Federal Court Upholds Online Retailer as True Owner of Convertible Bonds

OUTCOME: Dismissed

FEDERAL COURT OF AUSTRALIA

[NAME_1] v [NAME_2], in the matter of [COMPANY_3] (Receivers and Managers Appointed) (In Liquidation) (No 2) [2011] FCA 1123 Citation: [NAME_1] v [NAME_2], in the matter of [COMPANY_3] (Receivers and Managers Appointed) (In Liquidation) (No 2) [2011] FCA 1123

Parties: [NAME_4] AND [NAME_5] IN THEIR CAPACITIES AS [NAME_6] OF [COMPANY_3] (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017 and [COMPANY_3] (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017 v [NAME_7], [COMPANY_8] (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN [PHONE], [NAME_10], [NAME_12] and [COMPANY_13] number(s): NSD 34 of 2010

Judge: EMMETT J

Date of judgment: 30 September 2011

Catchwords: EQUITY – contested beneficial ownership of convertible bonds issued to a company – where [NAME_6] sought declaratory relief against a defendant who was in possession of bond certificates and executed transfers, and who sought to become the registered holder of the bonds – whether an alleged series of undocumented assignments of equitable interest in the bonds was effective – whether the alleged assignments were made for valuable consideration EQUITY – effect of the Conveyancing Act 1919 (NSW) on alleged assignments of the equitable interest in the bonds – whether s 23C(1)(c) was required to be complied with in order for the alleged assignments to be effective – whether s 23C(1)(c) applies to equitable dispositions of [NAME_14] EVIDENCE – onus of proof – whether plaintiffs, as parties seeking declaratory relief and as the only parties seeking relief at all, bore the onus of disproving the chain of alleged assignments contended for by the defendants – whether defendants' allegations constituted denials of essential ingredient in the plaintiffs' cause of action or a defence of a prima facie claim – whether company's registration as bondholder gave rise to a presumption of equitable ownership – whether possession of bond certificates and transfers gave rise to competing presumption of equitable ownership CORPORATIONS – whether company's alleged equitable assignment of the bonds was an insolvent, uncommercial or unreasonable director-related transaction within the meaning of the Corporations Act 2001 (Cth) – whether transaction voidable – whether s 588FG available as a defence – degree to which the chain of alleged assignments could be regarded as a single transaction of the company – whether alleged equitable assignment of the bonds involved breach of directorial and fiduciary duties

Legislation: Competition and Consumer Act 2010 (Cth) s 50 Conveyancing Act 1919 (NSW) ss 12, 23C, 23E Corporations Act 2001 (Cth) ss 180, 181, 182, 588FB, 588FC, 588FDA, 588FE, 588FF, 588FG Evidence Act 1995 (Cth) s 140

Cases cited: Adamson v Hayes (1973) 130 CLR 276 [NAME_15] v [NAME_16] Commission (No 3) (2003) 137 FCR 317 Australian Kitchen Industries Pty Ltd v Albarran (2004) 51 ACSR 604 Baloglow v Konstantinidis [2001] NSWCA 451 Blanch v British American Tobacco Australia Services Ltd (2005) 62 NSWLR 653 Briginshaw v Briginshaw (1938) 60 CLR 336 Currie v Dempsey (1967) 69 SR (NSW) 116 Cussen v Sultan (2009) 74 ACSR 496 Grey v IRC [1960] AC 1 Jones v Dunkel (1959) 101 CLR 298 Kalls Enterprises Pty Ltd v Baloglow (2006) 58 ACSR 63 Massoud v NRMA Insurance Ltd (1995) 62 NSWLR 657 Peter Pan Management Pty Ltd v Capital Finance Corp (Aust) Pty Ltd (2001) 19 ACLC 1392 Powell v Fryer (2001) 37 ACSR 589 [COMPANY_17] v [COMPANY_17] (No 2) (1992) 27 NSWLR 241 Russell v Wilson (1923) 33 CLR 538 Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387

Date of hearing: 16 and 17 August, 11, 12 and 13 October, 9 December 2010; 15 February, 4 and 5 April 2011

Date of last submissions: 9 June 2011

Place: Sydney

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 226

Counsel for the plaintiffs: [redacted]

Solicitor for the plaintiffs: [redacted]

Counsel for the first and second defendants: [redacted]

Solicitor for the first and second defendants: [redacted]

Counsel for the third defendant: [redacted]

Counsel for the fourth defendant: [redacted]

Solicitor for the fourth defendant: [redacted]

Counsel for the fifth defendant: [redacted]

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 34 of 2010

IN THE MATTER OF [COMPANY_3] (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017 BETWEEN: [NAME_4] AND [NAME_5] IN THEIR CAPACITIES AS [NAME_6] OF [COMPANY_3] (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017

First [COMPANY_3] (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017

Second Plaintiff

AND: [NAME_7]

First Defendant

[COMPANY_8] (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN [PHONE]

Second Defendant

[NAME_10]

Third Defendant

[NAME_12]

Fourth Defendant

[COMPANY_13]

Fifth Defendant

JUDGE: EMMETT J DATE OF ORDER: 30 SEPTEMBER 2011 WHERE MADE: SYDNEY

THE COURT ORDERS THAT:

1. No later than 14 October 2011, the plaintiffs provide the Court with short minutes of orders required to give effect to these reasons.

2. No later than 28 October 2011, the defendants notify the plaintiffs and the Court of any objections to the proposed orders.

3. No later than 14 October 2011, each party make such written submissions as he or it may be advised as to the costs of the proceeding.

4. No later than 28 October 2011, each party make such written submissions in response as he or it may be advised as to the costs of the proceeding. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Second Plaintiff

AND: [NAME_7]

First Defendant

Second Defendant

[NAME_10]

Third Defendant

[NAME_12]

Fourth Defendant

[COMPANY_13]

Fifth Defendant

JUDGE: EMMETT J DATE: 30 SEPTEMBER 2011 PLACE: SYDNEY

REASONS FOR

JUDGMENT INTRODUCTION [1] RELEVANT FACTUAL

BACKGROUND [4] [NAME_3] [8] The Convertible Bonds [22] THE PROCEEDING [30] The Issues [36] The Onus [46] [NAME_13] [57] The Witnesses [62] The Accounting Records [84] Ownership of [NAME_3] [100] Assignment of Convertible Bonds in Reduction of [NAME_3] [116] Assignment by [NAME_13] to [NAME_9] [120] Operation of the Conveyancing Act [123] Conclusion as to the [NAME_13] [140] [NAME_9], [NAME_8] AND [NAME_2] [145] [NAME_9] and [NAME_8] [146] [NAME_8] and [NAME_2] [152] Conclusion as to Subsequent Assignments [159] THE ALTERNATIVE CASES [160] Uncommercial, Insolvent or Unreasonable Director-Related Transaction [161] Breach of Duty by Directors [181] Good Faith Defences [191] Consent of Secured Creditors [217]

CONCLUSION [223]

INTRODUCTION 1 This proceeding is concerned with the beneficial ownership of convertible bonds having a face value of $2,000,000. The convertible bonds were issued by [NAME_25] ([NAME_25]) to the second plaintiff, [COMPANY_3] ([NAME_3]), and are registered in the name of [NAME_3]. However, the first defendant, [NAME_2], claims to be the beneficial owner of the convertible bonds by reason of a series of transactions said to have been entered into in 2008 and 2009. He has asked [NAME_25] to register him as the holder of the convertible bonds, having presented certificates in respect of the convertible bonds, together with transfers purportedly signed on behalf of [NAME_3] (the Impugned Transfers). 2 On 30 July 2009, the first plaintiffs, [NAME_1] [NAME_1] and [NAME_5] ([NAME_6]), were appointed as administrators of [NAME_3]. On 3 September 2009, they were appointed as [NAME_6] of [NAME_3]. [NAME_26] seek a declaration that [NAME_3] is the true owner of the convertible bonds, and an order that [NAME_2] deliver up the transfers and certificates purporting to vest in him the beneficial ownership of the bonds. They assert that certain of the alleged transactions relied on by [NAME_2] to divest [NAME_3] of beneficial ownership of the convertible bonds were ineffective. The transactions impugned by [NAME_26] (the Impugned Transactions) were dealings involving [NAME_3], [COMPANY_28] ([NAME_28]), [COMPANY_13] ([NAME_13]), [NAME_9], [COMPANY_8] ([NAME_8]), and [NAME_2]. 3 In the alternative, [NAME_26] say that certain of the Impugned Transactions, if they were effective, should be declared to be void or be set aside. The claim for avoidance of certain of the Impugned Transactions rests primarily on various provisions of the Corporations Act 2001 (Cth) (the Corporations Act), including provisions relating to directors' fiduciary obligations, uncommercial transactions, insolvent transactions, and unreasonable director-related transactions. [NAME_26] also rely on provisions of the Conveyancing Act 1919 (NSW) (the Conveyancing Act), as well as on the general law of fiduciary obligations and the law of constructive trusts.

RELEVANT FACTUAL

BACKGROUND 4 [NAME_9] is the founder of a group of companies known as the [COMPANY_29]. The group consists of various private companies owned by him and members of his family. Mr [NAME_9] is a director of [COMPANY_29] ([NAME_30]), a public listed company. Subsidiaries of [NAME_30] include [COMPANY_30] ([NAME_30]), [COMPANY_30] ([NAME_30]), [COMPANY_30] ([NAME_30] No 11), and [COMPANY_30] ([NAME_30] No 12). [NAME_3] is a wholly owned subsidiary of [NAME_30]. 5 At relevant times, [NAME_9] was a director of [NAME_3]. He was also a director of [NAME_30], [NAME_30], [NAME_30] No 11, and [NAME_30] No 12. 6 From 11 May 2001 to 15 March 2010, the fourth defendant, [NAME_12], was also a director of [NAME_30], [NAME_30] and each of [NAME_30], [NAME_30] No 11 and [NAME_30] No 12, and was chief executive officer of those companies. In that capacity, he was responsible for managing, and dealing with, the creditors of [NAME_30] and its subsidiaries. [NAME_12] was a director of [NAME_3] from 23 April 2004 onward, and was also chief executive officer of [NAME_3] until early 2007. After he retired from his position as chief executive officer of [NAME_3], [NAME_12] remained as a director of [NAME_3]. 7 Before dealing with the issues raised in the proceeding, I shall say something about certain indebtedness of [NAME_3] ([NAME_3]). Reduction of [NAME_3] is asserted to form the consideration for one of the Impugned Transactions. I shall also say something about the issue of the convertible bonds and the subsequent alleged dealings with them.

[NAME_3] 8 On 21 March 2003, [NAME_3], which was at that time known as [NAME_30], acquired assets associated with a coal mine near Wollongong, New South Wales (the Mine). [NAME_3]'s purchase of the Mine was financed by a number of loans. One of the loans, which was secured by first charge and mortgage over various assets of [NAME_3], including the land and leases that constituted the Mine, was made by [COMPANY_31] ([NAME_31]), through its custodian, [COMPANY_32]. 9 [NAME_3] was also lent $9,000,000 by [COMPANY_32] ([NAME_32]) pursuant to a deed of loan dated 21 March 2003 (the Deed of Loan). [NAME_32] entered into the Deed of Loan as trustee for [NAME_30], [NAME_30] No 11 and [NAME_30] No 12 (the [NAME_30]), each of which apparently advanced part of the principal of the loan made to [NAME_3] by [NAME_32]. The loan from [NAME_32] under the Deed of Loan gave rise to the original [NAME_3]. By clause 6 of the Deed of Loan, [NAME_3] was to be repaid no later than 20 March 2005. [NAME_3] was secured by a fixed and floating charge over the assets of [NAME_3], and a mortgage over the land and mining leases that constituted the Mine. That charge was inferior, in terms of priority, to the security held by [NAME_31]. 10 On 29 September 2004, by deed of transfer and acknowledgment (the Deed of Transfer), [NAME_32] transferred its right, title and interest in and under the Deed of Loan, including [NAME_3], to the [NAME_30] as tenants in common, in shares that were apparently equal to the amounts of principal respectively advanced by them. The effect of the Deed of Transfer was that [NAME_3] became owing to the [NAME_30] in those shares. By deed of variation of 14 July 2005, made between [NAME_3] and the [NAME_30], the date for repayment of [NAME_3] was extended to 13 July 2008 and the amount of [NAME_3] was increased to approximately $22.4 million. 11 In July or August 2007, a deed of compromise (the Deed of Compromise) was executed by [NAME_28], [NAME_3], [NAME_30], [NAME_30], the [NAME_30] and five other creditors of [NAME_30] and [NAME_30] (the [NAME_33]). The [NAME_33] and the debts owing to them were described in schedule 1 to the Deed of Compromise. The Deed of Compromise recited that [NAME_30] and [NAME_30] were indebted to the [NAME_33] and that the [NAME_33] had agreed to compromise their rights in relation to that indebtedness. The [NAME_33] and the debts owing to them, as shown in schedule 1 to the Deed of Compromise, were as follows: [COMPANY_34] ([NAME_34]) $1,179,897.29 [NAME_13] $1,671,855.10 [COMPANY_34] ([NAME_34]) $323,757.64 [NAME_35] $217,938.33 [COMPANY_36] ([NAME_36]) $2,997,198.62 The debts of the [NAME_33] amounted to $6,390,646.98 in total. While there is some evidence before the Court concerning [NAME_13] and [NAME_35], there is no evidence concerning [NAME_34], [NAME_34] or [NAME_36]. 12 The pivotal provisions of the Deed of Compromise were clauses 4, 5 and 6. By clause 4, the [NAME_33] released and discharged [NAME_30] and [NAME_30] from all liability with respect to the debts owing to them. By clause 5, the [NAME_30] assigned to [NAME_28] all right, title and benefit in and to [NAME_3]. By clause 6, [NAME_3] acknowledged that [NAME_3], together with interest and other fees payable under the Deed of Loan, was owed to [NAME_28]. The amount of [NAME_3] was not specified in the Deed of Compromise. Clauses 4, 5 and 6 of the Deed of Compromise were conditional upon members of [NAME_30] in general meeting approving the transactions that were the subject of the Deed of Compromise. 13 The Deed of Compromise stated that [NAME_28] entered into it as trustee of a trust (the [NAME_33]) constituted by a deed dated 16 July 2007 (the Compromise Trust Deed) made between [COMPANY_37] ([NAME_37]) and [NAME_28]. By the Compromise Trust Deed, [NAME_28] acknowledged receipt of the sum of $100 from [NAME_37], which entitled [NAME_37] to be entered into the register of unit holders under the [NAME_28] as the holder of 100 units. [NAME_28] agreed that it held the initial sum of $100, and all other moneys paid to it in respect of the issue of units, on the trusts of the Compromise Trust Deed. By clause 3, the beneficial interest in the trust fund of the [NAME_33], as existing from time to time, was vested in the unit holders for the time being, and, if more than one unit holder existed, in proportion to the number of units each held. However, clause 3 provided that a unit did not entitle the holder of the unit to any particular asset comprised in, or any particular part of, the trust fund. By clause 4, [NAME_28] was empowered to create and issue additional units to such persons as it might determine. Clause 5 of the Compromise Trust Deed required [NAME_28] to maintain an up-to-date register of the unit holders. 14 A document purporting to be the unit register of the [NAME_33] was admitted into evidence. The document records that 100 units were issued to [NAME_37] on 16 July 2007, and that those units were cancelled on 18 July 2007. On the same day, 100 units were issued to [NAME_13]. The unit register contains a notation that the certificate issued to [NAME_37] was cancelled in accordance with notification of an assignment from [NAME_37] to [NAME_13] and that the certificate was replaced in accordance with that assignment notification. No party drew attention to any other evidence concerning the owner of units in the [NAME_33]. 15 As contemplated by the Deed of Compromise, an extraordinary general meeting of the members of [NAME_30] was convened by [NAME_30]. The meeting was convened for 9 November 2007 by notice dated 9 October 2007. The business of the meeting was to consider two resolutions, as follows: • that [NAME_30], for itself and the [NAME_30] and [NAME_30], be authorised to complete and give effect to the Deed of Compromise; and • that [NAME_30] be authorised to issue and allot 29,327,944 fully paid ordinary shares to [NAME_13] to satisfy debts of $2,639,515 owed by [NAME_30] to [NAME_13]. An explanatory memorandum attached to the notice of meeting provided further information in relation to each of the two resolutions. 16 In relation to the first resolution, the explanatory memorandum stated that, under the Deed of Compromise, the [NAME_30] were to assign to the [NAME_33] all right, title and benefit in and to their entitlements to [NAME_3], in consideration for which the [NAME_33] would release [NAME_30] and [NAME_30] from liability with respect to the debts due to them. The explanatory memorandum also stated that all of the directors of [NAME_30], consisting of [NAME_9], [NAME_12] and [NAME_38], [NAME_9]'s brother, considered that the proposal was in the best interests of the shareholders of [NAME_30] and recommended that the shareholders vote in favour of the first resolution. The explanatory memorandum stated that no directors had any interest in the passing of the first resolution, other than in their capacity as shareholders of [NAME_30]. 17 In relation to the second resolution, the explanatory memorandum stated that [NAME_37] had provided to [NAME_30] an unsecured loan totalling $1,993,599 and that, by deed of assignment dated 18 July 2007, [NAME_37] had assigned that unsecured loan to [NAME_13]. The explanatory memorandum said that [NAME_13] intended to work with [NAME_30]'s existing directors and management to develop [NAME_30]'s business and therefore had agreed to convert the existing debt, together with interest accrued of $645,916, into equity in [NAME_30]. The explanatory memorandum stated that [NAME_13] was an investment company registered in Anguilla, British West Indies, that its sole director was [NAME_39], that its issued capital was one fully paid ordinary share and that the sole shareholder was [NAME_39]. [NAME_39] is known as [NAME_39]. 18 The deed of assignment of loan of 18 July 2007 between [NAME_37] and [NAME_13], which is referred to in the explanatory memorandum, is in evidence. The deed of assignment of loan states that the assignment was made in consideration of the payment of $150,000 by [NAME_13] to [NAME_37]. 19 The relationship between [NAME_13], the other [NAME_33] and the record of unit holdings in the [NAME_33] is not satisfactorily explained by the evidence in the proceeding. Thus, there is no evidence to indicate whether, and in what circumstances, [NAME_28] held the benefit of [NAME_3] on trust for all five of the [NAME_33], or on trust for [NAME_13] alone. The natural inference to be drawn from the terms of the Deed of Compromise is that [NAME_28] held [NAME_3] on trust for the five [NAME_33] in the proportions that their respective debts, as stated in schedule 1 to the Deed of Compromise, bear to each other. However, as I have said, the unit register of the [NAME_33] records [NAME_13] as the only unit holder. 20 Likewise, the relationship, if any, between the deed of assignment of loan of 18 July 2007, on the one hand, and the transfer of units in the [NAME_33], on the other hand, is quite obscure. Still more obscure is the relationship, if any, between the transfer of units in the [NAME_33] and any entitlement to [NAME_3]. I consider that it is more likely than not that the transfer of units was connected in some way with the deed of 18 July 2007, rather than with any entitlement of [NAME_13] to [NAME_3]. 21 As will appear below, those questions are of some importance to the proceeding. [NAME_40] contend that [NAME_13], pursuant to an agreement with [NAME_28], became exclusively entitled to [NAME_3] in September 2007. That entitlement underpins the chain of transactions upon which [NAME_2] relies in his assertion of beneficial ownership of the convertible bonds.

