Bluecorp Pty Ltd (in liq), Harris & Wilde v ANZ Executors & Trustee Co Ltd [1995] QCA 487

IN THE COURT OF APPEAL SUPREME COURT OF QUEENSLAND Appeal No. 39 of 1994 Brisbane [Bluecorp P/L v. ANZ Executor s & Trustee Company] BETWEEN: BLUECORP PTY LTD (IN LIQUIDATION) formerly LLOYDS SHIPS HOLDINGS PTY LTD (IN LIQUIDATION) (Plaintiff) First Appellant AND: ERNEST GEORGE HARRIS and WILSON JOSEPH WILDE (Second Plaintiffs) Second Appellants AND: ANZ EXECUTORS & TRUSTEE COMPANY LIMITED (Defendant) Respondent MACROSSAN C.J. FITZGERALD P. DAVIES J.A. Judgment delivered 03/11/1995 REASONS FOR JUDGMENT OF THE CHIEF JUSTICE AND DAVIES J.A., SEPARATE REASONS OF FITZGERALD P., CONCURRING AS TO THE ORDER. APPEAL DISMISSED WITH COSTS TO BE TAXED. CATCHWORDS: COMPANY LAW - contract for construction of vessel - whether court will lift the corporate veil - whether deed in blank is a nullity - whether rescission is a sham - whether trustee had proprietary interest in the vessel - preference periods in relation to bankruptcy and liquidation. TRUSTS - inter-relationship of corporate entities participating in co- operative endeavours - whether vessel held on implied or resulting -- 1 of 60 -- trust. - Shipping Registration Act 1981 (Cth) - Companies Code (Qld.) - Bankruptcy Act 1966 (Cth) Counsel: R.I. Hanger Q.C. with him D. Smith for the Appellant I. Callinan Q.C. with him Ms P. Wolfe for the Respondent Solicitors: Halletts, Solicitors for the Appellant Feez Ruthning for the Respondent Date(s) of Hearing: 5-6 September 1994 -- 2 of 60 -- IN THE COURT OF APPEAL [1995] QCA 487 SUPREME COURT OF QUEENSLAND Appeal No. 39 of 1994 Brisbane Before Macrossan CJ Fitzgerald JA Davies JA [Bluecorp Pty Ltd & Ors v. ANZ] BETWEEN: BLUECORP PTY LTD (IN LIQUIDATION) formerly LLOYDS SHIPS HOLDINGS PTY LTD (IN LIQUIDATION) First Appellant AND: ERNEST GEORGE HARRIS and WILSON JOSEPH WILDE Second Appellants AND: ANZ EXECUTORS & TRUSTEE COMPANY LIMITED Respondent JOINT REASONS FOR JUDGMENT - THE CHIEF JUSTICE & DAVIES JA Judgment delivered 03/11/1995. The facts and issues arising are fully set out in the reasons of the trial judge and in the reasons prepared by the President which we have had the advantage of reading. Their recitals mean that our own references to factual matters can be relatively abridged and in expressing our reasons there will be advantages in endeavouring to isolate as clearly as possible the matters which we find critical. The approach taken to arrive at our conclusion differs from that -- 3 of 60 -- 2 of the President although our conclusion is, like his, that the appeal should be dismissed. In the reasons that follow, it will still be necessary to refer to some factual matters. The first appellant, Bluecorp Pty Ltd (in liquidation), formerly Lloyds Ships Holdings Pty Ltd (in liquidation), ("Lloyds") claimed against the respondent, ANZ Executors & Trustee Company Limited ("ANZ Executors") on the basis that it had converted a vessel, "Mirage III" by taking possession of it and selling it at a time when it was the property of Lloyds. It was accepted by the second appellants, the liquidators of Lloyds, that if they were correct in their primary assertion that Lloyds was the owner of the boat at the time of the sale of it by ANZ Executors, then Lloyds might owe ANZ Executors or some other entity within the Qintex group a money sum equal to or at least related to the purchase price which had earlier been paid to Lloyds by Hover Mirage Pty Ltd ("Hover") for the construction of the boat. That sum had been retained by Lloyds. As to this possibility, Lloyds and its liquidators were not in these proceedings particularly concerned saying, in effect, that ANZ Executors could then, if it wished, prove in the winding up of Lloyds in respect of any debt to which it was entitled and share with the other creditors of Lloyds in any dividends that might be paid. ANZ Executors succeeded below because the trial judge held that as from 20 June 1989 when officers of Lloyds executed a Bill of Sale in respect of the boat (notwithstanding that in important respects, it was left blank) ANZ Executors gained an equitable interest in it and that interest prevailed against the consequences of the winding up of Lloyds which took place on 12 December 1989. It was only after the application for winding up of Lloyds was lodged on 17 November 1989 that the agents of ANZ Executors completed the gaps in the Bill of Sale by filling in that company's name as mortgagee and obtained registration of the boat in its name on 6 December 1989. The trial judge held those actions of completing the document had no adverse consequence for ANZ Executors. He regarded them as amounting to no more than formally establishing the title of ANZ -- 4 of 60 -- 3 Executors that in substantial respects had its root in the equitable entitlement which had existed since the execution of the Bill of Sale on 20 June 1989. The case made on behalf of Lloyds was that it was the owner both in law and in equity on and prior to 20 June 1989 (it was at that date the registered owner) and that the execution of the Bill of Sale in blank on that date produced no legal consequences. If, contrary to that contention, the execution of the document did have some effect upon ownership of the boat, then the further contention was that any disposition made by it did not prevail against the statutory consequences of the subsequent winding up particularly because Lloyds was at that time, to the knowledge of ANZ Executors, as it was alleged, unable to pay its debts. Sections 120 and 122 of the Bankruptcy Act and ss 368 and 451 of the Companies (Queensland) Code were relied upon. It is obvious that property rights in and claims enforceable against the boat on and prior to 20 June 1989 are central issues. Attention can helpfully concentrate upon these matters even though a number of subsidiary arguments were advanced both below, where extended reference to them is made in the reasons of the trial judge, and on the hearing of the appeal, where they are also set out in the President's reasons. In the resolution of the disputed issues it is necessary to note that although a large volume of written material was tendered there were deficiencies in the evidence presented and a full and completely convincing picture was lacking. Only some of the persons involved in events were called as witnesses and there were gaps in the coverage provided by the documents. A further difficulty was that the indications provided by the evidence were in some respects inconsistent. The difficulties that existed were compounded by the fact that the dealings between the parties were not by any means at arms length. Because a number of separate corporate entities were, as became plain enough, pursuing common or parallel objectives and to a large extent, the same or related directing agencies drove and controlled the steps taken, the documentation was permitted to be scantier than might be -- 5 of 60 -- 4 expected for corporate commercial dealings in different circumstances. The inter-relationship of the corporate