice Sackville or their Honours in the Full Court we will find the passage but there is a distinct passage where that acknowledgement is made.  If that is the case then, in our submission, it follows that the loss to any creditors of Mr Cummins occurred by the effluxion of time and the loss of ability to sue for the debt.

HEYDON J:   That will not work for the Counsels’ Chambers shares, though, will it?  Page 35 of volume 1 contains paragraph 16(b)(ii).  It says it is:

the mutual intention of Mr Cummins and Aymcopic was…

(ii)      Aymcopic was not obliged to pay the sum;

(iii)     the said sum was recited in the transfer for the sole purpose of . . . stamp duty –

There Mr Cummins has lost an asset worth $360,000 with nothing back.

HAYNE J:   Mr Sofronoff, in framing your answer it may be necessary - I do not know - to take account of the possibility, and I do not know whether it is a real possibility, to make statements in returns to stamp duty authorities asserting payment of consideration, or agreement to pay valuable consideration, that were false would entail criminal liability.  That is a bare possibility.  I simply do not know whether it exists or, if it exists, whether it could possibly be engaged in this matter, but you may perhaps be better informed on these matters than I.

MR SOFRONOFF:   Perhaps, your Honour, perhaps not. 

GLEESON CJ:   Maybe you would like to think about this overnight.

MR SOFRONOFF:   I would, your Honour because I would not like to embrace something, however helpful it might be, if there is nothing in it.

GUMMOW J:   Initially helpful.

GLEESON CJ:   How long do you think you might require to complete your argument?  I ask that question for the benefit of people in the next case.

MR SOFRONOFF:   Half to three-quarters of an hour, your Honour.

GLEESON CJ:   Then we will adjourn until 10.15 am and we will say the next case will be not before 11 am.

AT 4.16 PM THE MATTER WAS ADJOURNED
UNTIL WEDNESDAY, 7 DECEMBER, 2006