The Convertible Bonds 22 [NAME_3] sold assets associated with the Mine to [NAME_25]. On 3 December 2004, [NAME_3] and [NAME_25] entered into a remediation licence deed (the Remediation Deed) in connection with that sale. In late 2006 a dispute arose between [NAME_3] and [NAME_25] concerning [NAME_25]'s obligations under the Remediation Deed. The disputes became the subject of proceedings in the Supreme Court of New South Wales and the Warden's Court of New South Wales. 23 [NAME_3] and [NAME_25] settled the dispute concerning [NAME_25]'s remediation obligations, and a deed of settlement was executed on 12 September 2007 (the 2007 Settlement Deed). However, the terms of the 2007 Settlement Deed were not acceptable to [NAME_31], in its capacity as chargee and mortgagee.

Accordingly, negotiations for new terms of settlement were undertaken. The negotiators included [NAME_9] on behalf of [NAME_3], and the executive chairman of [NAME_25], [NAME_41]. 24 [NAME_42] is a director of [COMPANY_43], which he describes as a boutique financial services company. [NAME_42] has known [NAME_9] for approximately ten years, during which time [NAME_9] has been [NAME_42]'s client in respect of a number of projects. In April 2008, [NAME_9] sought [NAME_42]'s advice in respect of the complex settlement negotiations that were taking place. The negotiations involved, among other things, the prospective issue of convertible bonds by [NAME_25]. [NAME_9] asked for [NAME_42]'s professional opinion as to what would make such convertible bonds marketable. 25 On 1 May 2008, [NAME_42] attended a meeting at [NAME_9]'s office with [NAME_9], together with representatives of [NAME_25] and representatives of [NAME_31]. The purpose of the meeting was to discuss the proposed new terms of settlement of the dispute between [NAME_3] and [NAME_25]. [NAME_42] said that [NAME_9] said to those attending the meeting that [NAME_3] would apply the convertible bonds proposed to be issued by [NAME_25] to reduce other secured creditors' debts ranking behind the debt owed to [NAME_31]. [NAME_42] said that, after some discussion of the terms of settlement outlined by [NAME_9], the representatives of [NAME_31] expressed support in principle for the proposal. 26 On 23 July 2008, a restated settlement deed (the 2008 Settlement Deed) was entered into by [NAME_3] and [NAME_25]. By the 2008 Settlement Deed, the parties settled the disputes arising out of the Remediation Deed. Clause 2.1 of the 2008 Settlement Deed provided for a payment of $1,000,000 in cash by [NAME_25] to or to the order of [NAME_3]. By clause 2.2, [NAME_25] agreed to issue in favour of [NAME_3], and deliver to [NAME_3], certificates in respect of convertible bonds evidencing a debt totalling $10,000,000. The delivery of convertible bonds and the payment of $1,000,000 were in consideration of the surrender by [NAME_3] of rights to receive royalty payments from [NAME_25]. 27 On 5 August 2008, [NAME_25] issued $10,000,000 of convertible bonds to [NAME_3] pursuant to the 2008 Settlement Deed. The convertible bonds were in denominations of $50,000. The terms and conditions of issue of the convertible bonds included a provision that the holder would have the right to convert the bonds into fully paid ordinary shares in the capital of [NAME_25] at any time during the months of July and January, on or after 1 July 2011. The conversion price was to be determined in accordance with a formula stated in the terms and conditions. The shares issued to a holder upon conversion were to be held in escrow for six months, after which time [NAME_25] was to apply to list the shares. The convertible bonds were to mature on 1 July 2028 unless previously redeemed, converted or purchased and cancelled. 28 The terms and conditions on which the convertible bonds were issued also included a provision that title to a convertible bond was vested absolutely in the person entered in the register as the holder of the bond, and would pass by transfer and registration. Under the terms and conditions, a convertible bond was to be freely transferable. Application for the transfer of a bond was to be made by the lodgment with [NAME_25] of a duly completed transfer form. 29 Upon issue of the $10,000,000 of convertible bonds, [NAME_3] was recorded as the holder of the convertible bonds in the register maintained by [NAME_25]. On 6 August 2008, certificates in respect of $10,000,000 of convertible bonds were delivered by [NAME_25] to [NAME_3]'s office, where they were received by [NAME_9]. [NAME_9] gave the certificates to Ms [NAME_11], the in-house counsel of the [COMPANY_29], with instructions for the certificates to be handed to [NAME_38] for safe custody. [NAME_11] delivered the certificates to [NAME_38] in accordance with those instructions.

THE PROCEEDING 30 On 20 October 2009, the solicitors for [NAME_6] wrote to [NAME_25], enquiring as to details of the current holder of the convertible bonds that had been issued to [NAME_3] on 5 August 2008. By letter of 3 November 2009, [NAME_25] replied, furnishing particulars of the state of the register of bond holders. The particulars showed that [NAME_3] remained the registered holder of $4,000,000 of convertible bonds, $2,000,000 of which are the bonds in issue in the present proceeding. The remaining $6,000,000 of convertible bonds had been transferred to various parties. The ultimate destination and ownership of that $6,000,000 of convertible bonds is not in issue in the present proceeding, and has not been the subject of any evidence. However, since the transactions involving those bonds may have some bearing on any orders that should be made, I shall say something about the transfer of those convertible bonds. 31 The letter of 3 November 2009 from [NAME_25] enclosed two schedules specifying particulars of the transferred bonds, and particulars of the current registered bond holders. The schedules disclosed that there had been transfers of convertible bonds by [NAME_3], as follows: $1 million on 5 December 2008 to [COMPANY_44]; $1 million on 16 December 2008 to [COMPANY_44]; A further $1 million on 16 December 2008 to [COMPANY_44]; $1 million on 1 May 2009 to [NAME_44]; $2 million on 1 May 2009 to [NAME_45]. The particulars furnished by [NAME_25] indicate that each of those transferees was still registered as the holder of those convertible bonds as at 3 November 2009. However, none of them has been joined as a party to the proceeding. For reasons that I shall later explain, that may affect whether and in what circumstances orders should be made. 32 On 18 December 2009, [NAME_25] wrote to [NAME_6]' solicitors, indicating that [NAME_2] was seeking to have $2,000,000 of the convertible bonds that remained registered in the name of [NAME_3] transferred into his name. [NAME_25] attached copies of the Impugned Transfers, being four transfers of convertible bonds signed by [NAME_9] on behalf of [NAME_3], together with a copy of a power of attorney granted by [NAME_3] to [NAME_9] on 7 May 2008, under which the Impugned Transfers were signed. [NAME_25] said that [NAME_25] held the original certificates in respect of the $2,000,000 of convertible bonds. 33 The receipt of the letter from [NAME_25] of 18 December 2009 prompted the commencement of this proceeding by originating process. The plaintiffs are [NAME_6], in their capacity as [NAME_6] of [NAME_3], and [NAME_3]. Initially, [NAME_2] was the only defendant. Subsequently, [NAME_8], [NAME_9], [NAME_12] and [NAME_13] were joined as defendants. [NAME_2] is a director of [NAME_8] and was its founding shareholder. 34 By interlocutory process filed on 18 January 2010, an application was made for an injunction restraining [NAME_25] from registering any transfer of convertible bonds from [NAME_3] to [NAME_2]. On 18 January 2010, a judge of the Court made an order restraining [NAME_25] from registering the Impugned Transfers. Subsequently, accommodation was reached between the parties, whereby [NAME_25] undertook to give at least 14 days' written notice of any proposed transfer or other dealing with the convertible bonds. A possible complicating matter, which has not received any real attention in this proceeding, is the fact that there is apparently further litigation on foot in the Supreme Court of New South Wales between [NAME_3] and [NAME_25] touching upon the circumstances surrounding the issue of the convertible bonds. There is nothing before the Court as to the present state of that litigation. 35 The final hearing was, unfortunately, somewhat disjointed. It was originally intended that the proceeding would be disposed of, as a matter of urgency, before 30 June 2010. The urgency was said to arise as a result of an undertaking given by [NAME_2] to assign the $2,000,000 of convertible bonds, before that date, in connection with a deed of company arrangement entered into by [COMPANY_8] ([COMPANY_8]), a subsidiary of [NAME_8]. However, because of the unavailability of witnesses, the hearing could not be completed before that time. In addition, once it had commenced, the hearing was adjourned on several occasions because of the unavailability of witnesses.

The Issues 36 The principal issue for determination in the proceeding concerns the effectiveness of the Impugned Transactions and the Impugned Transfers. As I have said, the primary relief sought by [NAME_26] is a declaration that [NAME_3] is the true owner of the $2,000,000 of convertible bonds, and an order that [NAME_2] deliver up the transfers and certificates purporting to vest in him the beneficial ownership of the bonds. [NAME_26] deny that [NAME_2], or any person other than [NAME_3], is entitled to be registered as the owner of the convertible bonds, and deny that [NAME_3] has been a party to any transaction by which it has disposed of the convertible bonds either legally or beneficially. 37 In their amended statement of claim of 28 July 2010 (the Statement of Claim), [NAME_26] assert the following: Pursuant to the 2008 Settlement Deed, convertible bonds evidencing a debt totalling $10,000,000 were issued by [NAME_25] to [NAME_3]. It was an express term of the convertible bonds that title thereto is vested absolutely in the person entered in the register as the holder of the convertible bonds, and passes by transfer and registration. Upon issue of the convertible bonds, [NAME_3] was recorded in the register as the holder of the convertible bonds. Since the issue of the convertible bonds, there has been no transfer of the relevant $2,000,000 of convertible bonds recorded in the register. In the premises, [NAME_3] has been since their issue, and remains, the holder absolutely of the convertible bonds. The documents before me variously state the date of issue of the convertible bonds to have been 23 July 2008, 5 August 2008 and 6 August 2008. I do not understand anything to turn on the determination of the exact date. In these reasons, I will take the convertible bonds to have been issued on 5 August 2008. 38 [NAME_40] are in the same interest in the proceeding, and were represented by the same solicitors and counsel. It is common ground that [NAME_3] remains the legal owner of the $2,000,000 of convertible bonds. However, in their defence, [NAME_40] assert that [NAME_2] is the beneficial owner of the $2,000,000 of convertible bonds as a result of the following transactions, all of which are Impugned Transactions: On or about 6 August 2008, [NAME_3] assigned its interest in $10,000,000 of convertible bonds to [NAME_13]. On or about 6 August 2008, [NAME_13] assigned its interest in $10,000,000 of convertible bonds to [NAME_9]. On or about 17 October 2008, [NAME_9] assigned his interest in the relevant $2,000,000 of convertible bonds to [NAME_8]. [NAME_8] held the beneficial ownership in the $2,000,000 of convertible bonds from about 17 October 2008 to 17 November 2009. On or about 17 November 2009, [NAME_8] assigned its interest in the $2,000,000 of convertible bonds to [NAME_2]. [NAME_40] further assert that, as at 6 August 2008, when the $10,000,000 of convertible bonds are alleged to have been assigned to [NAME_13], [NAME_13] was exclusively entitled to [NAME_3], and that the consideration for the assignment of the convertible bonds to [NAME_13] was the reduction of [NAME_3] by $10,000,000. The transactions pursuant to which [NAME_13] is said to have become exclusively entitled to [NAME_3] constitute the balance of the Impugned Transactions. 39 [NAME_12] was also represented by solicitors and counsel. [NAME_12]'s primary position was to support the contentions of [NAME_26] that there was no effective transfer or assignment of the convertible bonds by [NAME_3] to [NAME_13]. Defences were originally filed by a single firm of solicitors acting on behalf of [NAME_9], [NAME_12] and [NAME_13]. Subsequently, those solicitors withdrew their representation on behalf of [NAME_46]. [NAME_9] thereafter participated in the proceeding in person. [NAME_13] did not thereafter participate in the proceeding. 40 The principal focus of the proceeding, accordingly, is on the question of whether, at some time after the convertible bonds were issued by [NAME_25], and prior to the signature of the Impugned Transfers, there was an effective assignment of the $10,000,000 of convertible bonds from [NAME_3] to [NAME_13] and then from [NAME_13] to [NAME_9]. If there was no effective assignment from [NAME_3] to [NAME_13] and from [NAME_13] to [NAME_9], [NAME_2] has no entitlement to have the Impugned Transfers registered, and has no entitlement to retain possession of the certificates in respect of the $2,000,000 of convertible bonds. 41 In the Statement of Claim, [NAME_26] refer to the allegation of [NAME_40] concerning the assignment of the convertible bonds by [NAME_3] to [NAME_13]. [NAME_26] do not admit that a transaction to that effect occurred, their alternative position is that, to the extent that such a transaction did occur, the transaction should be declared void or set aside. In support of that position, [NAME_26] advance several arguments, which are secondary issues for determination in the proceeding. They assert that the transaction: was an uncommercial transaction within the meaning of s 588FB of the Corporations Act; was an insolvent transaction within the meaning of s 588FC of the Corporations Act; was an unreasonable director-related transaction within the meaning of s 588FDA of the Corporations Act; and involved a breach of the fiduciary and statutory duties owed to [NAME_3] by its directors, [NAME_9] and [NAME_12]. 42 [NAME_40] deny that any transfer of convertible bonds by [NAME_3] to [NAME_13] was an uncommercial, insolvent or unreasonable director-related transaction. They also deny that any such transfer involved a breach of the fiduciary or statutory duties owed to [NAME_3] by its directors. [NAME_12] denies any breach of statutory or fiduciary duty on his part. 43 Some time after the hearing and addresses ended, in response to an enquiry from the Court, [NAME_26] sought leave to file an amended reply raising ss 12 and 23C of the Conveyancing Act. No explanation was offered as to why questions as to the effect of those sections were not raised earlier. Nevertheless, [NAME_40] accepted that they were not unfairly prejudiced as a result of the fact that the questions were raised after final submissions had ended.

Accordingly, leave was given to file the amended reply. 44 The amended reply asserts that if, it be found that the Impugned Transactions involving the assignments of the convertible bonds did in fact take place, then: the transactions purported to be dispositions of an equitable interest within the meaning of s 23C of the Conveyancing Act; the dispositions were not in writing signed by the person disposing of the same, as required by either s 23C or s 12 of the Conveyancing Act; express written notice of the purported assignments was not given to [NAME_25]; and accordingly, the Impugned Transactions did not validly assign any legal or equitable interest in the convertible bonds and were ineffective, by reason of the operation of ss 12 and 23C of the Conveyancing Act. 45 The amended reply also asserts that, if it be found that [NAME_3] was assigned by [NAME_28] to [NAME_13], then, to the extent that that Impugned Transaction took place: the transaction purported to be a disposition of a legal interest within the meaning of s 12 of the Conveyancing Act, or an equitable interest within the meaning of s 23C of the Conveyancing Act; the alleged disposition was not in writing signed by the person disposing of the same as required by either s 12 or s 23C of the Conveyancing Act; express written notice of the purported assignment was not given to [NAME_3]; and accordingly, the alleged disposition did not validly assign any legal or equitable interest in [NAME_3] and was ineffective, by reason of the operation of ss 12 and 23C of the Conveyancing Act.