entities here, the obvious influence of the control extending down from the top of the corporate structure and the extent to which the companies were thought to be participating in a common enterprise with mutual advantages perceived in the various steps taken and plans implemented, all influence the overall picture. It has to be remembered that it is proof of relevant matters only on the probabilities which must be looked for and a greater degree of certainty than is allowed by the incomplete picture presented by the evidence cannot be expected. To this point it will be necessary to return. A number of matters which the judge delayed over out of deference to the arguments presented before him need not, in our view, be restated. In the interests of outlining the important core event, it will be helpful to put to one side these matters which merely cloud appreciation. The outline that remains necessary can be given in largely chronological fashion. A contract for Lloyds to construct and supply the boat to Hover was entered into on 21 June 1985. At that stage Lloyds was an independent company and Hover was a corporation in the Qintex group in a chain of holding companies through Mirage (Operations) Pty Ltd ("Operations") immediately above it up to Qintex Limited at the top. During the period when the boat was under construction the Qintex group bought an interest in Lloyds. This interest was substantial. The trial judge described it as being "at least" 45_ per cent owned indirectly by Qintex Australia Limited. In this calculation he excluded certain other trusts interests indirectly held by Qintex Australia. While the boat was being built, substantial progress payments were made by Hover to Lloyds. Operations paid Hover so that outgoings to Lloyds were effectively recouped. On 31 July 1986 ANZ Executors as trustee of Mirage Resort Trust acquired all but one in the issued units in Port Douglas Resort Trust and Gold Coast Resort Trust. ANZ Executors had been trustee of Mirage Resort Trust since 1976, of Gold Coast Resort Trust since 1985 and of Port -- 6 of 60 -- 5 Douglas Resort Trust since 1986. At all material times until April 1989 when the sale of 49 per cent of those interests, principally to the Japanese investors, took place, Qintex held most of the issued units in Mirage Resort Trust and ANZ executors on behalf of Mirage Resort Trust held most of the units in Gold Coast Resort and Port Douglas Resort. On 25 May 1987 the completed boat was handed over by Lloyds to Hover. On 21 October 1986 Lloyds had applied to register Hover (under its earlier name) as owner, but because the application was not signed by Hover, registration did not result. After the boat was handed over in May 1987, no attempt was made to register Hover as owner. Concern was felt by those controlling Hover and its associates within the group over the sales tax which might become payable on Hover's purchase of the boat and the judge has found that this was a consideration influencing the actions that were subsequently taken. On 3 August 1987 charges over their respective undertaking and assets were executed by Hover in favour of Operations and by Operations in favour of ANZ Executors and these charges were registered with the Australian Securities Commission on 17 September 1987. At this point both Skase and Burden were directors of Qintex Australia Limited and other companies in the group. They were, in particular, directors of both Hover and Operations and Skase was a director of Lloyds. In May and June 1988 the so-called "rescission" of the sale of the ship by Lloyds to Hover took place. Grounds for the purported rescission and Lloyds's acceptance of it were recorded. Hover declared the boat to be unsuitable for the intended purposes of serving the Mirage resort establishments. Lloyds acknowledged that following the rescission it would keep on the existing boat crew that had been engaged while the boat was in the ownership of Hover. On 26 August 1988 application was made to register the boat in the name of Lloyds. On 31 August 1988 Lloyds issued a credit advice in favour of Hover for $3.75m and on the same day Hover notified the Registrar of Ships that it did not have an interest in the boat. This action -- 7 of 60 -- 6 facilitated registration of the boat in the name of Lloyds. In fact, following the purported rescission Lloyds did not ever repay to Hover the purchase price which had been received from it. Registration in the name of Lloyds occurred on 13 September 1988 and thereafter financial records of Lloyds showed that company as the owner of the boat. Lloyds, with the title in its name, mortgaged the boat to Partnership Pacific for $4m on 16 September 1988. The funds thus obtained were passed through to a company in the Qintex group called Queensland Merchant Holdings. After the purported rescission, although attempts were being made to sell the boat, it continued to be operated in and around the resort businesses of the Port Douglas Resort and the Gold Coast Resort with the crew that had been earlier engaged and with the expenses of running it being paid by the Qintex group. Eventually, as it turned out, sales tax also had to be paid. At least $4.8m was sourced from ANZ Executors and paid through the subsidiaries to cover expenses, the sales tax and earlier construction costs. The subscription agreement was entered into and concluded in two parts during March and April of 1989. This and also certain separate dealings involved in negotiations for a management buy-out concentrated some attention on the status of the boat. The negotiations revealed that on the part of those involved who undoubtedly possessed knowledge of Lloyds's affairs, it was not considered that the boat was an asset of Lloyds that would be available on any acquisition of the company by the management. Also, the indications from the subscription agreement were that the boat was an asset of the Qintex companies that were involved in the conduct of the resort businesses. More specifically it was shown as being included in the assets of Port Douglas Resort and Gold Coast Resort. The essential finding of the judge below seems to be that from the time of the execution of the Bill of Sale there was an equitable interest held in the boat by one or other of the companies involved in the conduct of the resorts but he held that, notwithstanding the submission to the -- 8 of 60 -- 7 contrary which had been made below by counsel for ANZ Executors, this equitable interest had not been in existence prior to then. In our view the execution of the Bill of Sale, the terms of the preceding resolution of Lloyds, Lloyds's actions both before and after those events and the absence of any claims upon the boat by Lloyds on its own behalf prior to its winding up, when considered together, enable a conclusion different from that of the trial judge to be sufficiently confidently formed. The resolution of the board of Lloyds was to transfer title to the boat "to such person ... as may be determined". Hili, who was involved in the execution, understood that to be a reference to some entity in the Qintex group. It was to give effect to this plan that the Bill of Sale was executed in blank on 20 June 1989. Although the steps taken at all stages of the subsequent delivery of the executed Bill of Sale were not clear, it appears to have been dealt with in accordance with a certain general intention when it was lodged at the offices of the Mirage Resort at Southport. The fact that no hurried steps were taken to fill in the blanks of the Bill of Sale or otherwise to act upon it is a revealing feature. It was only when the impending winding up of Lloyds began to intrude into calculations that steps were taken to complete it and arrange for registration of the boat to be effected in the name of ANZ Executors. The selection of the entity that should hold the legal title was made by an officer, Grant, in the Mirage Resort office and it did not proceed from any express decision of Lloyds. It is significant that Lloyds lacked interest in this detail. However, when the acts to pass legal title to ANZ Executors were undertaken an entry was made in the books of Lloyds showing its debt as repaid. In late November, blanks in the instrument were filled in and registration occurred on 6 December 1989 not long before the winding up order was made. The application for winding up had been lodged on 17 November 1989 and in association with that an order for the appointment of provisional liquidators was made. The appellants attack the capacity of the Bill of Sale to pass title of any sort because it had -- 9 of 60 -- 8 been executed and delivered in blank but this is not a critical matter. A more persuasive feature is that Lloyds should have thought it appropriate in June 1989 to act as it did in resolving to execute the Bill of Sale without the occurrence of any immediately preceding event which in an ordinary commercial sense would seem to trigger it. The reality which most convincingly accounts for the significant steps that were taken is that the associated companies, including Lloyds, regarded themselves as engaged in a co-operative endeavour in the course of which valuable consideration was passed amongst them and obligations were mutually recognised. There were advantages to all involved seen in this pursuit of common objectives. The entities involved played roles in the overall scheme that were from time to time assigned to them or accepted by them. A common vision was held and this explains the willingness to proceed together. No doubt these features were products of the extent to which control was interlocked. The solution to the questions presently arising is not to be found by looking for a single transaction recorded in writing which by itself convincingly disposes of title either legal or equitable in favour of ANZ Executors or one of the other entities in the Qintex empire. The answer comes rather from looking at the broader range of actions considering it as circumstantial evidence persuasive of an essential reality to be determined on the probabilities. In this task of deducing the implications that arise, the trial judge had no particular advantage. In fact he may, with respect, have made his own task harder by concentrating upon the execution of the Bill of Sale and attributing an effect to it in relative isolation. The fates and fortunes of the participating companies became more interlocked and agendas for actions varied as circumstances changed but certain obligations continued to be acknowledged and one essential matter can be sufficiently perceived. Lloyds was prepared to act as it did in June 1989 and others in the group felt free to require it do so and thereafter all felt either entitled at their leisure to select the actual recipient of the legal title of the boat or else obliged to acknowledge it. -- 10 of 60 -- 9 It can be concluded that it had been accepted well prior to June 1989 that property in the boat was for good consideration being held by Lloyds for Hover with the prospect that those controlling Hover and other corporate entities within the group might substitute one other of those entities. The boat was being held on what should be regarded as an implied or resulting trust. -- 11 of 60 -- 10 Key events were the willingness of Lloyds to transfer legal title with no resistance and minimal fuss in June 1989 and the facts that earlier, after the so-called rescission in May and June of 1988, it had not repaid the purchase price paid by Hover or attempted to do so. It had been relieved of the expenses of operation and had been prepared to have the boat engaged in the business of the resorts. There were no signs of any disposition by Lloyds to regard itself as an independent arbiter of the use to which the boat might be put or to determine a use for it away from the group. The boat had been put and remained in the name of Lloyds simply as a matter of convenience. It is probably unnecessary formally to decide precisely how long the boat had been held by Lloyds on trust. However, the accumulation of the evidence of events after the so called rescission in June 1988 with hindsight shows that this state of affairs probably dates from the very time when, for a purported consideration which it never discharged, it accepted the retransfer of the legal title to it. This was done largely if not completely for reasons connected with the incidence of sales tax. The legal title which was arranged to be held by Lloyds post-June 1988 and the resultant registration in its name on 13 September 1988 did not carry with it the equitable interest in the property. Lloyds should be regarded as holding the equitable interest for Hover or as might be directed by it from and after the events of June 1988. It can be said that at all relevant times Lloyds held the boat on trust at least for Hover if not for it and other related entities. There is no basis upon which the appellants are effectively able to challenge the formal steps which in the period June to December 1989 saw the legal title transferred away from Lloyds and sold on behalf of ANZ Executors since at no relevant time did Lloyds hold the equitable title or substantial proprietary interest in the boat. Although the conclusions expressed represent a variation upon the approach adopted by the judge below, the result which they support conforms with that at which he arrived. -- 12 of 60 -- 11 The appeal should be dismissed with costs. -- 13 of 60 -- 12 IN THE COURT OF APPEAL SUPREME COURT OF QUEENSLAND Appeal No. 39 of 1994 Brisbane Before Macrossan C.J. Fitzgerald P. Davies J.A. [Bluecorp P/L v. ANZ Executors & Trustee Company Limited] BETWEEN: BLUECORP PTY LTD (IN LIQUIDATION) formerly LLOYDS SHIPS HOLDINGS PTY LTD (IN LIQUIDATION) (Plaintiff) First Appellant AND: ERNEST GEORGE HARRIS and WILSON JOSEPH WILDE (Second Plaintiffs) Second Appellants AND: ANZ EXECUTORS & TRUSTEE COMPANY LIMITED (Defendant) Respondent REASONS FOR JUDGMENT - FITZGERALD P. Judgment delivered 03/11/1995 This is an appeal from a judgment delivered in the Trial Division on 7 February 1994, dismissing