The Onus 46 As a general rule, the burden of proof of a fact that is an essential element in a claimant's cause of action lies on the claimant. A party who seeks relief has the burden of satisfying the Court of facts that, in the absence of proof of other facts, would justify the grant of that relief. What those facts might be will depend on the nature of the relief sought and the operation of any relevant presumptions. In the case of relief by declaratory order, the precise terms of the declaration sought assume particular significance. Thus, the party seeking a declaratory order has the burden of proof of any matter that is a necessary element of the declaration sought, even if, in a proceeding by that party for relief of another kind, or in a proceeding by the other party, that matter would not arise unless raised, and the burden of proof consequently assumed, by that other party (see Massoud v NRMA Insurance Ltd (1995) 62 NSWLR 657 at 660). 47 Putting it another way, when a person commences a declaratory proceeding, that person bears the legal onus of proof. That is so even though the majority of the facts that are relevant may be in the opposing camp. It is for the claimant to establish the ambit of the rights to be declared, and to prove all the facts necessary to enable the declaration to be made (see Blanch v British American Tobacco Australia Services Ltd (2005) 62 NSWLR 653 at 655). When a party seeks a negative declaration, such as, for example, a declaration that an acquisition will not contravene s 50 of the Competition and Consumer Act 2010 (Cth), that party bears the onus of proving that negative proposition (see [NAME_15] v [NAME_16] Commission (No 3) (2003) 137 FCR 317 at [355]-[356]). 48 Under s 140(2) of the Evidence Act 1995 (Cth) (the Evidence Act), the Court must, in deciding whether it is satisfied that a case has been proved to the requisite standard, take into account: the nature of the cause of action or defence; the nature of the subject matter of the proceeding; and the gravity of the matters alleged. When proof of any fact is required, the Court must feel an actual persuasion of the occurrence or existence of that fact before it can be found. Mere mechanical comparison of probabilities, independent of any belief in reality, cannot justify the finding of a fact. Actual persuasion is achieved where the affirmative of an allegation is made out to the reasonable satisfaction of the Court. However, reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequences of the fact to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, and the gravity of the consequences flowing from a particular finding are considerations that must affect whether the fact has been proved to the reasonable satisfaction of the Court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony or indirect inferences (see Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-2). 49 In the present proceeding, [NAME_26] are the only parties seeking relief from the Court. [NAME_40] contend that, in circumstances where [NAME_26] claim a declaration that [NAME_3] is the true owner of the convertible bonds in question, [NAME_26] have the burden of positively satisfying the Court that [NAME_3] remains the beneficial owner of the convertible bonds, and that it has not disposed of them for value. 50 However, if an allegation made by a defendant is not a denial of an essential ingredient in the cause of action, but is one that, if established, would constitute a good defence, being an avoidance of the claim that the plaintiff might prima facie appear to have, the burden of proof of that allegation is on the defendant (see Currie v Dempsey (1967) 69 SR (NSW) 116 at 125). [NAME_26] contend that [NAME_40] bear the burden of proving that the Impugned Transactions involving the convertible bonds did in fact occur. They rely on the fact that [NAME_3] is registered as the holder of the convertible bonds as giving rise to a presumption that it is beneficially entitled to them, which presumption offers prima facie support for the claim for declaratory relief. That, they say, is the effect of the terms and conditions on which the convertible bonds were issued. 51 [NAME_40] also contend that, since [NAME_26] in effect allege that the Impugned Transactions were fraudulent, they bear a still heavier onus. They say that, since [NAME_26] assert that the alleged transactions did not occur, they must be taken to be asserting that the evidence of the Impugned Transactions given by [NAME_9] was fabricated. They contend that the evidence before the Court does not satisfy the necessary requirements for such a finding to be made. 52 However, [NAME_26] have not made a submission that [NAME_9] fabricated evidence. Rather, they say that the state of the evidence does not support a positive finding, if that is necessary, that the transactions alleged on behalf of [NAME_8] and [NAME_2] were effective to vest exclusive entitlement to [NAME_3] in [NAME_13] or to effect an assignment of an equitable interest in the convertible bonds from [NAME_3] to [NAME_13] or from [NAME_13] to [NAME_9]. Such a positive finding would be necessary in order for [NAME_40] successfully to resist the claims made by [NAME_26], if [NAME_26] are correct in their primary contention as to the onus of proof. 53 Possession of goods gives rise to a presumption of ownership (see Russell v Wilson (1923) 33 CLR 538 at 546-7). Thus, actual possession may be sufficient to found an immediate right to possession that, in turn, could be the basis for an action in detinue. [NAME_40] say that, since [NAME_2] is in possession of the transfers and certificates in respect of the convertible bonds, he is presumed to be the owner of the convertible bonds, unless [NAME_3] can prove a better title. 54 However, the possession of goods is clearly distinguishable from the circumstances of the present case. [NAME_2] may be in possession of transfers and certificates, which are chattels, but he cannot have possession of incorporeal property such as convertible bonds. Possession of a chattel is very much different from entitlement to a chose in action, such as the convertible bonds. For as long as [NAME_2] is in possession of the transfers and certificates in relation to the convertible bonds, there may be a presumption that he is entitled to possession of the transfers and certificates. However, that does not necessarily say anything about his entitlement to the beneficial ownership of the underlying convertible bonds. His position is comparable to that of a financier holding a mortgage over shares to secure a loan. That financier would ordinarily have possession of the mortgagor's share certificates, but such possession would not give rise to any presumption of title.

Accordingly, no presumption arising from possession operates in favour of [NAME_40] in the present case. 55 If the existence of a fact alleged is a condition precedent to a plaintiff's right to maintain a cause of action, or if the fact is otherwise an essential element in the cause of action, then the burden of proof of that fact will be on the plaintiff (see [NAME_47] v [NAME_47] at 125). The non-disposition for value of the convertible bonds by [NAME_3] is certainly a condition precedent to the right of [NAME_26] to maintain their claim for declaratory relief in respect of the convertible bonds. However, as I have said, the terms on which the convertible bonds were issued included a provision that title to the convertible bonds is vested absolutely in the person entered in the register as the holder of the bond, and passes by transfer and registration. One effect of that provision is to raise a presumption that the registered holder of a bond is its owner at law and, assuming that there can be a separate beneficial interest in equity, the owner of that beneficial interest. That is to say, in the absence of something further, the fact that [NAME_3] is the registered holder of the convertible bonds in question gives rise to a presumption substantiating a prima facie case that [NAME_3] is the true owner of those convertible bonds. 56 [NAME_40] have sought to challenge [NAME_3]'s entitlement to the beneficial ownership of the convertible bonds by proving the execution of the Impugned Transfers by [NAME_9], as attorney of [NAME_3], and by endeavouring to prove the Impugned Transactions pursuant to which [NAME_9] purported to sign the Impugned Transfers on behalf of [NAME_3]. The transactions on which [NAME_40] rely would, if established, constitute good defences to the prima facie claim of [NAME_26].

Accordingly, and in the [NAME_15] of what I have set out above, I consider that [NAME_40] bear the onus of establishing that [NAME_3] has disposed of its beneficial ownership of the convertible bonds. It follows that I do not consider that it is necessary to make a finding of fraud on the part of [NAME_9] in order for [NAME_26] to succeed in their contentions.

[NAME_13] 57 The case advanced on behalf of [NAME_40] raises three questions as to the Impugned Transactions involving [NAME_13]. They are: [NAME_13] become exclusively entitled to [NAME_3] at some point prior to 6 August 2008? Was there an effective assignment of the beneficial interest in the $10,000,000 of convertible bonds by [NAME_3] to [NAME_13] on 6 August 2008? Was there a subsequent effective assignment of the beneficial interest in the $10,000,000 of convertible bonds by [NAME_13] to [NAME_9]? [NAME_40] contend that each of those three questions should be answered in the affirmative. They assert that, by 6 August 2008, when [NAME_3] received the certificates for the convertible bonds, the whole of [NAME_3] was owing to [NAME_13] and that, at that time, [NAME_3] assigned the $10,000,000 of convertible bonds to [NAME_13], in consideration of a reduction of the amount of [NAME_3] by $10,000,000. At the same time, they say, [NAME_13] agreed to assign the $10,000,000 of convertible bonds to [NAME_9] in exchange for a promise by him to pay the face value of the convertible bonds when they became eligible for conversion. 58 Those arrangements, involving a subsidiary of a public company and one of its directors, seem somewhat unlikely. One would expect there to be some documentation evidencing the transactions by which they were given effect. However, [NAME_40] do not rely on any written evidence of the transactions. There does not appear to be a single piece of paper passing between [NAME_3] and [NAME_13], or between [NAME_13] and [NAME_9], concerning any aspect of the alleged assignments of convertible bonds. Nor does there appear to be a single piece of paper evidencing any communication between [NAME_13] and either [NAME_28] or the [NAME_33] concerning entitlement to [NAME_3]. 59 [NAME_40] did adduce certain documentary evidence in support of their contentions as to the arrangements involving [NAME_13]. That evidence included: entries in the books of [NAME_3]; and entries in a set of documents purporting to be accounting records of [NAME_13] (the [NAME_13]). I shall say something further about that evidence below. 60 Save what was apparent from the books and records of [NAME_3], [NAME_6] have no personal knowledge of the Impugned Transactions relied upon by [NAME_40].

Accordingly, the case of [NAME_26] was essentially a documentary one. The directors of [NAME_3] who were responsible for the alleged transactions were [NAME_9] and [NAME_12], both of whom are defendants. [NAME_6], in that regard, may be thought to suffer a disadvantage. However, as I have said, I consider that the onus of establishing the effectiveness of the arrangements involving [NAME_13] rests upon [NAME_40], notwithstanding that it is [NAME_26] who seek declaratory relief from the Court. 61 I shall deal separately with each of the alleged transactions involving [NAME_13]. I shall then deal with the operation of the Conveyancing Act in relation to the alleged assignments and the entitlement to [NAME_3]. First, however, I shall describe the evidence that was given orally and by affidavit, and the relevant accounting records, including the [NAME_13].

The Witnesses 62 Evidence in chief was given by affidavit. That course was adopted substantially because English is not the first language of most of the witnesses. The principal evidence as to the alleged arrangements involving [NAME_13] was adduced from: [NAME_9]; [NAME_35], who is the sole director of [NAME_28], having been appointed on 11 October 2006; and [NAME_48], who is the only current director of [NAME_13], having been appointed on 23 November 2009. [NAME_9] was not an impressive witness. I would not be disposed to accept his evidence if it were contradicted, unless that evidence were corroborated by independent contemporaneous documents. Apart from certain accounting records described below, some of which should be given little, if any, weight, there was no corroboration of his evidence as to critical matters. 63 [NAME_9] was called to give evidence on behalf of [NAME_40]. He did not otherwise offer evidence in the proceeding. 64 [NAME_40] say that the absence of documentary records of the arrangements involving [NAME_13] does not mean that the transactions giving effect to those arrangements did not take place. They rely upon [NAME_9]'s evidence that there are cultural differences between East and West when it comes to the documentation of transactions between businessmen who have a long business association. [NAME_9] accepted that there was no document brought into existence to evidence the relevant Impugned Transactions, and that, by Western standards, the evidencing of the alleged transactions was "sloppy". He asserted, however, that it was a quite normal way of doing things for Chinese. He also said that he never sees a few million dollars as significant. 65 There are no accounting records of [NAME_28] and there is no other record of [NAME_28] reflecting upon any of the Impugned Transactions. [NAME_35] said that no accounts have been prepared because of lack of funds. That assertion was not disputed by [NAME_26]. 66 [NAME_35] and [NAME_9] gave evidence of conversations they said they had had with [NAME_12], in which [NAME_12] reported discussions that he said he had had with [NAME_39]. [NAME_35] gave hearsay evidence of discussions between [NAME_12] and [NAME_39] on the topic of the assignment of [NAME_3] to [NAME_13]. He said in an affidavit that, in about September 2007, he had a conversation with [NAME_12], in which [NAME_12] told him that the owner of [NAME_13] was proposing that [NAME_13] take over the benefit of all of [NAME_3], in return for which [NAME_13] would undertake to pay [NAME_35] and the other [NAME_33], within five years, the full amount of the debts owing to them. [NAME_35] said that [NAME_12] told him that he did not know [NAME_13]'s financial position but did know that, once a restructure of [NAME_30]'s debt was complete, [NAME_13] would own 70 per cent of [NAME_30]. [NAME_35] said that, since [NAME_12] recommended that he accept [NAME_13]'s proposal, he told [NAME_12] that he could tell [NAME_13] that [NAME_28], as trustee for the [NAME_33], accepted [NAME_13]'s proposal. 67 The evidence I have just described was admitted only as evidence concerning discussions between [NAME_35] and [NAME_12]. It was not admitted as evidence of the fact of any discussion between [NAME_12] and [NAME_39]. 68 [NAME_9] gave oral evidence that he considered [NAME_13] and [NAME_28] to be, in effect, the same entity. He said that, once he had been told by [NAME_12] and [NAME_35] of internal arrangements as between [NAME_28] and [NAME_13], whereby [NAME_13] effectively became the creditor of [NAME_3] in respect of [NAME_3], that was sufficient for him to conclude that [NAME_13] and [NAME_28] were the same. 69 [NAME_9] gave hearsay evidence of discussions between [NAME_12] and [NAME_39] on the topic of the assignment of the convertible bonds in consideration for a reduction of [NAME_3]. He said in an affidavit that, in late July or early August 2008, [NAME_12] told him that he had spoken to [NAME_39] and [NAME_35], and that they had agreed for [NAME_3] to transfer all of the convertible bonds to [NAME_13] by way of partial payment, in the amount of $10,000,000, of [NAME_3]'s indebtedness to [NAME_13] and the other [NAME_33]. [NAME_9] said that he and [NAME_12], as directors of [NAME_3], resolved that the proposed transfer of convertible bonds to [NAME_13], in return for the reduction of [NAME_3] by $10,000,000, was favourable to [NAME_3], and resolved to accept and proceed with the proposal. [NAME_9] said that he told [NAME_12] to tell [NAME_39] that, once [NAME_25] issued the convertible bonds, they would be [NAME_13]'s. 70 There was no evidence of any minute of any such resolution, and [NAME_9]'s affidavit was not admitted as evidence of the fact of the alleged resolution. It was admitted only as evidence of the fact of the discussion between [NAME_9] and [NAME_12], to the extent that that bore relevantly upon [NAME_9]'s state of mind, and not as evidence of the fact of any discussion between [NAME_12] and [NAME_39] or between [NAME_12] and [NAME_35]. 71 [NAME_9] also said that he had a discussion with [NAME_12], in which he asked [NAME_12] to put a proposal to [NAME_39] for [NAME_13] to transfer the convertible bonds to him, [NAME_9], in return for which he, [NAME_9], would undertake to pay [NAME_13] the face value of the convertible bonds and all accrued interest, as and when each of the convertible bonds became eligible for conversion. [NAME_9] said that, some time later, [NAME_12] told him that he had spoken with [NAME_39] and submitted [NAME_9]'s proposal to [NAME_13]. [NAME_9] said that [NAME_12] told him that [NAME_39] accepted the proposal on [NAME_13]'s behalf, and that [NAME_13] would transfer the $10,000,000 of convertible bonds to [NAME_9] on the basis proposed. 72 [NAME_9] gave oral evidence that he himself had had discussions from time to time with [NAME_35] and [NAME_39]. However, that evidence was highly generalised, and [NAME_40] did not make any submissions concerning that evidence. The evidence does not appear to have any probative value. 73 [NAME_9] said that he intended to apply the convertible bonds to discharge debts to his private creditors, including [NAME_8], and it is [NAME_40]'s case that he in fact did so. As I have said, [NAME_26] contend that, if there was an effective assignment of convertible bonds by [NAME_3] to [NAME_13], the assignment involved a breach of fiduciary and statutory duties on the part of [NAME_12] and [NAME_9] as directors of [NAME_3]. [NAME_9]'s belief as to the alleged discussions involving [NAME_39] may have some relevance in relation to that alternative case.