the appellants' action against the respondent. The action between the parties concerns the proceeds of sale of a vessel, "Mirage III", which was sold by the respondent, with the appellants' consent, for $5,403,567.47 in March 1990. The first appellant, formerly Lloyds Ships Holdings Pty Ltd ("Lloyds Ships"), had been placed in liquidation, and the second appellants had been appointed its liquidators, on an application for winding-up filed on 17 November 1989. At that date, Lloyds Ships was registered as the owner -- 14 of 60 -- 13 of the vessel in the Register of Australia Shipping under the Shipping Registration Act 1981 (Cth). The respondent, which believed it was entitled to the vessel as trustee of the Port Douglas Resort Trust, was unaware of Lloyds Ships' claim to ownership until Lloyds Ships' provisional liquidators tried to seize the vessel. The respondent then completed and signed a bill of sale of the vessel which had been executed by Lloyds Ships on 20 June 1989, and became registered as owner of the vessel on 6 December 1989. Lloyds Ships had built and delivered the vessel, and been paid in full, under a contract dated 21 June 1985 with a company which subsequently became known as Hover Mirage Pty Ltd ("Hover Mirage"). However, the appellants contend that, about three years later, (i) the contract between Lloyds Ships and Hover Mirage was "rescinded" and the vessel returned to Lloyds Ships, which became liable to repay the purchase price to Hover Mirage (but did not do so), or (ii) Lloyds Ships re-acquired the vessel from Hover Mirage and promised to repay the purchase price to Hover Mirage (but did not do so). According to the appellants, the vessel was owned by Lloyds Ships at the commencement of its liquidation, and, on their primary claim, it was still owned by Lloyds Ships when it was subsequently sold by the respondent. Alternatively, the appellants submit that the vessel was owned by Lloyds Ships at the commencement of the winding-up and the transfer of beneficial ownership of the vessel, or a beneficial interest in the vessel, from Lloyds Ships after the commencement of its winding-up was void against the second appellants by virtue of sub-s. 368(1) of the Companies (Queensland) Code. If the vessel was not beneficially owned by Lloyds Ships at the commencement of its winding-up, the appellants submit that Lloyds Ships was the owner at the beginning of the “preference period” prior to the commencement of its winding-up, and that the transfer of the vessel, or an interest in the vessel, from Lloyds Ships in that period was void against the appellants by s. 451 of the Companies (Queensland) Code. As will be seen, there were a number of relatively complex - and somewhat confused - transactions over the period between the original contract between Hover Mirage and Lloyds Ships on 21 June 1985 and the registration of the respondent as owner of the vessel on 6 December 1989; however, it is not in dispute that the respondent is entitled to the proceeds of sale of the vessel as trustee of the Port Douglas Resort Trust unless the appellants make out their claim on one or other of the bases outlined above; that is potentially significant because there were no transactions between Lloyds Ships and the respondent, which derived the basis for its claim to the proceeds of sale of the vessel through Hover Mirage. The dispute arises out of the failure of the business empire of a well-known entrepreneur, -- 15 of 60 -- 14 Mr Christopher Skase, who controlled the “Qintex group” of companies as well as a number of personal or family companies which earned profits from transactions with the Qintex group. Considerable energy was spent by the parties in debating which companies were associated or related within the meaning of the Companies (Queensland) Code, who were the directors, within the Code’s extended definitions (sub-s. 5(1)), of particular companies at various times, and which companies employed which employees at different times. However, as will appear, such legal niceties were lost on Mr Skase and his associates, who were concerned with practical rather than theoretical control. At all material times, the Qintex group was the holder of the majority of the issued units in the Mirage Resorts Trust and, in consequence, controlled Presmarda Limited; the issued shares in Presmarda were held by the unitholders in the Mirage Resorts Trust with voting rights proportional to their respective unitholdings. Presmarda held all issued shares with voting rights and the right to appoint directors in a company later named Mirage (Operations) Pty Ltd; all the issued shares in the other class of shares in Mirage Operations, with rights to all dividends and any return of capital, were held by the respondent as trustee of the Mirage Resorts Trust. Hover Mirage, the company which contracted with Lloyds Ships, was a wholly owned subsidiary of Mirage Operations. The directors of Hover Mirage and Mirage Operations were Skase and other senior executives of the Qintex group. When the contract for the vessel was executed in June 1985, it was intended for use in connection with resorts at the Gold Coast and Port Douglas which the Qintex group either owned or was in the process of acquiring and which it intended to develop. At that time, Lloyds Ships was not connected with Skase or his companies. However, the shares in Lloyds Ships were acquired by Queensland Merchant Holdings and a subsidiary, QMH Finance Pty Ltd, in about March 1986. Those two companies remained the shareholders in Lloyds Ships when it was placed in liquidation in late 1989. There were also two shareholders in Queensland Merchant Holdings. IPH Equities Pty Ltd, a wholly owned subsidiary of Qintex Australia Limited, which was in turn a wholly owned subsidiary of Qintex Limited, held one-third of the issued capital of Queensland Merchant Holdings. The other shareholder, with two-thirds of the issued capital of Queensland Merchant Holdings, was Imbercliff Pty Ltd. There were four shareholders in Imbercliff. IPH Equities held 18% of the issued capital, Jeserac Pty Ltd held 40%, Mr A.C. Miller held 41% and Skase held 1%. Whether or not -- 16 of 60 -- 15 technically an employee of the Qintex group, Miller reported to Peter Burden, the Deputy Chairman of that group, and acted on his instructions. When his employment ended at the end of 1988, Miller left behind a signed transfer of his shares in Imbercliff. It is not clear whether there were only four shareholders in Jeserac - Skase, Burden, R. Capps and G.W. Putland - or whether Messrs J.E. Tabart and R.B. Campbell also had shares. Capps was the Qintex group "Treasurer". Putland was the Qintex group Accountant, the secretary of Qintex Limited and many other companies in the Qintex group and, from 23 June 1988, the secretary of Lloyds Ships. Tabart was a director and General Manager of Mirage Management Limited, a member of the Qintex group which, on 28 November 1986, was appointed to manage the resorts; as General Manager of Mirage Management, Tabart was the Chief Executive of the Qintex group's resort activities. Campbell was another Qintex group senior executive, who later became Finance Director of the Qintex group's resort activities. Prior to 5 March 1986, there had been four directors of Lloyds Ships, none of whom is suggested to have been associated with the Qintex group. Two ceased to be directors that day, a third ceased to be a director in September 1986 and the fourth in November 1986. Meanwhile, on 6 March 1986, three new appointments were made. One new appointee, Borzechi, ceased to be a director in September 1986, and need not be further considered. The other two new directors appointed on 6 March 1986 were Skase and Capps. Skase remained a director until 24 January 1989 and Capps remained a director until 16 June 1989. Further appointments were made to the Board of Lloyds Ships on 4 December 1987. Burden was appointed an alternate for Skase and remained so until Skase ceased to be a director on 24 January 1989. Miller was also appointed on 4 December 1987, and remained a director until his employment ended on 31 December 1988. When Skase resigned as a director on 24 January 1989, he was replaced by V.D. Poncini, an accountant employed by the Qintex group, who remained a director until 16 June 1989. In summary, Skase and other senior executives of the Qintex group were the directors of Lloyds Ships from 6 March 1986 to 16 June 1989. The appellants sought to distance Lloyds Ships from complicity in any impropriety or knowledge of other interests or claims with respect to the vessel by drawing a distinction between the Qintex group and what they referred to as the "QMH Holdings" group, relying on the shareholdings in Queensland Merchant Holdings and the circumstance that the accounts of Queensland Merchant Holdings and its subsidiaries were not included in Qintex group accounts. -- 17 of 60 -- 16 However, as will be seen, all decisions of any present significance were made by, and all actions were taken by, or at the direction of, Skase and other senior Qintex group executives, who were the persons in control of both the Qintex group and Lloyds Ships (if it was not a member of that group). It would be completely unrealistic to proceed on any other basis than that Lloyds Ships was fully aware of all aspects of what occurred and the reasons and objectives, and cooperated fully in what was done: see, for example, Krakowski v. Eurolynx Properties (1995) 69 A.L.J.R. 629 (joint judgment of Brennan, Deane, Gaudron and McHugh JJ. at pp. 639). By 31 July 1986, there were two other trusts, the Gold Coast Resort Trust and the Port Douglas Resort Trust, in addition to the Mirage Resorts Trust. The respondent was trustee of all three trusts, and, until 14 April 1989, all issued units in each of the other trusts were held by or on behalf of the respondent as trustee of the Mirage Resorts Trust. Pursuant to a resolution of unit-holders in the Mirage Resorts Trust on 31 July 1986, the respondent, as trustee of that trust, acquired the Gold Coast and Port Douglas resort sites and associated assets from the Qintex group for $34,442,947.98, being the audited amount "... incurred ... in respect of development of the Gold Coast and Port Douglas resorts to 30th July, 1986 ...". That quotation is from a letter to the respondent dated 31st July, 1986 from the firm of accountants which had carried out the audit; perhaps for revenue reasons, there was no contract or other formal documentation, at least so far as is revealed by the evidence. Although the assets said to be acquired by the respondent included "Progress Claims" in respect of the vessel, there is no evidence that it made any payment for that purpose, or that it was debited in any books of account with the aggregate of the amounts which Hover Mirage had paid to Lloyds Ships. Instead, the books continued to record the respondent as a creditor of Mirage Operations and Mirage Operations as a creditor of Hover Mirage for those amounts. Not long after the acquisition of the resort assets by the respondent, the Qintex group was concerned that sales tax might be payable on the sale of the vessel from Lloyds Ships to Hover Mirage. So much, together with a degree of cynicism towards the respondent's role as trustee, appears from a memorandum which was sent to Skase by Burden, on 22 August 1986. The memorandum stated: "Sales Tax With the passage of the Budget, the sales tax position for the coming twelve months is now known. For the reasons outlined below the provisions of the contract providing for passing of title in the vessel on completion should remain to postpone sales tax liability to the latest point in time. -- 18 of 60 -- 17 Application of Sales Tax The basic proposition regarding luxury ships is that they bear sales tax at 20%. Sales tax is payable on the sale value which is the price at which Lloyds as manufacturer could purchase those vessels from another ship builder in the ordinary course of the business. Only an extremely limited range of exemptions from the basic sales tax can apply. These are, in the case of the motor launch, only 'vessels used for business purposes to carry at least twelve adult passengers on regular and scheduled sight seeing tours.' The Taxation Office views with a great deal of suspicion, all claims for exemption on all luxury vessels of the kind manufactured by Lloyds. It therefore is most reluctant to concede any exemption prior to their use for some time unless it can be very clearly demonstrated that the exemption can apply. One of the factors to be taken into account in assessing the exemption is the design of the vessel. The current design of the motor launch mitigates against it being used to carry at least twelve adult passengers on regular and schedule sight seeing tours. Historically, Lloyds in their sales approach has presented the sales tax position as being that the vessels are prima facie free of sales tax. This is entirely the reverse of the actual situation which is that all of the luxury vessels are subject to sales tax (in the same way as motor vehicles and like items) and only an extremely limited range of exemptions can apply. The [Respondent] Both by virtue of the Memorandum of Capital Raising and the reimbursement which took place on July 31 as part of the settlement the Trustee, [the respondent] is aware of the existence of the motor launch but is not aware of the design of the vessel nor of its relevance to the Mirage Trust and the Resorts. I anticipate that in the course of the next few weeks, the representatives of the [respondent] will wish to inspect the motor launch. Accordingly, it is necessary for us to have established, prior to them making any enquiry the commercial rationale for the vessel being part of the Trust. If the commercial rationale is solely related to the selling of condominiums it will firstly of course impact upon our sales tax arguments, but more importantly potentially will meet the argument from the [respondent] that Lake Helm the Qintex selling arm has the responsibility of selling. We need to remain on the front foot