Accordingly, his hearsay evidence was admitted for that limited purpose, although, as I have said, it was not admitted as evidence of the fact of any discussion between [NAME_12] and [NAME_39]. 74 The alleged discussions between [NAME_39] and [NAME_12] deposed to by [NAME_9] and [NAME_35], if they actually took place, would clearly enough be of critical importance to the question of the arrangements involving [NAME_13]. However, while [NAME_12] was represented in the proceeding, and affidavits by him were filed, none of those affidavits was read, and none of the principal protagonists in the proceeding called him to give evidence. There was no evidence of the fact of any discussion concerning assignment of [NAME_3] to [NAME_13], between [NAME_39], or any other person acting with the authority of [NAME_13], on the one hand, and [NAME_35], or any other person acting with the authority of [NAME_28], on the other hand. Further, there was no evidence of the fact of any discussion concerning transfer or assignment of convertible bonds or the reduction of [NAME_3], between [NAME_39], or any other person acting with the authority of [NAME_13], on the one hand, and any person acting with the authority of [NAME_3], on the other hand. 75 [NAME_39], who was the only director of [NAME_13] from 10 July 2007 until 23 November 2009, the period in which the Impugned Transactions involving [NAME_13] are alleged to have taken place, was also not called to give evidence. There was no evidence of any discussion with [NAME_39] that was admissible as to the truth of whether the discussion occurred and what its terms were. [NAME_6] took steps at a very late stage in the conduct of the proceeding to tender hearsay evidence from [NAME_39], in the form of an email apparently sent by [NAME_39], that attempted tender was ultimately unsuccessful. Although allegations are made in the proceeding that [NAME_13] knowingly participated and assisted in breaches of fiduciary and statutory duties on the part of [NAME_9] and [NAME_12], [NAME_13] did not offer any evidence in defence of those allegations. 76 The failure of any party to call evidence from [NAME_12] or [NAME_39] is of some significance. As I have said, their evidence would be critical in establishing the arrangements involving [NAME_13] contended for by [NAME_40]. The gist of [NAME_9]'s evidence is that he was informed that [NAME_12] had spoken to [NAME_39] and [NAME_35] and that, in the course of those conversations, [NAME_12] entered into the agreements for [NAME_3] to transfer the convertible bonds to [NAME_13] and then for [NAME_13] to transfer the convertible bonds to [NAME_9]. [NAME_9] does not say that he, [NAME_9], entered into the agreements or made the relevant Impugned Transactions. 77 The failure to call a witness cannot give rise to an inference that will fill a gap in the evidence. Nor can it be used to convert conjecture and suspicion into inference. On the other hand, if an inference is open to be drawn, the inference can be the more easily drawn if a witness who could give evidence inconsistent with the inference is available to give evidence and is not called (see Jones v Dunkel (1959) 101 CLR 298 at 308, 312 and 320-1). 78 The explanation provided by [NAME_40] for their failure to call [NAME_12] or [NAME_39] is that neither could be said to be in their camp. [NAME_40] claim to be mere downstream purchasers for value without notice. However, [NAME_40] had no difficulty in calling [NAME_9]. There is nothing to suggest that [NAME_12] declined to assist [NAME_40] in the case that they advanced. [NAME_12] indicated in the course of final address that he did not support the case advanced by [NAME_40], he had taken no step in the proceeding adverse to their interests. He filed a defence in which there was virtually no joinder of issue in relation to the Impugned Transactions involving [NAME_13]. [NAME_12] was the very person who could prove all of the Impugned Transactions. It was open to [NAME_40] to adduce evidence from him, yet they do not appear to have attempted to do so. Likewise, there is no reason to conclude that [NAME_39] would have been antagonistic towards the case advanced by [NAME_40]. In all of those circumstances, there is a strong basis for concluding that the evidence of [NAME_12] and [NAME_39] may not have assisted that case. 79 [NAME_48] gave evidence both by an affidavit dated 10 August 2010 and by videolink from [NAME_44]. The need to call [NAME_48] was one of the occasions for adjourning the hearing. 80 [NAME_48] is a qualified chartered accountant, and is employed in a senior executive capacity by a large private group in [NAME_44]. He said that [NAME_9] has been one his best friends for over 23 years, and that he knew [NAME_12] as a longtime business partner of [NAME_9]. He first heard of [NAME_13] in late November 2009, when [NAME_12] asked him whether he could act as a director of a company registered in Anguilla. [NAME_12] told him that he was looking for someone to succeed a director of the company. [NAME_12] did not say who the director was that [NAME_48] was to replace, but told him that the director was about to leave the position because he foresaw a possible conflict of interest. [NAME_12] told [NAME_48] that [COMPANY_49] would contact him about secretarial services for the company. Subsequently, [NAME_50] of [COMPANY_49] telephoned [NAME_48] to say that there were some documents for him to sign concerning the change of directorship. [NAME_48] subsequently signed a form of acceptance as appointment as a director of [NAME_13]. 81 [NAME_48] said that he has absolutely no idea who the owner or shareholders of [NAME_13] are. He said that he understood that the shareholding is by means of a bearer certificate. [NAME_50] told him that he should speak with [NAME_39] for information about [NAME_13]. [NAME_48] obtained [NAME_39]'s telephone number from [NAME_12] and spoke to [NAME_39]. He asked [NAME_39] for the financial records of [NAME_13]. Several days later, [NAME_48] received by mail the [NAME_13]. The [NAME_13] consist of 36 pages, 17 of which relate to the year ended 30 June 2008, and 19 of which relate to the year ended 30 June 2009. [NAME_48]'s recollection is that he received them towards the end of November 2009. They are the only accounting documents concerning [NAME_13] that he has. He has no electronic version of the [NAME_13]. 82 [NAME_48] said that he did not know how the [NAME_13] had been prepared, or when they had been prepared. He agreed that, in order to know whether or not the [NAME_13] were properly prepared, and the time of the transactions that they purport to record, he would need to look at the cash books and journals. [NAME_48] does not have a complete ledger for [NAME_13]. Nor does he have any cash books or journals. He has no documents recording or evidencing any of the transactions or events that the [NAME_13] purportedly record. 83 [NAME_48] said that, in order to prepare accounts for the year ended 30 June 2010, he would need to know what the transactions of [NAME_13] were during that period. He said that nobody has told him of any transactions in relation to the payment of secretarial or record keeping fees. He said that he might try his luck and contact the former director of [NAME_13], [NAME_39]. There is no evidence that he made any further effort to do so.

The Accounting Records 84 The accounting records and related documents that are in evidence cannot be said to present a clear picture. It is difficult to extract a cogent history of transactions from them, let alone a persuasive one. I found much of the evidence given by witnesses about the accounting records to be unhelpful, and some of it to be almost incomprehensible. 85 The [NAME_3] accounting records that are in evidence were amongst the financial records produced to [NAME_6] upon their appointment as [NAME_6]. The records that are in evidence consist of detail from [NAME_3]'s general ledger, a copy of which is set out in Appendix 1 to these reasons (the General Ledger Extract), and an account in the name of [NAME_28], a copy of which is set out in Appendix 2 to these reasons (the Compromise Account). Those appear to be the only formal records of [NAME_3] that contain any reference to either the convertible bonds issued by [NAME_25] or [NAME_3]. 86 The General Ledger Extract deals with an account numbered 2-5101, in the name of [NAME_28], between the dates 1 July 2007 and 18 May 2009. It begins with an opening credit balance of $9,093,955.82 and ends with a credit balance of $23,246,386.76. That balance is arrived at after substantial credits for interest and three minor debits, in addition to a debit of $10,000,000 on 1 July 2008 with the narration "release of royal", and a further debit entry of $4,700,000 with the narration "correct prev tfr j". 87 [NAME_9] asserts that he instructed [NAME_38] and the clerical staff of [NAME_3] to record the transfer of the convertible bonds to [NAME_13] in the manner in which the debit entry of $10,000,000 of 1 July 2008 appears in the General Ledger Extract. He also says that he gave instructions for the narration "release of royal" to be recorded in order to provide an explanation for the consideration moving from [NAME_3] to [NAME_25], namely, the release by [NAME_3] of [NAME_25]'s royalty payment obligations to [NAME_3]. That contention by [NAME_9] is puzzling, and the explanation it offers does not appear to be satisfactory, since there is no obvious reason why entries in an account in the name of [NAME_28] should be concerned with transactions involving the convertible bonds. [NAME_9]'s evidence was inconsistent in drawing a distinction between [NAME_28] and [NAME_13], a matter about which I have already said something, and about which I shall say something further below. 88 There is no mention of [NAME_13] in the General Ledger Extract. The General Ledger Extract is quite equivocal as to any question of the assignment of the convertible bonds. 89 There is a handwritten note, dated 17 October 2008, that deals with the transfer of the $2,000,000 of convertible bonds to [NAME_8], which was amongst the records produced to [NAME_6]. That document appears to deal with delivery of the Impugned Transfers and certificates to [NAME_8]. There is nothing in the document to suggest any involvement of [NAME_13] or [NAME_3] with the convertible bonds. The document does, however, contain the word "[NAME_9]". In the course of cross-examination, [NAME_9] agreed that, on 17 October 2008, he intended to engage in a personal dealing with [NAME_8] in connection with the convertible bonds. However, he said that he had not seen the note before, and that he was unable to identify its author by the handwriting. The significance of the notation "[NAME_9]" is not and has not been otherwise explained. 90 The Compromise Account apparently records [NAME_3]. It shows a balance owing, as at 30 June 2007, of $26,940,240.33. On that day, interest of $343,211.28 was charged, giving a balance of $27,283,451.61. Repayments of $2,000,000 on 22 October 2007 and $2,700,000 on 26 October 2007, made by cheque, are also recorded. Bank records that are in evidence show that the sum of $2,000,000 was for an overseas telegraphic transfer, the beneficiary of which was [COMPANY_34]. The sum of $2,700,000 was also for an overseas telegraphic transfer, the beneficiary of which was [COMPANY_34]. The [NAME_3] books originally showed those payments as being made for the benefit of [NAME_8]. However, the corrected entry in the General Ledger Extract shows [NAME_28] as the beneficiary of those payments. 91 [NAME_9] said in an affidavit that the two cheques that I have just described were drawn on funds advanced by [NAME_25] under the 2007 Settlement Deed. However, the reasons for those payments and the circumstances of the correction are quite unexplained. There is nothing to connect the payments to [NAME_13]. Further, [NAME_35] gave evidence that [COMPANY_34] and [COMPANY_34] were not part of the [NAME_28] group, that he was unfamiliar with those companies, and that he had not authorised the payment of moneys to those companies that might otherwise have been payable to [NAME_28]. I am unable to draw with confidence any conclusions concerning how the two cheques, or the payments effected by them, may have borne upon or related to any of the Impugned Transactions. 92 Entries for interest appear in the Compromise Account for successive months down to 30 May 2008, when the balance owed is shown as $26,079,011.01. There is an entry of $10,717.40 for interest on 30 June 2008, to give a balance owing of $26,089,728.41. There is then a repayment of $10,000,000 recorded as at 1 July 2008, giving a balance of $16,089,728.41 on 1 July 2008. Successive monthly debits of interest are then shown in the account, which ends with a balance, as at 30 April 2009, of $18,206,503.34. 93 The balance of the account in the name of [NAME_28] as at 30 April 2009, as shown in the [NAME_3], is $23,246,386.76. On the other hand, the balance shown in the Compromise Account is $18,206,503.34. [NAME_9] said that the difference of $5,039,883.42 represented a guarantee fee payable by [NAME_3] to [NAME_30] as part of [NAME_3]. I interpose here that figures in other documents, such as the [NAME_13], indicate that [NAME_3] may have risen as high as approximately $28.3 million by the date of the purported assignment of the convertible bonds. It is virtually impossible to be certain of the precise quantum of [NAME_3] at relevant times. However, nothing appears to turn on that detail. 94 [NAME_3]'s balance sheets as of June 2007, June 2008, April 2009 and June 2009 are also in evidence. Each of those documents records borrowings from "[NAME_28]" under the heading "Non Current Liabilities". None of the documents makes reference to [NAME_13]. 95 The [NAME_13] include balance sheets of [NAME_13] as at 30 June 2008 and 30 June 2009. The balance sheet as at 30 June 2009 records, as an asset of [NAME_13], a loan to [NAME_3] of $18,996,787.34. The balance sheet as at 30 June 2008 records, as an asset of [NAME_13], a loan to [NAME_3] of $26,361,849.81. Both documents also make reference to a loan called "[NAME_3]", in the amounts of $4,499,986.25 and $3,504,986.25 respectively. 96 The balance sheets as at 30 June 2008 and 30 June 2009 show, as liabilities, loans as follows: [NAME_34] $1,179,897.29 [NAME_34] $323,757.64 [NAME_36] $2,997,198.62 [NAME_35] $237,575.35 The first three amounts are identical to the amounts shown in schedule 1 to the Deed of Compromise. The amount shown for [NAME_35] is similar to the amount shown in schedule 1 to the Deed of Compromise. 97 The [NAME_13] include several extracts from the general ledger of [NAME_13] for the period 1 July 2007 to 30 June 2008. One extract, in respect of an account called "[NAME_3]", shows a debit entry of $28,224,586.66, dated 30 September 2007, with the narration "Assignment of", and credit entries, dated 22 October 2007 and 26 October 2007, of $2,000,000 and $2,700,000 respectively, with the narration "Repayment for". The [NAME_13] also include extracts in respect of accounts in the names of the [NAME_33] other than [NAME_13], showing credits in the amounts shown in the balance sheets. Each has the narration "Settlement Clea". 98 The [NAME_13] also include several extracts from the general ledger of [NAME_13] for the period 1 July 2008 to 30 June 2009. One extract, in respect of an account called "[NAME_25]", records two entries on 6 August 2008. One is a debit of $10,000,000, with the narration "Repayment Guj". That appears to be a reference to [NAME_25]. The other is a credit of $10,000,000, with the narration "Loan to AW". That appears to be reference to [NAME_9]. A second extract, in respect of an account called "[NAME_3]", shows a credit of $10,000,000, on 6 August 2008, with the narration "Repayment Guj" and a debit, on 30 June 2009, of $2,634,937.53, with the narration "Interest income". A third extract, in respect of an account called "[NAME_9]", shows a debit of $10,000,000, on 6 August 2008, with the narration "Loan to AW", and three debits, on 1 October 2008, 1 January 2009 and 1 April 2009, each with the narration "Interest income", and each of approximately $200,000. 99 In the [NAME_15] of the matters I have just set out, the most that can be said is that there are entries in the books of [NAME_3], apparently authorised by [NAME_9], and entries in the [NAME_13], the authority for which has not been the subject of evidence, that may be consistent with the Impugned Transactions having occurred. However, under Australian law, unlike the situation under the obligatio litterarum of Roman law (see Gaius, Institutes 3.128-130 and Justinian, Institutes 3.21), a mere book entry cannot by itself give rise to indebtedness or its discharge. A book entry can do no more than record the effect of a transaction that has otherwise taken effect according to law.

Ownership of [NAME_3] 100 As I have said, there is no instrument of assignment of [NAME_3] to [NAME_13] by either [NAME_28] or the [NAME_33]. There is no admissible evidence as to any communication between [NAME_13], on the one hand, and [NAME_28] or the other [NAME_33], on the other, as to the assignment of [NAME_3] to [NAME_13]. I am not persuaded that the transfer of units in the [NAME_33] is relevantly connected to any entitlement to [NAME_3]. The lack of formality and documentation in relation to the circumstances in which [NAME_13] is alleged to have become entitled to [NAME_3] is in stark contrast to the formality with which [NAME_3] was assigned to the [NAME_30] by [NAME_32] and by the GPS Subsidiaries to [NAME_28]. 101 There is no mention of [NAME_13] in the books of [NAME_3]. There is no record in the books of [NAME_3] consistent with the proposition that, by 2008, [NAME_3] was owed exclusively to [NAME_13], as [NAME_40] contend, rather than to [NAME_28]. There is nothing in the books of [NAME_3] to suggest that [NAME_3] was owed to any entity other than [NAME_28]. As I have said, no accounting records have been prepared for [NAME_28]. 102 The [NAME_13] are consistent with [NAME_3] being owed to [NAME_13] as at 30 June 2008, and with [NAME_13] being indebted to the [NAME_33] in amounts the same as, or substantially the same as, the amounts owing to the [NAME_33] by [NAME_30] and [NAME_30] as shown in schedule 1 to the Deed of Compromise. The entries in the [NAME_13] are consistent with [NAME_3] having been assigned to [NAME_13] in consideration of [NAME_13] undertaking to pay to the [NAME_33] the amounts shown as owing to them in schedule 1 to the Deed of Compromise. 103 However, as I have said, [NAME_48] played no part in the preparation of the [NAME_13]. His involvement with [NAME_13] commenced entirely after the Impugned Transactions involving [NAME_13] are alleged to have taken place. [NAME_48] had no knowledge of the accuracy of the [NAME_13] or the circumstances in which they were created, and there was no other evidence as to those questions. The [NAME_13] were tendered well after the hearing began. They are manifestly incomplete. In those circumstances, it is difficult to accord any weight to the [NAME_13]. 104 [NAME_40] rely on the evidence of [NAME_35], the sole director of [NAME_28], to support the conclusion that [NAME_13] and [NAME_28] made an agreement pursuant to which [NAME_13] took over the right to [NAME_3], in return for which [NAME_13] agreed to pay [NAME_35] and the other [NAME_33], within five years, the full amount of the debts owing to them. They say that [NAME_12], as chief executive officer and a director of [NAME_3], was a party to those discussions and that, accordingly, [NAME_3] consented to the assignment of [NAME_3] from [NAME_28] to [NAME_13]. 105 There is no explanation as to why [NAME_13] might put a proposal in the terms deposed to by [NAME_35] when recounting his conversation with [NAME_12]. There is no evidence that [NAME_12] had authority to act on behalf of [NAME_13] or make any agreement on behalf of [NAME_13]. There is also nothing to indicate that any of the [NAME_33], other than [NAME_35] and [NAME_13], knew anything of the alleged proposal, let alone that they consented to it. 106 There was also no record of such an assignment in the books of [NAME_3]. The only evidence to which attention has been drawn, apart from the [NAME_13], is quite inconsistent with there having been an assignment of [NAME_3] by [NAME_28] or the [NAME_33] to [NAME_13]. 107 The proposition that [NAME_28] or the other [NAME_33] assigned [NAME_3] is inconsistent with later actions of [NAME_28]. On 6 August 2009, a formal proof of debt in the winding up of [NAME_3] was lodged with [NAME_6] on behalf of [NAME_28]. The proof of debt was for the sum of $6,390,646.98, the total of the debts due to the [NAME_33] as shown in schedule 1 to the Deed of Compromise, and stated that that sum was owing by [NAME_3] under the Deed of Compromise. A copy of the Deed of Compromise was annexed to the proof of debt. The proof of debt was signed by [NAME_35] on behalf of [NAME_28]. If there had been an assignment of [NAME_3] to [NAME_13], it is curious in the extreme that [NAME_35] would lodge a proof of debt in the name of [NAME_28] in respect of [NAME_3]. No proof of debt has been lodged on behalf of [NAME_13]. In the course of cross-examination, [NAME_35] agreed that he lodged the proof of debt in the name of [NAME_28] on the basis that there had been no transfer or assignment of [NAME_3] to [NAME_13]. 108 Further, no explanation was offered as to why the proof of debt that [NAME_35] lodged was for the amount originally owed to the [NAME_33], rather than for the current amount of [NAME_3], whatever that might have been. The [NAME_33] accepted an assignment of [NAME_3] as consideration for the extinguishment of the amounts shown in schedule 1 to the Deed of Compromise as owing to them.

Accordingly, their entitlement to prove would extend to the full amount of [NAME_3]. I consider that [NAME_35]'s actions in connection with the proof of debt, insofar as they are cogent at all, are completely inconsistent with the case that is put by [NAME_2] and [NAME_3]. 109 [NAME_40] say that the continued involvement of [NAME_35] and [NAME_28] with [NAME_3] is explained by reference to the fact that it was [NAME_9]'s understanding that [NAME_28] remained the mortgagee in respect of [NAME_3]. They rely on [NAME_9]'s evidence that he was concerned to deal with the person who "made the decisions and called the shots". They say that [NAME_39], who was the sole director of [NAME_13] until 23 November 2009, was the person who made the decisions and called the shots on behalf of [NAME_13] at the relevant time. They rely on the [NAME_13] as corroborating the assignment of [NAME_3] to [NAME_13] in the sum of $28,224,586.66. 110 However, [NAME_40] say that, in any event, the question of whether [NAME_13] or [NAME_28] was the creditor of [NAME_3] is not to the point. They say that [NAME_3] received a substantial benefit from its creditor, namely a reduction in [NAME_3] in the sum of $10,000,000, in return for which it transferred or assigned its interest in the convertible bonds to [NAME_13]. [NAME_40] say that, even if [NAME_13] did not become legally entitled to [NAME_3], that would not affect the validity of any transaction concerning the convertible bonds between [NAME_13] and [NAME_3]. There is no reason, they say, why [NAME_3] could not agree to transfer property to [NAME_13] in return for a reduction in indebtedness owed by [NAME_3] to [NAME_28]. 111 However, there is no evidence to suggest that [NAME_28], or the [NAME_33] other than [NAME_13], agreed to any such reduction of [NAME_3]. The evidence is quite to the contrary. [NAME_3] could not, by an entry in its own books, unilaterally affect the quantum of its indebtedness to a creditor. It would be necessary to show that that creditor had actually accepted that there was a reduction in the amount of [NAME_3]. The fact that [NAME_28] lodged a proof of debt with [NAME_6] is solid evidence that it regarded [NAME_3] as still owing to it. As I have said, there is no admissible evidence of any assignment of [NAME_3] to [NAME_13] by either [NAME_28] or the [NAME_33]. 112 The fact that [NAME_35] said that he told [NAME_12] that [NAME_12] could tell [NAME_13] that [NAME_28] would accept the proposal allegedly made by [NAME_13] is not evidence of an agreement between [NAME_28] and [NAME_13]. [NAME_12] was not a representative of [NAME_13], the other party to the alleged agreement. Further, even if [NAME_35]'s discussions with [NAME_12] did give rise to a contract for the assignment of [NAME_3], in consideration of a promise by [NAME_13] to make a payment within five years, that contract remains entirely executory. Clearly, [NAME_13] has not performed its side of the bargain, in that no payment has been made to [NAME_28] or any of the other [NAME_33]. In the absence of any written assignment by [NAME_28] or the [NAME_33], neither side has performed any obligation under that contract. The mere making of a contract to assign for a consideration to be paid in the future does not effect an equitable assignment of a chose in action. Ownership of a chattel could have been transferred by delivery, but no ownership in [NAME_3] could have been assigned by mere agreement. I am not persuaded that there was an effective assignment to [NAME_13] of either a legal or equitable interest in that part of [NAME_3] that was not already vested in it in its capacity as one of the [NAME_33]. 113 The case advanced on behalf of [NAME_40] is that the consideration for the assignment of the convertible bonds has been paid in the form of a reduction of the amount owing by [NAME_3] in respect of [NAME_3].

Accordingly, the identity of the creditor in respect of [NAME_3] is of critical significance, since, in the absence of consideration in the form of a reduction in [NAME_3] moving from [NAME_13] to [NAME_3], no beneficial interest in the convertible bonds can have been assigned by [NAME_3] to [NAME_13]. 114 I am not persuaded, on the balance of probabilities, that there was an arrangement whereby [NAME_13] became entitled to the whole of [NAME_3]. I consider that [NAME_3] was, as at 6 August 2008, owed either to [NAME_28] or, perhaps, to the [NAME_33]. I do not consider that it was owed to [NAME_13]. The debt is held by [NAME_28] on trust for the [NAME_33], in the proportions that their respective debts bear to the total amount of the indebtedness owing to the [NAME_33], as shown in schedule 1 to the Deed of Compromise. [NAME_13] is simply one of the [NAME_33]. As such, it is entitled to a proportionate part of [NAME_3], being the proportion that the debt due to it from [NAME_30] or [NAME_30] bears to the whole of the indebtedness owing to the [NAME_33]. That proportion is slightly more than 26 per cent. [NAME_13] could not release [NAME_3] from $10,000,000 of the total liability, which exceeded $20,000,000. 115 The release of the interest that I have just described, namely the equitable part interest in [NAME_3] that [NAME_13] has by virtue of its being one of the [NAME_33], would have been capable of constituting consideration for an assignment of the $10,000,000 of convertible bonds by [NAME_3]. However, it has never been put that the release of that interest constituted the consideration. Such a contract has never been alleged, and there is no evidence of it. [NAME_40] have placed complete reliance on [NAME_13]'s having become exclusively entitled to [NAME_3] prior to any assignment of the convertible bonds by [NAME_3] on 6 August 2008.

Assignment of Convertible Bonds in Reduction of [NAME_3] 116 There is no instrument of assignment of an interest in the convertible bonds from [NAME_3] to [NAME_13]. Further, there was no admissible evidence as to the fact of any communication, either written or oral, between [NAME_3] and [NAME_13] as to the assignment of convertible bonds from [NAME_3] to [NAME_13]. 117 The only evidence relied on by [NAME_40] that is capable of supporting the alleged assignment of the convertible bonds in reduction of [NAME_3] consists of the entries in the books of [NAME_3] and [NAME_13]. Those entries are consistent with the loan to [NAME_3] having been reduced during the year ended 30 June 2009. Thus, the account of [NAME_28] in the books of [NAME_3] appears to record a reduction, on 1 July 2008, of the amount of [NAME_3] owing to [NAME_28] of $10,000,000. I have described above the entry, in the general ledger of [NAME_3], of a debit of $10,000,000 on 1 July 2008 with the narration "release of royal", made at the direction of [NAME_9]. I have also described the entry in the general ledger of [NAME_13] of a $10,000,000 credit on 6 August 2008, with the narration "repayment Guj". A corresponding debit on 6 August 2008 relating to [NAME_9] also appears in the [NAME_13] documents. [NAME_40] contend that, in the [NAME_15] of those entries, there is evidence that [NAME_3] was given credit for the sum of $10,000,000, which they say was the consideration for the transfer of the convertible bonds. 118 [NAME_26] have not suggested that [NAME_9]'s evidence that he gave instructions for entries to be made in the books of [NAME_3] should not be accepted, and it was not put to [NAME_9] in cross-examination that those entries were fabricated. [NAME_40] highlight the fact that [NAME_26] have not attempted to provide any hypothesis that would explain the entries in [NAME_3]'s books that apparently record a reduction in [NAME_3] by $10,000,000. [NAME_40] say that the only explanation consistent with the facts is that [NAME_3] received a benefit in the form the reduction.

Accordingly, they contend, the Court should conclude that the amount owed by [NAME_3] in respect of [NAME_3] was reduced by $10,000,000, with effect on 1 July 2008. That would be sufficient consideration for an assignment of some proprietary interest in the convertible bonds. 119 However, the entries in the books could not, of themselves, effect the reduction. It may be that [NAME_9] had a genuine belief that the convertible bonds had been assigned to [NAME_13] in reduction of [NAME_3]. Nevertheless, the fact that there was a relevant intention to assign the convertible bonds does not mean that the convertible bonds were effectively assigned. I am not persuaded that there was an effective assignment of the beneficial interest in the $10,000,000 of convertible bonds by [NAME_3] to [NAME_13] on 6 August 2008.

Assignment by [NAME_13] to [NAME_9] 120 There is also no instrument of assignment of an interest in the convertible bonds from [NAME_13] to [NAME_9]. Further, there was no admissible evidence as to the fact of any communication, either written or oral, between [NAME_13] and [NAME_9] as to the assignment of convertible bonds from [NAME_13] to [NAME_9]. 121 The only evidence relied on by [NAME_40] that is capable of supporting the alleged assignment from [NAME_13] to [NAME_9] consists of the entries in the books of [NAME_3] and [NAME_13]. The balance sheet of [NAME_13] as at June 2009 shows the same liabilities to the [NAME_33] as are shown in the June 2008 balance sheet. The 30 June 2009 balance sheet shows as an asset, a loan to [NAME_9] of $10,612,649.44. That is consistent with a loan having been made to [NAME_9] during the year ended 30 June 2009. 122 As I have already said, it is impossible to give any weight to the [NAME_13] in the [NAME_15] of the uncertainties surrounding their creation. In any event, accounting records could not, of themselves, effect transactions concerning the beneficial interest in the convertible bonds. I am not persuaded that there was an effective assignment of beneficial ownership of the $10,000,000 of convertible bonds from [NAME_13] to [NAME_9].

Operation of the Conveyancing Act 123 Section 12 of the Conveyancing Act relevantly provides that any absolute assignment by writing under the hand of the [NAME_51] of any debt or other legal chose in action, of which express notice in writing has been given to the debtor or other person from whom the [NAME_51] would have been entitled to receive or claim such debt or chose in action, is and is deemed to have been effectual in law to pass and transfer the legal right to such debt or chose in action from the date of such notice. 124 Section 23C(1)(c) of the Conveyancing Act relevantly provides that, subject to the provisions of the Conveyancing Act with respect to the creation of an interest in land by parol, a disposition of an equitable interest or trust subsisting at the time of the disposition must be in writing signed by the person disposing of the same or by the person's agent lawfully authorised in writing for that purpose. However, under s 23E(d) of the Conveyancing Act, nothing in s 23C is to affect the operation of the law relating to part performance. 125 As I have said, [NAME_26] belatedly filed an amended reply concerning the effect of the Conveyancing Act. They contended that both the assignment of [NAME_3] to [NAME_13] and the assignments of the convertible bonds from [NAME_3] to [NAME_13] and from [NAME_13] to [NAME_9], to the extent that they took place at all, were ineffective for want of compliance with ss 12 and 23C of the Conveyancing Act. 126 [NAME_3] is a debt or other legal chose in action within the meaning of s 12. In the absence of compliance with s 12, there could be no legal assignment of [NAME_3]. Since there has clearly been no compliance with s 12, it follows that there was no assignment, effective at law, of [NAME_3] from [NAME_28] to [NAME_13]. 127 However, s 12 is not a precondition to the validity of an assignment of an equitable interest in a chose in action. [NAME_40], although their submission is not clear on the point, must therefore be taken to contend that the purported assignment of [NAME_3] to [NAME_13] was effective in equity only. Likewise, it is common ground that [NAME_3] retains legal title to the $2,000,000 of convertible bonds, by reason of its being the registered holder of the bonds. [NAME_40] contend that the various alleged assignments of the convertible bonds were assignments of the equitable interest in the bonds. Thus, they say, s 12 did not apply to any of the Impugned Transactions. 128 [NAME_40] advance five arguments in support of their contention that none of the transactions giving effect to the arrangements involving [NAME_13] is rendered ineffective for want of compliance with s 23C. First, they contend that the requirements of s 23C(1)(c) apply only to real property, and not to [NAME_14] such as [NAME_3] and the convertible bonds. They point to the context in which s 23C appears. Thus, the introduction to s 23C refers expressly to the creation of interests in land by parol. Further, s 23C is found in Division 3 of Part 2 of the Conveyancing Act, which is entitled Assurances of Land. [NAME_40] contrast that with Division 4 of Part 2, which is entitled Property Generally. 129 However, headings are not decisive in relation to the question of construction. There are countervailing considerations that indicate that s 23C(1)(c) is not limited to real property. First, there is no compelling rationale for distinguishing between the disposition of an equitable interest in real property and the disposition of an equitable interest in [NAME_14]. But for the context of s 23C, there would be no reason to draw any such distinction. Secondly, in contrast to s 23C(1)(a) and s 23C(1)(b), which refer respectively to the creation or disposition of an interest in land and to a declaration of trust respecting any land or any interest therein, s 23C(1)(c) refers merely to an equitable interest or trust subsisting at the time of the disposition. Thirdly, both the High Court and the House of Lords have indicated that provisions equivalent to s 23C(1)(c) extend to equitable dispositions of [NAME_14], although those equivalent provisions were not to be found under headings relating to land (see, for example, Adamson v Hayes (1973) 130 CLR 276 and Grey v IRC [1960] AC 1). For those reasons, I consider that s 23C(1)(c) applies to such dispositions, including dispositions of any beneficial interest in choses in action such as [NAME_3] or the convertible bonds (see [COMPANY_17] v [COMPANY_17] (No 2) (1992) 27 NSWLR 241 at 250-252). 130 Secondly, [NAME_40] raise the issue of constructive trusts. They say that, assuming that there was an agreement between [NAME_13] and [NAME_28] in respect of [NAME_3], that agreement constituted a contract for valuable consideration to assign [NAME_3].

Accordingly, they say, it gave rise to a constructive trust in favour of [NAME_13] in respect of [NAME_3]. [NAME_40] further say that any agreement between [NAME_3] and [NAME_13] to assign the convertible bonds was supported by valuable consideration, and was therefore specifically enforceable. Thus, they say, [NAME_3] promised to assign the convertible bonds to [NAME_13] in consideration for a reduction in [NAME_3]. They say that, upon such reduction being effected, a constructive trust was created in favour of [NAME_13] in respect of the convertible bonds. They say that, accordingly, the requirements of s 23C were displaced in respect of both alleged transactions. 131 [NAME_40] advance the same contentions in relation to the alleged agreement between [NAME_13] and [NAME_9]. That is to say, upon [NAME_9]'s promising to provide the agreed consideration, they assert that a constructive trust was created in his favour, under which [NAME_13] held an equitable interest in the convertible bonds on trust for him. They say that [NAME_9] purported to transfer the convertible bonds to [NAME_8] and thereby irrevocably committed himself to the terms of the agreement with [NAME_13], including the promise to pay [NAME_13] the face value of the convertible bonds and all accrued interest on each of the dates as and when the bonds became eligible for conversion. 132 Each of the constructive trusts for which [NAME_40] contend ultimately depends on the proposition that there was an agreement by which [NAME_13] became exclusively entitled to [NAME_3]. As I have indicated, I am not persuaded that that is so. If there was no such agreement, [NAME_13] could not have given any valuable consideration for the assignment of the convertible bonds, because [NAME_3] would not have been owed to it in its entirety. There is no evidence that [NAME_28] assigned the legal title to [NAME_3].

Accordingly, [NAME_13]'s entitlement to [NAME_3] would have been, at most, an equitable share of [NAME_3] in the proportion that $1,671,855.10 bears to $6,390,646.98. 133 However, even if the agreement to assign the convertible bonds from [NAME_3] to [NAME_13] was supported by valuable consideration, and was therefore capable of specific performance, that does not mean that [NAME_3] became a trustee of the convertible bonds upon the making of the agreement, but before the payment of the consideration (see for example Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at [53]). As there has been no payment of the consideration by [NAME_13], no constructive trust can have arisen in its favour. No interest in the bonds could subsequently have passed, therefore, from [NAME_13] to [NAME_9] or from [NAME_9] to any other person. 134 Thirdly, [NAME_40] say that the requirements of s 23C(1)(c) were displaced, in respect of the assignment of the convertible bonds, by acts of part performance on the part of [NAME_13]. They say that [NAME_13] reduced the amount owed to it by [NAME_3] in its books by the face value of the convertible bonds, namely $10,000,000, and thereby performed its part of the contract with [NAME_3]. That contention also assumes that [NAME_13] became exclusively entitled to [NAME_3], and, accordingly, is untenable. Further, in order for acts of part performance to operate in the way contended for by [NAME_40], those acts must be unequivocally and of their own nature referable to some such agreement as is alleged (see Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 432). I do not consider that that requirement is satisfied in relation to the alleged assignment by [NAME_3] to [NAME_13], since the entries in the [NAME_13] do not have any dispositive effect, but, rather, at their highest, do no more than record some other juridical act. 135 In any event, there has been no part performance by [NAME_9] that could operate to displace the requirements of s 23C(1)(c) in respect of the alleged assignment of convertible bonds from [NAME_13] to him. [NAME_9] has merely made a promise, which is still executory, to pay the amount of the convertible bonds in the future. Similar considerations would apply to any agreement between [NAME_13], on the one hand, and [NAME_28] or the other [NAME_33], on the other hand, in respect of [NAME_3]. That agreement, too, must be regarded as wholly executory, since the promise by [NAME_13], if it was made at all, was to pay the amounts owing to the [NAME_33] by [NAME_30] and [NAME_30] within five years. 136 Fourthly, [NAME_40] contend that the assignment of [NAME_3] to [NAME_13] was not a disposition of property at all. No reasons are advanced in support of that submission, which I reject. 137 Fifthly, [NAME_40] say that s 23C(1)(c) can have no application to any equitable assignment of the convertible bonds from [NAME_3] to [NAME_13], because that transaction did not involve a disposition of an equitable interest. Rather, they say, [NAME_3] created out of its legal and beneficial ownership an equitable interest that did not previously exist. The argument runs as follows. It appears to be wrong to say that the legal and beneficial owner of property has two estates in the property, one legal and the other equitable, and that when that owner equitably assigns the property while retaining the legal title, there is a disposition of the equitable estate. Rather, it seems correct to say that the owner creates in the assignee an equitable estate distinct from the estate held by the owner prior to the transaction. That is, the owner does not, by the equitable assignment, dispose of an equitable interest subsisting at the time of the disposition.

Accordingly, there can be no application of s 23C(1)(c) (see Baloglow v Konstantinidis [2001] NSWCA 451 at [116]-[117]). 138 However, in the circumstances of the present case, that argument begs the question. The allegation made by [NAME_40] is that the Impugned Transactions involved promises to transfer the convertible bonds themselves, rather than to assign any equitable interest in the convertible bonds. In other words, the Impugned Transactions involved promises to place the intended assignees of the convertible bonds in a position whereby they could become registered as the owners of the convertible bonds. In the absence of payment of the consideration, any agreement between [NAME_13] and [NAME_3] remained wholly executory.