and to keep the initiative in our dealings with the [respondent] and I would therefore propose that we immediately determine to our internal satisfaction, the commercial basis for the Trust purchasing and operating the motor launch and that we take the [respondent] to inspect the motor launch as part of the explanation of the commercial rationale. This approach has been in our favour in relation to the introduction of the total resort projects which were preceded by the tour by the [respondent]." -- 19 of 60 -- 18 At least if the respondent had paid for the “Progress Claims” under the transaction of 31 July 1986, its obvious course thereafter would have been to make all future payments to Lloyds Ships in respect of the vessel. There was no apparent basis for further loans or the further involvement of Mirage Operations in relation to the acquisition of the vessel. However, the course followed was that Hover Mirage paid the further amounts which subsequently became due to Lloyds Ships with moneys borrowed from Mirage Operations, which had in turn borrowed from the respondent; further, these transactions continued to be recorded as loans. On or about 26 May 1987, the vessel was completed and delivered to Hover Mirage, and the balance purchase price was paid to Lloyds Ships and the indemnity against its sales tax liability to which it was contractually entitled was provided. The total paid to that time by Hover Mirage to Lloyds Ships was $4,459,057.00. Subsequently, an additional $348,340.45 was paid for rectification work and modifications. All funds expended by Hover Mirage were borrowed from Mirage Operations, which in turn borrowed from the respondent as trustee of the Mirage Resorts Trust; for revenue and perhaps other commercial reasons, the Mirage Resorts Trust did not engage in trading activities, and at least some assets used in connection with the resorts, including the vessel, were not held in its name or in its possession. Book entries recorded the respondent, as trustee of the Mirage Resorts Trust, as a creditor of Mirage Operations and Mirage Operations as a creditor of Hover Mirage for the total of the amounts paid by Hover Mirage to Lloyds Ships, which was rounded off to $4,807,398.00. Ownership of the vessel would ordinarily have passed from Lloyds Ships to Hover Mirage when the vessel was paid for and delivered to Hover Mirage in May 1987: Sale of Goods Act 1896, ss. 20 and 21; Reid v. Macbeth & Gray [1904] A.C. 223; Behnke v. Bede Shipping Company Ltd [1927] 1 K.B. 649, 659; Devine Shipping Pty Ltd v. “BP Melbourne”, The Owners of the Ship (1994) 3 Tas.R. 456, 465-466; see also McDougall v. Aeromarine of Emsworth Ltd [1958] 1 W.L.R. 1126; Deta Nominees Pty Ltd v. Viscount Plastic Products Pty Ltd [1979] V.R.167. However, the vessel was a ship within the meaning of the Shipping Registration Act (sub- s. 3(1)), and required to be registered (sub-s. 12(1)); the failure to do so was a continuing offence (sub-s. 12(3) and s. 74). A person registered as owner is prima facie entitled to ownership (ss. 19 and 77 and definition of “owner” in sub-s. 3(1)). Part III of the Act deals with “Transfers, -- 20 of 60 -- 19 Transmissions and Mortgages”, but is confined to registered ships (s. 34). By s. 36, a registered ship may only be transferred by a bill of sale made in accordance with the regulations, which must be registered. It has been held that equitable interests (or at least equities) can be created by agreement prior to the execution of the bill of sale (by way of transfer), and that it is the bill of sale, not its subsequent registration, which passes legal title: see The Spirit of the Ocean (1865) 34 L.J. (Ad) 74; 167 E.R. 388; Stapleton v. Hayman (1864) 33 L.J. Ex. 170; 159 E.R. 380 per Martin B.; Batthany v. Bouch (1881) 50 L.J.Q.B. 421, 424; The Union Bank of London v. Lenanton (1878) 3 C.P.D. 243, 247, 249; Burgis v. Constantine [1908] 2 K.B. 484, 502-503; Dalby v. Others (The Bineta) [1967] 1 W.L.R. 121; Kali Boat Building and Repair Pty Ltd v. Motor Fishing Vessel “Bosna” (1977) 19 S.A.S.R. 112, 115; 695113 Ontario Ltd. v. Commissioner of Stamps (1990) 53 S.A.S.R. 274, 277, 280; The Ship “Betty Ott” v. General Bills Ltd [1992] 1 N.Z.L.R. 655, 660. There is nothing in the Shipping Registration Act which deals with the passing of legal or equitable ownership, or equitable interests or equities, in respect of unregistered but registrable ships, and nothing in the Act, or in the authorities dealing with title to registered ships, which suggests that ordinary principles with respect to the sale of goods might not be applicable to unregistered but registrable ships: cp. Behnke; Devine Shipping at pp. 462- 464. The better view appears to be that these include equitable principles. Sutton Sales and Consumer Law in Australia and New Zealand 3 ed 1983 pp. 7ff refers to authorities which support the view that sub-s. 61(2) of the Sale of Goods Act (Qld) does not incorporate the rules of equity, and other decisions which support the view that the rules of equity are included. This latter view finds support in recent authority cited by Trietel The Law of Contract 8 ed. 1991 pp. 334-336, in Goldsmith v. Roger (1962) Lloyds Reports 249, and in Benjamin’s Sale of Goods 4 ed 1992 [1-008]. Sections 45, 46 and 47 (which are in Part III of the Shipping Registration Act), which came into operation when the vessel was later registered (as will be seen, on 13 September 1988, when Lloyds Ships became registered as owner), are also consistent with the operation of ordinary sale of goods principles, including equitable principles, at the time when the vessel was unregistered. Those sections respectively provide: “Powers of disposal by owner 45. The owner of a ship or of a share in a ship has power, subject to this Act and to any rights and powers appearing in the Register to be vested in any other person, absolutely to dispose of the ship or share and to give effectual receipts in respect of the disposal. Trusts not recognized 46. Notice of a trust, express, implied or constructive, shall not be entered in -- 21 of 60 -- 20 the Register or be receivable by the Registrar. Equities not excluded 47. Subject to sections 41, 45 and 46, beneficial interests may be enforced by or against the owner or mortgagee of a ship or of a share in a ship in respect of his interest in the ship or share in the same manner as in respect of any other personal property.” In my opinion, therefore, when the unregistered vessel was delivered to and paid for by Hover Mirage in late May 1987, it became the beneficial owner of the vessel, and perhaps the legal owner: cp. Devine Shipping at p. 461. The Shipping Registration Act does not mean that ownership (or at least beneficial ownership) or an unregistered (but registrable) vessel cannot be transferred, and the authorities indicate that Hover Mirage became the beneficial, if not the legal owner, of the vessel when it paid for it and the vessel was delivered in late May 1987. Further, that beneficial ownership could be asserted against Lloyds Ships if it