Accordingly, there can have been no equitable assignment capable of engaging the analysis considered in [NAME_52] 139 In the [NAME_15] of the matters I have set out above, I consider that the requirements of s 23C(1)(c) of the Conveyancing Act were applicable to all of the transactions giving effect to the arrangements involving [NAME_13] that are relied upon by [NAME_40]. I consider that there was no compliance with s 23C(1)(c) in respect of any of those transactions. I am not persuaded by the available evidence that the requirements of s 23C(1)(c) have been displaced by acts of part performance or the creation of any constructive trust. It follows that s 23C(1)(c) would operate to render ineffective any of the arrangements involving [NAME_13] that might otherwise be effective. In particular, s 23C(1)(c) would mean that no consideration passed from [NAME_13] to [NAME_3] for the assignment in equity of the convertible bonds, since [NAME_13] could have acquired no exclusive entitlement, in equity or otherwise, to [NAME_3].

Conclusion as to the [NAME_13] 140 [NAME_26] contend that the Impugned Transactions involving [NAME_13], leading up to the execution of the Impugned Transfers by [NAME_53] as attorney for [NAME_2] on 17 November 2009, are no more than a contrivance pieced together in an attempt to justify a transfer of property of [NAME_3] to [NAME_2] in November 2009, after [NAME_3] had gone into liquidation. Not only was there no writing recording the relevant Impugned Transactions, there was no evidence of the fact of any oral communication effecting those transactions. No step was taken to execute a transfer of either [NAME_3] or the convertible bonds in favour of [NAME_13]. The certificates for the convertible bonds remained in the custody of [NAME_38]. There is no evidence that [NAME_38] was given the certificates to hold on behalf of any person other than [NAME_3]. Certainly, no attempt was made to deliver the certificates to the custody of any person on behalf of [NAME_13]. The highest that the evidence rises in support of the Impugned Transactions is that there are entries in the books of [NAME_3] and in the [NAME_13] that are consistent with the transactions, and that may be inconsistent with there having been no dealing with the convertible bonds or [NAME_3]. 141 However, in the absence of any admissible evidence of juridical acts that are capable of constituting them, it is not possible to conclude that any of the Impugned Transactions involving [NAME_13] occurred. In particular, there was no juridical act that was effective to vest in [NAME_13] either a legal or an equitable interest in [NAME_3]. Further, there is no evidence of any writing that would satisfy s 23C(1)(c) of the Conveyancing Act in respect of any of the Impugned Transactions involving [NAME_13]. 142 Having regard to the matters specified in s 140(2) of the Evidence Act, I consider that the case advanced on behalf of [NAME_40] is far from having been proved to the requisite standard. I am not actually persuaded that the Impugned Transactions involving [NAME_13] took place. In the [NAME_15] of the available evidence, I consider that it is unlikely that they took place, or, to the extent that there was an attempt to effect the Impugned Transactions, that it is unlikely that the attempt was effective. 143 It follows that no consideration has been given by [NAME_13] to [NAME_3] for the transfer or assignment of any interest in the convertible bonds.

Accordingly, there was no transfer of any equitable interest in the convertible bonds by [NAME_3]. [NAME_9] therefore acquired no interest in the convertible bonds. [NAME_9] therefore could not transfer any interest in the convertible bonds to [NAME_8]. [NAME_8] therefore had no interest to transfer to [NAME_2].

Accordingly, subject to a possible question of hearing from non-parties, [NAME_26] are entitled to declarations and orders in the terms claimed in their amended originating process. 144 While it is not strictly necessary to do so, I shall say something about the subsequent transactions relied on by [NAME_40]. I shall also say something about the alternative cases mounted by [NAME_26].

[NAME_9], [NAME_8] AND [NAME_2] 145 In asserting his entitlement to be registered as the owner of the $2,000,000 of convertible bonds, [NAME_2] relies on two further purported assignments of the bonds. The first assignment is from [NAME_9] to [NAME_8]. The second is from [NAME_8] to [NAME_2]. I shall deal with each purported assignment separately.

[NAME_9] and [NAME_8] 146 As at about 1999, [NAME_8] and [NAME_9] were the principals and effective controllers of entities engaged in the development of a resort at The Entrance, New South Wales (the Resort Development). By 2001, the Resort Development was completed, all apartments had been sold and the profits from the venture had been distributed to those entitled. However, in August 2006, 49 purchasers of apartments commenced a proceeding in the Federal Court claiming damages against [NAME_8] and other parties involved in the Resort Development. By deed made between [NAME_8] and [NAME_9] on 16 July 2008 (the Indemnity Deed), [NAME_9] agreed to indemnify [NAME_8] in respect of 50 per cent of all legal costs and damages that [NAME_8] might be held liable to pay in that Federal Court proceeding. 147 [NAME_53] is [NAME_2]'s son. He is an executive director of [NAME_8], having been appointed in 1992. He is the deputy executive chairman of [COMPANY_8]. In August 2008, [NAME_9] had conversations with [NAME_53] in which he said that his personal financial situation was very tight, and that he could not contribute his share of the legal costs under the Indemnity Deed. He told [NAME_53] about the $10,000,000 of convertible bonds that [NAME_25] had issued to [NAME_3], and said that [NAME_3] had used the convertible bonds to reduce a debt due to [NAME_13], one of its investors, for the full amount of their face value of $10,000,000. He said that that had been helpful to him, since he subsequently reached agreement with [NAME_13] for all of the convertible bonds to be transferred to him, so that he could apply them to discharge his personal liabilities. He said that a number of his creditors were happy to accept a transfer of convertible bonds in discharge of his liabilities to them, and that he would like to make such an arrangement with [NAME_8]. He offered to transfer to [NAME_8] convertible bonds having a face value of $2,000,000, in return for a release from his liability under the Indemnity Deed. 148 Subsequently, [NAME_53] told [NAME_9] that [NAME_8] agreed to take a transfer of the $2,000,000 of convertible bonds, in consideration for which [NAME_8] would release [NAME_9] from his liability under the Indemnity Deed. [NAME_9] then said that he would arrange for [NAME_11] to deliver transfers and certificates to [NAME_53]. 149 On 17 October 2008, [NAME_9], as attorney of [NAME_3], signed the four Impugned Transfers in blank. He gave instructions to [NAME_11] to deliver the signed transfers to [NAME_8]. On 21 October 2008, [NAME_11] completed details, including details relating to the convertible bonds and the transferor, on the four Impugned Transfers, and, on 22 October 2008, sent them, together with the relevant certificates, to [NAME_53] at [NAME_8]. 150 [NAME_40] say that the circumstances of the signature of the transfers on behalf of [NAME_3], rather than by [NAME_9] in his personal capacity, are explained by the evidence. Thus, as I have said, [NAME_9] received the certificates from [NAME_25] on 6 August 2008, when he gave them to [NAME_11], with instructions that she give them to [NAME_38] for safe custody. [NAME_11] did so. The form of transfer required by [NAME_25] was not provided to [NAME_3] until 17 October 2008, when [NAME_9] signed the four Impugned Transfers in blank, in his capacity as attorney for [NAME_3]. He gave instructions to Ms [NAME_11] to obtain the certificates from [NAME_38] and to complete the transfer forms, leaving the transferee details blank. On 22 October 2008, Ms [NAME_11] sent the four signed Impugned Transfers, together with the relevant certificates for the convertible bonds, to [NAME_53] by express post. [NAME_53] then filled out the transferee details at a later time. 151 [NAME_40] say that [NAME_9] was seeking to wrap up several transactions in single transfer forms, rather than arrange for separate transfers from [NAME_3] to [NAME_13], from [NAME_13] to himself personally, and from himself personally to his creditors, including [NAME_8].

Accordingly, it was necessary for [NAME_9] to sign the Impugned Transfers as [NAME_3]'s attorney. Ultimately, as a result of the matters I shall describe shortly, [NAME_2] was named as the transferee in the Impugned Transfers. In effect, [NAME_40] say that there was a transfer from [NAME_3] to [NAME_2] by direction of the various intermediate transferees in that chain.

[NAME_8] and [NAME_2] 152 Since 1998, [NAME_2] has from time to time provided loans to [NAME_8] to assist it with its capital requirements. As at 16 October 2009, the outstanding balance owing by [NAME_8] to [NAME_2] was $2,872,650. In about May 2000, the loan arrangements between [NAME_8] and [NAME_2] were formalised with legal documentation that included provision, as security for the loans, of a charge over all of [NAME_8]'s assets in favour of [NAME_2]. 153 On 6 May 2009, administrators were appointed to [COMPANY_8], and, on 16 October 2009, administrators were appointed to [NAME_8] itself. In about November 2009, [NAME_2] had a conversation with [NAME_53] in relation to a proposal that the indebtedness of [NAME_8] to [NAME_2] be reduced by a transfer of the convertible bonds to [NAME_2], and the subsequent transfer of those convertible bonds by [NAME_2] to [COMPANY_8], in order to satisfy one of the conditions of a deed of company arrangement that was then being proposed concerning [COMPANY_8]. [NAME_53] said that, in connection with the proposed deed of company arrangement, it was necessary to provide to the administrators a sum of between $5 million and $10 million over a period of five years. He said that one way of achieving that would be to transfer to [COMPANY_8] the $2,000,000 of convertible bonds owned by [NAME_8]. He said that such a transfer could not take place unless [NAME_2], as the holder of a charge over the assets of [NAME_8], gave his consent. 154 [NAME_53] told his father that it was proposed that the convertible bonds be transferred in part satisfaction of [NAME_2]'s loan to [NAME_8], to the extent of $2,000,000. [NAME_2] would then transfer the convertible bonds to the administrators of [COMPANY_8] to be held for the purposes of the deed of company arrangement. [NAME_2] would then become a creditor of [COMPANY_8] in the sum of $2,000,000, which would be a debt payable after completion of the deed of company arrangement. The debt of $2,000,000 would be owed by [COMPANY_8], but would be guaranteed by [NAME_8]. 155 [NAME_53] told [NAME_2] that it was best for [NAME_2] and all the shareholders of [NAME_8] that the proposal be implemented. [NAME_53]'s explanation of the proposal, [NAME_2] decided to proceed with it. He considered that, as a shareholder of [NAME_8], and given his position as the holder of a charge from [NAME_8] in respect of its indebtedness to him, it was incumbent upon him for the benefit of [NAME_8] and its shareholders to assist [COMPANY_8] to satisfy the condition of its proposed deed of company arrangement.

Accordingly, [NAME_2] instructed [NAME_53] to sign documents and do all other things necessary on his behalf, under a general power of attorney that he had previously granted to [NAME_53], in order to give effect to the proposal. 156 On 17 November 2009, [NAME_53] signed the four Impugned Transfers on behalf of his father, as transferee. The Impugned Transfers are in evidence. Each transfer is in respect of $500,000 of convertible bonds. The transfers are from [NAME_3] to [NAME_2]. They are executed on behalf of [NAME_3] by [NAME_9], under a power of attorney executed on 7 May 2008, and are signed on behalf of [NAME_2] by [NAME_53], under a power of attorney made on 6 February 2006. The signature on behalf of [NAME_3] is dated 17 October 2008. Under cover of a letter dated 17 November 2009, [NAME_53] submitted the four transfers to [NAME_25], and requested that the transfers be registered. That prompted the letter of 18 December 2009 from [NAME_25] to [NAME_6]' solicitors, to which I have referred above. 157 [NAME_53] gave affidavit evidence concerning a controversy as to the effectiveness of the 2006 power of attorney. However, I do not understand there to be any issue as between the parties regarding that matter. 158 On 23 December 2009, [COMPANY_8] entered into a deed of company arrangement and, on 17 February 2010, [NAME_8] also entered into a deed of company arrangement. On 20 January 2010, [NAME_53], as attorney of [NAME_2], executed a deed of assignment (the [NAME_8]) of $2,000,000 of convertible bonds, under which [NAME_2] assigned all his legal and equitable right, title and interest in the convertible bonds to the administrators of the [COMPANY_8] deed of company arrangement. The [NAME_8] provided that completion was to take place on 30 June 2010. On 23 April 2010, a deed of acknowledgement was executed on behalf of [NAME_2], under which he agreed not to take any steps to enforce his rights under the charge given to him by [NAME_8] until completion of the [COMPANY_8] deed of company arrangement. Finally, in consideration of the transfer by [NAME_8] to [NAME_2] of the convertible bonds, [NAME_2] accepted a reduction of $2,000,000 in the amount owing to him by [NAME_8] under the [NAME_8] deed of company arrangement.

Conclusion as to Subsequent Assignments 159 If [NAME_9] had acquired beneficial ownership of the $2,000,000 of convertible bonds, I would be satisfied that the evidence establishes that that beneficial ownership passed to [NAME_8], and then from [NAME_8] to [NAME_2]. However, I have concluded that [NAME_9] did not become the owner of the bonds, either legally or beneficially, because [NAME_13] did not acquire any interest in them: nemo dat quod non habet.

THE ALTERNATIVE CASES 160 As I have already indicated, [NAME_26] assert that any transaction by which the convertible bonds were assigned by [NAME_3] to [NAME_13] was an insolvent transaction, an uncommercial transaction, and an unreasonable director-related transaction within the meaning of the Corporations Act, as well as involving breaches of statutory and fiduciary duty on the part of [NAME_9] and [NAME_12]. They therefore contend that the transaction, to the extent that it took place at all, is voidable. In the [NAME_15] of the conclusions reached above, it is not strictly necessary to deal with those alternative cases. Nevertheless, it is desirable to say something about the issues that they raise.

Uncommercial, Insolvent or Unreasonable Director-Related Transaction 161 Part 5.7B of the Corporations Act deals with the recovery of property or compensation for the benefit of creditors of an insolvent company. Division 2 of Part 5.7B, which consists of s 588FA to s 588FJ inclusive, deals with voidable transactions. Relevantly, s 588FE(3) provides that a transaction of a company is voidable if it is an insolvent transaction and also an uncommercial transaction of the company, and it was entered into during the two years ending on the relation-back day. Section 588FE(6A) provides that a transaction of a company is voidable if, relevantly, it is an unreasonable director-related transaction of the company and it was entered into during the four years ending on the relation back day. For present purposes, the relation-back day is 30 July 2009, the day on which [NAME_6] were appointed as administrators of [NAME_3]. 162 [NAME_26] assert in the Statement of Claim that the alleged assignment of convertible bonds from [NAME_3] to [NAME_13] on 6 August 2008 is voidable under s 588FE.