retained the legal title and, other considerations aside, could still have been asserted against Lloyds Ships after it later became registered as owner. On or about 3 August 1987, Hover Mirage granted a mortgage debenture over its assets in favour of Mirage Operations to secure all existing and future indebtedness, and Mirage Operations likewise executed a mortgage debenture to secure all existing and future indebtedness over its assets in favour of the respondent, as trustee of the Mirage Resorts Trust. It is not necessary to analyse the mortgage debentures in detail. Hover Mirage gave a fixed charge over the vessel, or its interest in the vessel, to Mirage Operations, and Mirage Operations gave a fixed charge over its interest as chargee of the vessel (or Hover Mirage’s interest in the vessel) to the respondent as trustee of the Mirage Resorts Trust; each security prohibited the chargor from disposing of property the subject of a fixed charge without the consent of the chargee. Subject to any applicable statutory provisions, in my opinion, the respondent, as trustee of the Mirage Resorts Trust, obtained an equitable interest in the vessel by the cumulative effect of the charges effected by the mortgage debentures granted by Hover Mirage to Mirage Operations and by Mirage Operations to the respondent: see, generally, Fisher & Lightwood’s Law of Mortgage, 10 ed., pp. 22-25, and France v. Clark (1884) 26 Ch.D. 257 Consistently with sub-s. 200(1)(d) of the Companies (Queensland) Code, the mortgage debentures were registered under the Code in the Register of Company Charges on 17 September -- 22 of 60 -- 21 1987. However they were neither made in accordance with, nor registered under, the Shipping Registration Act: see s. 38. The appellants contended that, in consequence, at least the mortgage debenture from Hover Mirage to Mirage Operations was invalid or ineffectual as a security with respect to the vessel; and, if Mirage Operations acquired no interest in the vessel under its mortgage debenture from Hover Mirage, the respondent, as trustee of the Mirage Resorts Trust, could not have acquired an interest in the vessel under its mortgage debenture from Mirage Operations. As best as I understand it, the basis of the appellants’ submission was that a vessel required to be registered is to be equated to a registered ship, and hence can only be made the subject of a security in accordance with s. 38 of the Shipping Registration Act. If that were correct, sub-s. 200(1)(d) of the Companies (Queensland) Code might have been inconsistent with the Shipping Registration Act within the meaning of s. 109 of the Constitution: see also s. 79 of the Shipping Registration Act. However, the appellants’ submission conflicts with s. 34 of the Shipping Registration Act and the authorities, discussed above, which indicate that the Shipping Registration Act effectively leaves the general law applicable in relation to dealings with unregistered ships. It is not clear whether the appellants also intended to argue that their proposition that a ship required to be registered is to be equated to a registered ship was also intended to apply to sub-s. 200(1)(d) of the Companies (Queensland) Code. If so, neither the language nor any evident policy of the Code provides a clue which might explain why sub-s. 200(1)(d) of the Code should be distorted in that manner. In any event, so far as the latter provision is concerned, both mortgage debentures were in fact registered in the Register of Company Charges; the legitimacy or illegitimacy, and effectiveness or ineffectiveness, of those registrations neither adds to (cp. Travinto Nominees Pty Ltd v. Vlattas (1973) 129 C.L.R. 1) nor detracts from (cp. Sykes, The Law of Securities, 4 ed., p. 948) the validity or efficacy of those securities between the parties to them or between the respondent and Lloyds Ships as transferee with notice of the vessel from Hover Mirage. Registration can also be material to notice, but that might be so irrespective of whether or not registration was permissible; however, in the circumstances of this case, there is no need to resort to imputed knowledge: actual knowledge was conclusively established. The respondent argued that, at least by this point in time, it was the beneficial owner of the vessel, and Hover Mirage was a constructive trustee of the vessel, or stood in some other fiduciary relationship with the respondent with respect to the vessel, with the consequence that -- 23 of 60 -- 22 it could not later be transferred from Hover Mirage to Lloyds Ships without the respondent’s informed consent. Reliance was placed upon the mortgage debentures, the respondent’s provision (through Mirage Operations) of all money used by Hover Mirage to acquire the vessel, and the respondent’s shareholding in Mirage Operations and the rights attached to those shares, and Mirage Operations’ ownership of all the issued shares in Hover Mirage. The trial judge found against the respondent on this issue, and I will assume against the respondent that he was correct. Indeed, as will emerge, it would not really matter if Hover Mirage had not obtained ownership, or at least beneficial ownership of the vessel, but ownership had remained with Lloyds Ships. So far as is presently material, little further occurred until about April 1988, when the Qintex Group commenced to privatise the Mirage Resorts Trust by offering to acquire all issued units which it did not hold. It is unnecessary for present purposes to trace the history of that exercise, which was successful. The Qintex group started with a majority of the issued units and, by the end of March 1989, it owned all but a small percentage of the units. Throughout that period, the respondent, as trustee of the Mirage Resorts Trust, remained the sole unitholder in the Gold Coast Resort Trust and the Port Douglas Resort Trust, of which it was also trustee. By April 1988, a proposal to sell the vessel, in part, at least, driven by concern about the sales tax liability attracted by the original transaction between Hover Mirage and Lloyds Ships, was also under consideration. Sales tax advice had been sought from a firm of accountants, who wrote the following letter dated 3 February 1988 to Qintex Limited, addressed to Miller: "... 