Accordingly, they say, the Court is empowered to make one or more of the orders set out in s 588FF(1) of the Corporations Act. They say that the Court should make an order declaring that the transfer of convertible bonds was void ab initio, as well as other restitutional orders. 163 Section 588FB of the Corporations Act deals with uncommercial transactions. Under s 588FB(1), a transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to: the benefits, if any, to the company of entering into the transaction; the detriment to the company of entering into the transaction; the respective benefits to other parties to the transaction of entering into it; and any other relevant matter. 164 Section 588FC deals with insolvent transactions. Under s 588FC, a transaction of a company is an insolvent transaction of the company if, relevantly, it is an uncommercial transaction of the company, and the transaction is entered into at a time when the company is insolvent. 165 Section 588FDA deals with unreasonable director-related transactions. Under s 588FDA, a transaction of a company is an unreasonable director-related transaction if, relevantly, the transaction is a disposition by the company of property of the company, the disposition is to a director of the company, and it would be expected that a reasonable person in the company's circumstances would not have entered into that transaction, having regard to: the benefits, if any, to the company of entering into the transaction; the detriment to the company of entering into the transaction; the respective benefits to other parties to the transaction of entering into it; and any other relevant matter. 166 By the deed of variation of 14 July 2005 made between [NAME_3] and the [NAME_30], [NAME_3] fell due for payment on 13 July 2008. [NAME_26] assert in the Statement of Claim that, from 13 July 2008, [NAME_3] was unable to pay its debts as and when they fell due and, accordingly, was insolvent, and that, therefore, the transaction involving the assignment of convertible bonds to [NAME_13] by [NAME_3] took place while [NAME_3] was insolvent, thereby satisfying one limb of s 588FC. They rely on the following matters as supporting the conclusion that [NAME_3] was insolvent by 6 August 2008: [NAME_3] incurred a loss of $4,765,176.23 for the year ended 30 June 2007. As at 30 June 2007, [NAME_3] had negative equity of $51,601,601.97 and its current liabilities exceeded its current assets. [NAME_3] incurred a loss of $8,141,957.93 for the year ended 30 June 2008. As at 30 June 2008, [NAME_3] had negative equity of $59,743,559.90 and its current liabilities exceeded its current assets. As at 30 April 2009, [NAME_3] had negative equity of $56,978,594.37 and its current liabilities exceeded its current assets. [NAME_3] failed to pay the amount of [NAME_3] when it fell due for repayment on 13 July 2008. 167 Under s 95A of the Corporations Act, a person who is not solvent is deemed to be insolvent. A person is solvent if, and only if, the person is able to pay all the person's debts as and when they become due and payable. Whether a company is insolvent at a particular time is a question of fact, to be determined by proper consideration of the company's financial position, in its entirety, based on commercial reality. Regard must be had not only to the cash resources immediately available to the company, but also to moneys that it can procure by realisation of its assets or by borrowing. It is the inability of a company, using such resources as are realistically available to it to raise funds, to meet debts as and when they fall due, that indicates insolvency (see Powell v Fryer (2001) 37 ACSR 589 at [75]). 168 While a company's balance sheet is a relevant consideration, a company's solvency is ultimately determined by reference to its ability to pay its debts as and when they fall due. The fact that a company's liabilities at a given time exceed its assets at that time does not necessarily indicate that the company is insolvent. For example, its income may be such that it will in fact be in a position to meet its liabilities when they become due for payment. Thus, the Court must look at all of the liabilities of a company and make a finding as to when those liabilities fall due for payment. It is then necessary to assess what moneys will become available to the company to meet those liabilities at the relevant times. 169 [NAME_40] dispute that [NAME_3] was insolvent at any relevant time. [NAME_40] say that the substantial liabilities of [NAME_3] as at 30 June 2008 were not all owing at that time. [NAME_31] had agreed on 11 July 2008, less than a month before the alleged transfer of convertible bonds to [NAME_13], to vary the existing loan to [NAME_31] by capitalising the interest previously payable. That resulted in an increase in the loan from $16,000,000 to $37,000,000. In those circumstances, they say, there could be no suggestion that [NAME_31] was pressing for payment as at 6 August 2008. 170 [NAME_40] also say that, while it is correct that [NAME_13], assuming it was the other major creditor on [NAME_3]'s balance sheet at the relevant time, was pressing for repayment in early July 2008, the bargain that was struck was that the convertible bonds would be transferred to [NAME_13]. Thus, they say, there was an agreement to extend the payment terms in respect of [NAME_3], and thereafter no demand was made for repayment of the balance. 171 Finally, [NAME_40] point to the fact that [NAME_3] derived a profit in the period to 30 April 2009. However, there is nothing to suggest that that profit was such as to make a difference as to whether [NAME_3] could meet its liabilities as and when they fell due. 172 [NAME_3]'s balance sheet as at June 2008 suggests that it did not have cash available to meet interest payments that continued to accrue in respect of the loan from [NAME_31]. Further, even allowing for a reduction in [NAME_3], a substantial majority of [NAME_3] remained owing, in respect of which [NAME_3] was in default as at August 2008. There was no suggestion that [NAME_13] or [NAME_28] agreed that the time for repayment of the balance of [NAME_3] was to be deferred. In the circumstances, I would be disposed to conclude that [NAME_3] was insolvent as at August 2008. 173 In order to be an insolvent transaction under s 588FC, a transaction must also be uncommercial within the meaning of s 588FB. [NAME_26] say that it would be expected that a reasonable person in [NAME_3]'s circumstances would not have entered into the transaction by which the convertible bonds were purportedly assigned to [NAME_13], in circumstances where, inter alia: there were no benefits to [NAME_3]; [NAME_3] was divested of an asset with a face value of $10,000,000, and suffered detriment from entering into the transaction; and other parties, including [NAME_13] and [NAME_9], derived a benefit from the transaction. [NAME_26] say that [NAME_9] derived a significant personal benefit because the purported transfer was part of an arrangement whereby, upon [NAME_13]'s acquisition of the convertible bonds, [NAME_13] would immediately transfer them to [NAME_9], purportedly in consideration of a promise that he would pay [NAME_13] their face value, together with interest, on their respective conversion dates. Thus, they say, [NAME_9] obtained the convertible bonds merely by promising to pay their face value at a future time, without making any payment at the time of acquisition. They say that the purported transfer was an uncommercial transaction of [NAME_3]. 174 [NAME_40] say that the relevant transaction was not uncommercial, since [NAME_3] received a reduction of $10,000,000 in its liability to [NAME_13] in respect of [NAME_3], in return for the transfer of an asset of dubious value. There was no evidence indicating the value of the convertible bonds, aside from opinions, albeit unchallenged ones, proffered by [NAME_9], and no evidence to indicate whether or not a market existed for the convertible bonds, such that they could be realised prior to their conversion into shares in [NAME_25]. Nevertheless, it is at least arguable that the alleged transaction between [NAME_13] and [NAME_3] was not uncommercial, since, although [NAME_3] lost the benefit of an asset having a face value equal to $10,000,000, it also received a reduction in that sum owing to an unsecured creditor. [NAME_40] contend that undervalue is at the heart of s 588FB, and that the relevant transaction was plainly not conducted at an undervalue. There may be a rational basis for concluding that a company in the circumstances of [NAME_3] may have wished to have the certainty of such a reduction in its liabilities that were immediately due and payable, in exchange for an asset that may not have been immediately realisable. 175 Further, [NAME_40] assert, there is evidence that [NAME_31] was informed that the convertible bonds, once issued, would be used to satisfy other creditors of [NAME_3], and that [NAME_31] raised no objections to that suggestion. They say that any question of priority as between [NAME_31] and either [NAME_28] or [NAME_13] is an irrelevant distraction. They further say that the assignment of the convertible bonds cannot be said to be uncommercial on the basis of an alleged reversal of priority in circumstances where [NAME_31] effectively approved the paying down of the [NAME_28] debt. 176 However, I accept that, if the arrangements involving [NAME_3], [NAME_13] and [NAME_9] were given effect in the manner contended for by [NAME_40], notwithstanding that there is minimal evidence to support those contentions, then they could fairly be characterised as a single tripartite transaction whereby [NAME_3] transferred the interest in the convertible bonds to [NAME_9] at the direction of [NAME_13], in consideration for which [NAME_13] reduced the indebtedness of [NAME_3] under [NAME_3] by $10,000,000. On that characterisation, [NAME_13] agreed to give such direction to [NAME_3] in consideration of [NAME_9]'s promise to pay the face value of the convertible bonds as and when they became eligible for conversion. 177 In assessing whether a transaction is uncommercial, it is appropriate for the Court to look to the totality of the business relationship between the parties, to what was intended to be effected under that relationship, and to how the transaction, in whole or in part, effected that intention (see [NAME_54] (2009) 74 ACSR 496 at [23]). There is some merit in the submissions advanced by [NAME_40] as to uncommerciality. However, in all of the circumstances, I would be disposed to view the arrangements involving [NAME_3], [NAME_13] and [NAME_9] as a single transaction, as just described. Having regard to the obvious benefit derived by [NAME_9], a director of [NAME_3], I have considerable reservations about the propriety of that transaction. [NAME_9]'s benefit was, in my view, such as could not be explained by normal commercial practice (see [NAME_55] (2001) 19 ACLC 1392 at [43]). I would be disposed to conclude that the tripartite transaction was an uncommercial transaction of [NAME_3]. 178 Section 588FDA of the Corporations Act narrows the scope of the concept of transaction compared with the scope of that concept elsewhere in Division 2. Relevantly for present purposes, in order for a transaction to be an unreasonable director-related transaction under s 588FDA(1)(a), the transaction must be a disposition by a company of property of the company, and the disposition must be to a director of the company. [NAME_40] say that there was no disposition by [NAME_3] of any interest in the convertible bonds to [NAME_9], and, accordingly, that the terms of s 588FDA are not engaged. 179 However, if the arrangements involving [NAME_3], [NAME_13] and [NAME_9] together constituted a single tripartite transaction, the terms of s 588FDA would be satisfied.

Accordingly, I would be disposed to conclude that the purported assignment of the convertible bonds by [NAME_3] on 6 August 2008 was also an unreasonable director-related transaction of [NAME_3]. 180 For the reasons given above, I would be disposed to uphold the alternative cases advanced by [NAME_26] in reliance upon Division 2 of Part 5.7B of the Corporations Act. That conclusion would empower the Court to make an order under s 588FF, subject to the possible operation of s 588FG, about which I shall say something below.

Breach of Duty by Directors 181 [NAME_26] contend that [NAME_9] and [NAME_12] misused their respective positions as directors of [NAME_3], breached ss 180(1), 181(1) and 182(1) of the Corporations Act and breached the fiduciary duties that they owed to [NAME_3]. The duties alleged to have been owed by [NAME_9] and [NAME_12] to [NAME_3] were: a duty under s 180(1) of the Corporations Act to exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if that person was a director of [NAME_3] and occupied the office held by, and had the responsibilities within [NAME_3] of, [NAME_9] and [NAME_12]; a duty under s 181(1) of the Corporations Act to exercise their powers and discharge their duties in good faith in the best interests of [NAME_3] and for a proper purpose; a duty under s 182(1) of the Corporations Act not to use their positions improperly to gain advantage for themselves or someone else or cause detriment to [NAME_3]; a fiduciary duty to account for any benefit or gain they obtained in circumstances where there was conflict or potential conflict between their duty to [NAME_3] and their personal interest in the pursuit or possible receipt of such a benefit or gain; a fiduciary duty to account for any benefit or gain obtained or received by use or by reason of their respective positions, or by use or by reason of opportunities or knowledge resulting from their positions; a fiduciary duty to keep confidential information and knowledge they obtained in the course of exercising their responsibilities relating to the operation of the business of [NAME_3]; and a fiduciary duty to act in the best interests of [NAME_3]. 182 [NAME_26] say that the vice in the purported transfer of the convertible bonds to [NAME_13], assuming that it was a creditor of [NAME_3], is that the transfer was undertaken in circumstances where [NAME_9] was a direct beneficiary of the transfer, by reason of the arrangement that he made with [NAME_13] that the convertible bonds would be at his personal disposal, and could then be used to satisfy his personal creditors. They contend that reasonable directors in the position of [NAME_9] and [NAME_12] would not have used a substantial asset of [NAME_3] in order to satisfy part of a debt owed by [NAME_3] to an unsecured creditor, being a debt that was incapable of being paid from the assets of [NAME_3] if those assets were administered according to its ([NAME_3]'s) commercial arrangements, in circumstances where that unsecured creditor was prepared to make an arrangement with one of the directors involved in making the corporate decision, being an arrangement that benefited that director. 183 [NAME_26], therefore, contend that any decision made by [NAME_9] and [NAME_12] to transfer convertible bonds to [NAME_13], assuming [NAME_13] was an unsecured creditor in respect of [NAME_3], in partial satisfaction of that indebtedness, was motivated by an improper purpose, namely the benefit obtained by [NAME_9] as a result of his arrangement with [NAME_13]. They say that the improper purpose was to benefit [NAME_9] by reason of the arrangement made between [NAME_46] for [NAME_13] to transfer the convertible bonds to [NAME_9] to enable him to discharge his own personal obligations. That arrangement was very favourable to [NAME_9], in that it involved no more than a mere promise by him to pay the face value of the convertible bonds when they became eligible for conversion in the future. 184 As I have said, the hearsay evidence of conversations between [NAME_12] and [NAME_39] that both [NAME_9] and [NAME_35] gave was not admitted as evidence of the fact of those conversations. It was admitted only as evidence of the discussions in which the witnesses were told of the conversations, and of the witnesses' state of mind. However, that evidence, even so restricted as to admissibility, may have some bearing on the question of breach of fiduciary duty by [NAME_9] and [NAME_12]. 185 Thus, [NAME_9] asserted in an affidavit that, shortly after 13 July 2008, when [NAME_3] was due for payment, [NAME_12] told him that [NAME_39] and [NAME_3]'s other creditors had been asking for payment of [NAME_3]. [NAME_9] said that he told [NAME_12] that [NAME_3] could offer [NAME_39] and [NAME_3]'s other creditors the convertible bonds by way of reduction of [NAME_3]. From that, it may be open to conclude that [NAME_9] reasonably believed that entry into the Impugned Transactions involving the convertible bonds was in the best interests of [NAME_3], and that his actions, accordingly, were done in good faith and for a proper purpose. 186 The reference to [NAME_39] as a creditor of [NAME_3] was, it may be inferred, a reference to [NAME_13] in respect of [NAME_3]. [NAME_9] gave no admissible evidence as to how, as he understood the position, [NAME_13] had become the only creditor of [NAME_3] in respect of [NAME_3]. It is significant that [NAME_9] said in affidavit evidence that, at that time, [NAME_12] referred to the [NAME_33] as including [NAME_13], amongst others. That is not consistent with [NAME_13] having become exclusively entitled to [NAME_3]. [NAME_9] drew a clear distinction in his affidavit evidence between [NAME_13] and [NAME_39], on the one hand, and [NAME_28] and [NAME_35], on the other, despite his subsequent oral evidence that he considered them to be in effect the same entity once he had been told by [NAME_12] of agreements having been made between them. 187 In all of the circumstances, I do not consider that the hearsay evidence given by [NAME_9] bears significantly on the question of breach of duty as a director. As I have indicated, I did not find [NAME_9] to be an impressive witness. 188 [NAME_40] submit that the fact that the purpose of the transfer of the convertible bonds was to enable [NAME_9] to pay off certain of his personal creditors does not matter in circumstances where [NAME_3] received good consideration for the transfer of the convertible bonds. That contention is unsupported, and it appears to me to be somewhat obscure. I am not disposed to give it any weight, particularly since, as I have indicated, I am inclined to regard the arrangements involving [NAME_3], [NAME_13] and [NAME_9] as a single tripartite transaction. 189 There is no admissible evidence as to [NAME_12]'s state of mind concerning the Impugned Transactions. [NAME_12] contends that there has been no breach of statutory or fiduciary duty on his part. He asserts that he stood to gain nothing from the Impugned Transactions, and points out that he was joined as a defendant more than six months after the proceeding had commenced. He asserts that [NAME_9]'s involvement in downstream transactions after the purported transfer of the convertible bonds to [NAME_13] cannot be visited upon him, [NAME_12], in his capacity as a director of [NAME_3]. Further, he asserts that there is no evidence that any misconduct on his part, which it is his primary position to deny, caused [NAME_3] to suffer any loss or damage, given that the convertible bonds do not mature until 1 July 2028, and that there is no certainty that [NAME_25]'s shares will have any value on the relevant conversion dates. 190 On the assumption that the transactions allegedly effecting the assignment of the convertible bonds on 6 August 2008 should properly be characterised as a tripartite arrangement involving [NAME_3], [NAME_13] and [NAME_9], I consider that there are strong grounds for concluding that the arrangements involved a breach of fiduciary duty and a breach of statutory duty, at least on the part of [NAME_9], who was instrumental in proposing the arrangements. The clear effect of the arrangements was that [NAME_9] was put in a position whereby he had substantial assets, having a face value of $10,000,000, at his disposal for the purposes of discharging his own personal liabilities, having given no more than an unsecured promise to pay the face value of the convertible bonds at some time in the future. The fact that [NAME_9] was prepared to take the convertible bonds, and was in a position to discharge his personal indebtedness by assigning the convertible bonds, might suggest that the convertible bonds could have provided a similar benefit to [NAME_3]. I would be disposed to conclude that the transaction involved a breach of ss 180, 181 and 182 of the Corporations Act, as well as of general fiduciary duties, on the part of [NAME_9] and [NAME_12].

Good Faith Defences 191 In the event that the alleged transfer of convertible bonds from [NAME_3] to [NAME_13] were found to be voidable under s 588FE of the Corporations Act, the Court would be empowered to make an order under s 588FF. [NAME_40] place reliance on s 588FG of the Corporations Act in arguing that such an order ought not be made. 192 Section 588FG(1) provides that the Court may not make an order under s 588FF that materially prejudices a right or interest of a person other than a party to the transaction, if certain matters are proved. Thus, the Court may not make such an order if the person whose right or interest is prejudiced received no benefit because of the transaction. Alternatively, the Court is not to make such an order if it is proved that, in relation to each benefit that the person received because of the transaction, the person received the benefit in good faith and, at the time when the benefit was received, the person had no reasonable grounds for suspecting that the company whose transaction was voidable was insolvent, as that term is defined in s 588FC, and a reasonable person would have had no reasonable grounds for suspecting that the company was insolvent. 193 It is clear enough that [NAME_2] will be materially prejudiced if orders are made declaring the arrangements involving [NAME_3], [NAME_13] and [NAME_9] to be void. He has accepted a reduction in the amount owing to him by [NAME_8]. He may be also exposed to a claim for a breach of contract under the [NAME_8]. 194 There can be no suggestion that [NAME_2] received a benefit because of the Impugned Transactions involving [NAME_3], [NAME_13] and [NAME_9]. There is no suggestion that any of those parties contemplated a transfer of convertible bonds to [NAME_2]. It is clear that [NAME_9] contemplated a transfer of some of the convertible bonds to his personal creditors, one of which was [NAME_8]. Nevertheless, even if there was a single tripartite transaction, as I have found, [NAME_8] was not a party to that transaction.

Accordingly, I also do not consider that it could be said that [NAME_8] received a benefit because of the transaction. 195 It may be that, but for the Impugned Transactions involving [NAME_13], [NAME_9] would not have been in a position to strike the bargain that he made with [NAME_8], whereby he would assign $2,000,000 of convertible bonds to [NAME_8] as consideration for a release of his obligations under the Indemnity Deed. Further, if [NAME_8] had not acquired the convertible bonds, it could not have assigned them to [NAME_2]. Nevertheless, I do not consider that either [NAME_8] or [NAME_2] received a benefit because of the Impugned Transactions involving [NAME_3], [NAME_13] and [NAME_9], howsoever characterised. 196 However, [NAME_26] contend that the entire series of transactions by which the convertible bonds were allegedly assigned from [NAME_3] to [NAME_13], from [NAME_13] to [NAME_9], from [NAME_9] to [NAME_8], and from [NAME_8] to [NAME_2], is capable of constituting a transaction within the meaning of s 588FB of the Corporations Act. They say that each of the several purported dealings with the convertible bonds is part of that transaction, which, by reason of the arguments I have already set out, is voidable under s 588FE, and because of which, they say, [NAME_8] and/or [NAME_2] obtained a benefit. 197 [NAME_26] assert, although the facts underlying the assertion are not described in the submission, that [NAME_8] was a joint venturer with, and a secured creditor of, [NAME_3], ranking behind [NAME_31]. [NAME_8] had securities owing for indebtedness of about $5,000,000 as at August 2008. [NAME_8] knew of the prior securities, by reason of registration of its inferior securities. [NAME_26] point to [NAME_9]'s deposition that he told [NAME_31] that [NAME_8] was to be paid by the use of the convertible bonds and that, before settlement and the issue of the convertible bonds, he told [NAME_31] that he had for some time told the recipients of the convertible bonds that they would be secured by second mortgages over land of [NAME_25]. [NAME_26] say that the only parties who could be told that were [NAME_28] and [NAME_8], they being the subsequent ranking creditors not being paid cash by [NAME_25]. That submission is difficult to follow. If, however, it is correct, then it appears that it would be possible to conclude that [NAME_8] was told that convertible bonds would be issued to [NAME_3] and that it would be paid its debt by [NAME_3] through the use of the convertible bonds. 198 The concept of transaction is very broad. Thus, a series of steps over a period, involving several parties, can constitute a transaction. A transaction includes an arrangement giving rise to an estoppel under which one party may not resile from a position. Further, a transaction may be unilateral in character (see Australian Kitchen Industries Pty Ltd v Albarran (2004) 51 ACSR 604 at [24]). A number of separate dealings may together be regarded as constituting one transaction. Nevertheless, in every case, it is vital that, however the transaction is constituted, it must be able to be characterised as a transaction of the company (see Kalls Enterprises Pty Ltd v Baloglow (2006) 58 ACSR 63 at [27]). 199 If the Impugned Transactions took effect, then [NAME_8] in fact received convertible bonds issued to [NAME_3], and may even have been told, as [NAME_26] suggest, that it would receive those bonds prior to their issue. However, it did not receive those convertible bonds from [NAME_3], but from [NAME_9], who was known to be a director of [NAME_3]. It received the convertible bonds in payment of [NAME_9]'s personal debt to [NAME_8], not in satisfaction of [NAME_3]'s debt. [NAME_2]'s taking of an interest in the convertible bonds had nothing to do with the dealings of [NAME_3] and [NAME_9] with [NAME_13]. 200 The transactions involving [NAME_8] and [NAME_2] in November 2009 were entirely separate and distinct from the transactions involving [NAME_13] and [NAME_9] in August 2008. [NAME_40] say that it could not possibly have been contemplated, at the time of the Impugned Transactions involving [NAME_13], that the convertible bonds would subsequently be assigned to [NAME_2] in November 2009 as a result of [NAME_8]'s deteriorating financial position. [NAME_2]'s evidence is that he was unaware of [NAME_3]'s existence until May 2010. Further, they say, the internal transaction involving [NAME_8], one of its directors, namely [NAME_2], and [COMPANY_8] could not conceivably be characterised as a transaction of [NAME_3]. 201 I consider that it is not possible to characterise the transactions involving [NAME_8] and [NAME_2] as part of a single transaction involving the transfer of convertible bonds by [NAME_3] to [NAME_13] and the transfer by [NAME_13] to [NAME_9].

Accordingly, I do not consider that the chain of assignments of the convertible bonds can be said to have constituted a single transaction from which [NAME_2] derived a benefit, as [NAME_26] contend. 202 Alternatively, [NAME_40] say that, to the extent that [NAME_2] received any benefit because of a transaction of [NAME_3], he received the benefit in good faith and that at the time he received the benefit, namely 17 November 2009, he had no reasonable grounds for suspecting that [NAME_3] was insolvent or that it would become insolvent. They say that a reasonable person in [NAME_2]'s circumstances would have had no grounds for so suspecting and, accordingly, that [NAME_2] can rely on the alternative defence afforded by s 588FG. 203 [NAME_40] rely on a number of matters in support of that aspect of their defence, some of which I have already mentioned. For instance, the transactions to which [NAME_2] agreed were suggested by his son, [NAME_53], and [NAME_2] placed complete reliance on what [NAME_53] told him, in circumstances where [NAME_53] was a very experienced, knowledgeable and responsible senior executive of [NAME_8] and [COMPANY_8]. [NAME_40] contend that [NAME_2] gave good consideration for the transfer of the convertible bonds, in that the debt owed to him by [NAME_8] was reduced by $2,000,000. Further, [NAME_2] bound himself to transfer the convertible bonds to [COMPANY_8], in consideration for which he would be treated as a creditor of [COMPANY_8] for the amount of $2,000,000. [NAME_2] considered, as I have said, that it was incumbent upon him to assist [COMPANY_8] to satisfy its deed of company arrangement. He believed at all times that [NAME_8] was the owner of the convertible bonds, and he says that, had he been aware of any claim by [NAME_3] over the convertible bonds, it is unlikely that he would have accepted and proceeded with the proposal that was put to him. He said that at no time in the course of his dealings in relation to the convertible bonds was he aware of any claim or potential claim relating to the convertible bonds by [NAME_3]. 204 [NAME_40] say that, in those circumstances, [NAME_2] acted in good faith in agreeing to the proposal put to him by [NAME_53]. They say that he could not have had any reasonable grounds for suspecting that [NAME_3] was insolvent, given that he was not even aware of [NAME_3]'s existence until about six months after he agreed to the proposal. They claim that there is no reason for [NAME_53] to have made any enquiries at all in relation to [NAME_3]'s solvency, given that there was no suggestion that [NAME_3] maintained any legal or beneficial interest in the convertible bonds. They say that, so far as [NAME_2] and [NAME_53] were concerned, [NAME_3] had nothing to do with the transactions pursuant to which [NAME_8] and [NAME_2] took title. 205 [NAME_53] says that, at all times during his dealings with [NAME_9] on behalf of [NAME_8] in relation to the convertible bonds, he believed that [NAME_9], and not [NAME_3], was the beneficial owner of the convertible bonds. He says that nothing came to his knowledge, and nothing was said to him by [NAME_9] during the course of their discussions, that caused him any doubt in that belief. He also says that he did not have any concerns that [NAME_3]'s solvency might be such as would potentially have an adverse impact upon the effectiveness of [NAME_8]'s acquisition of the convertible bonds. [NAME_53] says that he considered [NAME_3] to be in a sound financial position. He believed that [NAME_3] was receiving financial support from [NAME_31]. He says that the first time he became aware that [NAME_3] had financial difficulties was in about mid-2009, following the appointment of receivers and managers. 206 [NAME_2] conducted his negotiations in relation to the convertible bonds through [NAME_53]. [NAME_53] made no inquiry as to why [NAME_3] was the registered holder of the convertible bonds or as to whether [NAME_9] had any documentation to show that he could deal with the convertible bonds as his own. [NAME_53] said that, although he understood that his father, [NAME_2], would be taking a transfer of bonds from [NAME_9], he did not turn his mind to the question of whether [NAME_9] would be the transferor. [NAME_53] said that he thought that [NAME_9] was the owner of the convertible bonds, but did not turn his mind to the question of whether there ought to be something recording a transfer of the bonds from [NAME_3] to [NAME_13] and then from [NAME_13] to [NAME_9]. 207 [NAME_53] said that he never doubted things that [NAME_9] said to him. He did not make any inquiry as to what [NAME_13] was. Nor did he make any inquiry as to whether [NAME_13] had any entitlement to receive money or property from [NAME_3]. [NAME_53] said that he trusted [NAME_9]'s word. 208 [NAME_40] further say that, even if [NAME_53] had grounds for suspecting that [NAME_3] might have been insolvent (which they deny), [NAME_53] was not [NAME_2]'s agent for all purposes. Where there is no duty for an agent to communicate knowledge to the agent's principal, the principal is not bound by any knowledge acquired by the agent if, at the time when the knowledge was acquired, the agent was not acting on behalf of the principal.

Accordingly, they say, whatever knowledge [NAME_53] acquired as to [NAME_3]'s insolvency (and they deny that there was any) was irrelevant to whether [NAME_2] had knowledge of [NAME_3]'s insolvency. They say that any knowledge that [NAME_53] had as to [NAME_3]'s insolvency was acquired in the course of his activities as a senior executive of [NAME_8], not as attorney for [NAME_2], and that [NAME_53] had no obligation to communicate that knowledge to his father. 209 In any event, [NAME_40] say, the fact that [NAME_53] made no enquiries as to the extent of [NAME_3]'s liabilities is a far cry from his being put on notice about potential insolvency. [NAME_53] said that, as at October 2008, he thought there were no solvency problems with [NAME_3] because, so far as he was aware, none of the other significant creditors of [NAME_3], such as [NAME_31], had taken any action against [NAME_3]. 210 [NAME_8], independently of [NAME_2], also relies on s 588FG of the Corporations Act. Thus, [NAME_40] say, [NAME_8] received no benefit from any transaction of [NAME_3] involving the assignment of the convertible bonds. Alternatively, they say, the executive of [NAME_8] who had carriage of the matter on its behalf, [NAME_53], had no suspicions as to the possible insolvency of [NAME_3], and, in the [NAME_15] of what [NAME_9] had told [NAME_53] about the continuing support of [NAME_3] by [NAME_31], [NAME_8] had no reasonable grounds for suspecting that [NAME_3] was insolvent. [NAME_31] did not appoint [NAME_6] as receivers and managers of [NAME_3] until 13 May 2009, more than six months later. [NAME_40] say that [NAME_8] was simply a good faith assignee of the convertible bonds, which it accepted in return for the release of [NAME_9]'s liability under the Indemnity Deed. 211 To the extent that a finding were made that [NAME_53] had reason to suspect [NAME_3]'s insolvency, [NAME_8]'s knowledge would be the same. [NAME_8] could not raise the argument concerning agency that was raised by [NAME_2]. 212 In all of the circumstances, I consider that neither [NAME_2] nor [NAME_8] received a benefit from the transaction whereby the convertible bonds were allegedly assigned by [NAME_3].

Accordingly, s 588FG would be an answer to a claim by [NAME_26] for orders under s 588FF that the Impugned Transactions be avoided. I did not find [NAME_53] to be an impressive witness. Nevertheless, I would also be disposed to find, assuming that [NAME_2] or [NAME_8] did in fact receive a benefit, that the benefit was received in good faith and in circumstances where there were no reasonable grounds for believing that [NAME_3] was insolvent. 213 [NAME_26] invite the Court to infer that, even assuming that [NAME_13] did acquire some proprietary interest in the convertible bonds, contrary to their primary contention, [NAME_13] was nevertheless a knowing participant in breaches of statutory and fiduciary duty committed by [NAME_9] and [NAME_12] and, accordingly, received the convertible bonds as constructive trustee for [NAME_3]. [NAME_13] has not provided any evidence in response to the allegation of knowing participation, despite having been given the opportunity to do so and having indicated that it wished to do so. 214 Receipt from [NAME_9], as seller, of a transfer of convertible bonds registered in the name of [NAME_3], and signed by him as attorney for [NAME_3], of which he was a director, would be sufficient to put the recipient of the transfer on notice of enquiry as to the circumstances in which [NAME_9] came to be beneficial owner of those convertible bonds. In the [NAME_15] of the evidence I have described above, [NAME_26] contend that [NAME_2], through the knowledge of his attorney, [NAME_53], knew of the relevant obligations, and of the misapplication of the assets of [NAME_3], by reason of one or other of the following circumstances: [NAME_53] had actual knowledge of the constructive trust and the misapplication of the trust property; [NAME_53] deliberately shut his eyes to those things; [NAME_53] abstained, in a calculated way, from making the enquiries that an honest and reasonable person would make about the constructive trust and the misapplication of the trust property; or [NAME_53] knew of facts that would indicate to an honest and reasonable person the existence of a constructive trust in favour of [NAME_3] and the misapplication of the trust property. 215 Therefore, [NAME_26] say, [NAME_8] and [NAME_2] received a transfer of the convertible bonds subject to the constructive trust that had arisen in favour of [NAME_3].

Accordingly, they say, [NAME_2] is liable to restore the convertible bonds to [NAME_3]. [NAME_40] say, in response, that they received the convertible bonds as bona fide purchasers without notice of any claim by [NAME_3]. 216 It is by no means clear whether or not [NAME_13] knowingly participated in breaches of statutory and fidicuiary duty committed by the directors of [NAME_3]. However, even assuming that it did, I would be disposed, in the [NAME_15] of what I have already set out, to find that [NAME_40] were bona fide purchasers for value without notice of the convertible bonds, and, accordingly, that they were not bound by any constructive trust that had previously arisen in favour of [NAME_3].

Consent of Secured Creditors 217 The 2008 Settlement Deed refers to [NAME_3]'s entitlement to receive royalties from [NAME_25] in connection with the Mine. [NAME_26] contend that that right was an asset of [NAME_3] within the terms of the securities that had been granted by [NAME_3] to [NAME_31]. Under clause 2.2 of the 2008 Settlement Deed, that right was compromised and converted into the right to receive the convertible bonds from [NAME_25]. [NAME_26] accordingly contend that, at the time of the purported transfer of the convertible bonds to [NAME_13], the convertible bonds, being property in conversion of the royalty interest of [NAME_3], constituted real property that was secured by mortgages in favour of [NAME_31]. By reason of the failure of [NAME_3] to pay its debts as they fell due and the breach of the terms of securities granted by [NAME_3] for the payment of [NAME_3], they say, the securities in favour of [NAME_31] crystallised.

Accordingly, the Statement of Claim alleges, the right to receive the convertible bonds was property of [NAME_3] and the subject of the securities in favour of [NAME_31], which had priority over the securities granted to [NAME_32] in respect of [NAME_3]. Thus, [NAME_26] say, at the time of any purported dealing with the convertible bonds by [NAME_3], the convertible bonds were charged with the repayment of the debt owing to [NAME_31], and therefore could not be dealt with without the written consent of [NAME_31]. 218 Further, [NAME_3] was conditionally assigned to [NAME_28] as trustee for the [NAME_33], who included [NAME_13], [NAME_34], [NAME_36], [NAME_34] and [NAME_35]. It was an express term of the Deed of Compromise that the operative provisions would not take effect unless and until certain conditions precedent were fulfilled. Those conditions precedent included the receipt of consents in a form reasonably acceptable to [NAME_28] as trustee. The term consent was defined to mean such written consent as may be required from prior security holders to permit [NAME_28] to receive the full benefit of the Deed of Compromise. [NAME_31] did not give any written consent for [NAME_3] to enter into the Deed of Compromise or the assignment of securities to [NAME_28]. 219 [NAME_26] contend that, in the absence of such consent, the purported assignment of [NAME_3] to [NAME_28] was ineffectual to pass any title to [NAME_28] or any other person, including any beneficial title to the [NAME_33].

Accordingly, they say, [NAME_28] did not become a creditor in law or in equity of [NAME_3]. The Impugned Transactions rest upon [NAME_28] having become a creditor of [NAME_3]. If [NAME_26] are correct, therefore, [NAME_28] was not a competent [NAME_51] of [NAME_3] to [NAME_13], and [NAME_13] could not, on any version of the transaction, have become a creditor of [NAME_3] for $10,000,000, or even for the lesser amount specified in schedule 1 to the Deed of Compromise. 220 [NAME_40] contend, on the other hand, that the argument I have just described is misconceived, and that it proceeds on a misconstruction of the provisions of the Deed of Compromise, and of the charge in favour of [NAME_31]. They claim that the phrase as may be required, which appears in the definition of consent in the Deed of Compromise, makes it clear that the Deed of Compromise did not itself require any consent to be obtained from prior security holders, including [NAME_31]. They further say that the charge in favour of [NAME_31] says nothing about whether consent would be required to a document that assigned moneys owed by [NAME_3] from one entity, namely the [NAME_30], to another, namely [NAME_28]. Thus, they say, no property of [NAME_3] was affected by dint of the Deed of Compromise. 221 [NAME_40] further contend that [NAME_26] bear the onus of proving the alleged lack of consent on the part of [NAME_31]. They say that there is no evidence of that lack of consent, and, furthermore, that the available evidence, including the notice for the extraordinary general meeting of [NAME_30], supports an inference that [NAME_31] in fact gave the relevant consent. 222 Those submissions on the part of [NAME_40] carry some weight. I would not be disposed to find that the case of [NAME_26] is strengthened by the arguments they have advanced as to lack of consent on the part of [NAME_31]. However, in the [NAME_15] of the other conclusions I have reached, it is not necessary to express a firm view on that question.

CONCLUSION 223 It follows from the conclusions reached above that I am not persuaded that [NAME_2] became entitled to a beneficial interest in the $2,000,000 of convertible bonds in question. [NAME_26] would therefore be entitled to a declaration that [NAME_3] is the true owner of the convertible bonds. They would also be entitled to an order that the certificates and the transfers signed by [NAME_9] be delivered up to them. The parties should be directed to bring in short minutes of orders giving effect to these reasons, and to make any submissions as they are advised on the question of costs. 224 However, there is a question as to whether the making of such declarations and orders as I have just foreshadowed could bear upon the position of the holders of the remaining convertible bonds. As I have set out above, the schedules provided by [NAME_25] on 3 November 2009 disclosed that $6,000,000 of the original $10,000,000 of convertible bonds had been registered in the name of various other parties. The conclusion I have reached is that, on the evidence presently before the Court, the Impugned Transactions involving the assignment of [NAME_3] and the assignment of the $10,000,000 of convertible bonds from [NAME_3] to [NAME_13] were ineffective. I have also provisionally concluded that, if those transactions were effective, there may be a basis for setting them aside, subject to questions of defences of good faith and bona fide purchaser. Those conclusions could affect the position of the holders of the remaining convertible bonds, although their position is different from, and possibly stronger than, that of [NAME_2], in that they have become registered as the holders of the bonds. 225 In the circumstances, I consider that the appropriate course is to invite the parties to make submissions as to whether there is any basis upon which the holders of the remaining convertible bonds should be invited to be heard as to whether declarations and orders should be made as sought by [NAME_26]. An alternative course would be for [NAME_26] to undertake to the Court not to seek to impugn the title of the registered holders of the remaining bonds, as a condition of making the declarations and orders. 226 I am mindful of the fact that there is no issue presently before the Court as between [NAME_40], on the one hand, and [NAME_46], on the other hand. While orders made in this proceeding will create estoppels as between [NAME_26], on the one hand, and all of the defendants, on the other hand, there has been no submission as to the consequences as between the various defendants. I certify that the preceding two hundred and twenty-six (226) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate: Dated: 30 September 2011

APPENDIX 1

APPENDIX 2