3 February 1988 .. MIRAGE III: SALES TAX We refer to your recent discussion with Tony Stolarek in relation to the latest developments with the Mirage III. As requested, we set out our comments below. BACKGROUND We understand that, while title to the vessel has passed, the Mirage Trust group is examining the possibility of returning the vessel to Lloyds because of problems with it. In particular, the group is claiming that it is not fit for its intended use. If the group were to return it, Lloyds are in a position to sell it to a non-resident. Alternatively, the group may on-sell the vessel directly to the non-resident. The -- 24 of 60 -- 23 group has requested our advice as to the sales tax implications of these proposals. CONCLUSION Provided that the vessel is properly returnable at law, then we believe that such return to Lloyds would effectively negate any sales tax liability. This is because it would qualify as ‘Goods Returned’. We have discussed this with the Tax Office and to be satisfied that sales tax will not be payable, they will require a letter setting out the problems that have occurred and the reasons why the vessel is being returned. Accordingly, we will work with you in drafting an appropriate letter to the Tax Office. While an on-sale to a non-resident by the Mirage Trust group may also negate any current sales tax liability, we do not believe that, practically speaking, this would be as acceptable to the Tax Office. Accordingly, we do not recommend this course of action. DISCUSSION As title to Mirage III has passed, the taxing point has arisen for sales tax purposes. Accordingly, sales tax would be payable unless it can be established that the vessel is to be used for an exempt purpose. If the vessel is to be returned to Lloyds, this will not necessarily allow such an exempt use to be established. However, where goods are returned from a customer in line with a specific contractual right, a vendor is entitled to claim a refund for any sales tax previously paid in respect of these goods. Of course, if no tax has yet been paid, this will effectively negate any tax payable. The return can be because of any express or implied condition in the contract of sale. Accordingly, the contract should be reviewed in order to ascertain that there is a right to return the vessel. Any guarantee is relevant. Even if the contract does not contain any express terms, there may be implied terms under common law or Sales of Goods legislation. We refer specifically to a seller's duty to supply goods fit for their purpose and of a merchantable quality. Accordingly, provided the goods are properly returnable, no sales tax should now be payable. We have contacted the Tax Office to obtain confirmation of this. Unfortunately, the officer dealing with Mirage III is away. The individual we spoke to was not prepared to comment unless we had something in writing. Accordingly, we should work together to draft an appropriate letter outlining the facts and the reasons why the vessel is properly returnable. Please contact Tony Stolarek or me to discuss this matter further." On 15 February 1988, Miller sent the following memorandum to Tabart: -- 25 of 60 -- 24 "If Mirage III is to be sold at the best possible price in todays market we shall need your details of capital cost and operating cost. We have at least two enquiries for purchase of similar boats for immediate delivery. In order to finalise the purchase perhaps Hover Mirage could advise the use requirements for Mirage III so that any sale has appropriate charter back arrangements." On 6 April 1988, the captain of the vessel, B. McCabe, sent Skase a memorandum complaining about Lloyds Ships. Skase sent it on to D. Cranwell, the Manager of Hover Mirage, demanding a report and noting: "remember, we own Lloyds". Another memorandum went from Miller to Skase on 27 April 1988 as follows: "The capital cost of Mirage III excluding possible sales tax and capitalised operating costs, but including repairs and additional works since hand over date, is $4,902,264. A brokerage of ten percent is usually paid and allowance must be made for this in the selling price. The boat has two future charters arranged. A one day charter on 2 May for Expo and a two week charter in June. A third charter has been proposed but not confirmed, for two weeks in August. None of these is for Qintex corporate use. I suggest a selling price of $5,500,000 including commission as a target for this divestment. The price will be based on delivery ‘as is where is’ in Australia. The objective would be to have the boat contracted by the end of July." On 6 May 1988, Putland sent the following memorandum to Skase, Tabart, Miller and a fourth person, Mr A. Dick, who was the Finance Director of Mirage Management Limited: "Our investment in Mirage III can be calculated as follows : $'000 Construction cost 4,900 Sales Tax liability - primary 1,000 ------- 5,900 Sales Tax Penalties 600 Operating Losses 350 ------ 6,850 ===== To break even after sales commission, we would need a sale price of approximately $7.4M. -- 26 of 60 -- 25 The advice from Arthur Andersen is that we must expect to be assessed for sales tax on Mirage III. Our major problem is the public uses to which Mirage III has been put, viz. charters, Australian Television Network launching, current affairs program broadcasting, etc. which do not qualify for tax exemption. Our chances are about 50/50 that no assessment will be issued. We are, of course, preparing our case that no sales tax is payable and the procedure recommended by Arthur Andersen is as follows : (a) immediately negotiate with Lloyds for the return of the boat and claim a total credit/refund of the purchase price citing the reasons for the return as: - non compliance with construction specifications, - late delivery, - after delivery numerous defects and substantial delay in rectification of such defects, - boat not of sufficient standard to undertake anticipated operations, - poor quality workmanship, (b) Mirage III to become the property of Lloyds with no use/access to the boat by Mirage or Qintex Group; (c) Lloyds to commence and handle the sale program immediately for Mirage III; (d) Sale must be to an overseas owner in order for Lloyds to avoid any sales tax liability; (e) The boat to be taken out of Australian waters at the earliest possible time so as to assist in demonstrating an ‘overseas sale’; (f) MRT will need to cancel existing charters which have been booked; (g) Any employees of Mirage III to cease being employed by MRT - if required, they could be re-employed by Lloyds; (h) If any items on/in Mirage III have been paid for by MRT, then they are to be sold to Lloyds." Miller sent the following memorandum dated 9 May 1988 to Putland, with copies to Skase, Tabart and Dick: "Your memo 6 May 1988 refers:- (a) A sale price of A$7.4 M is unachievable on a boat of this size and speed. -- 27 of 60 -- 26 (b) It is not realistic to include matters such as sales tax penalties and operating losses as part of a capital 'investment'. The penalty was avoidable and the losses arose from day to day operations. (c) A realistic international market price for the boat is US$4M (A$5.2M) ‘as is - where is’. The quality of outfit on the boat is such as to justify a higher asking price hence the target figure of A$5.5M. (d) The documentation of the return of Mirage III to Lloyds must be handled carefully, firstly to prevent the sales tax liability arising but secondly, to avoid any bad effect on the divestment of Lloyds and Mirage III. (e) The boat will sell more rapidly if repositioned in Ford Lauderdale." That memorandum indicates that "divestment" was contemplated of not only the vessel but also Lloyds Ships, which was encountering trading difficulties. (Notes on that memorandum, apparently in Skase's handwriting, include a direction to leave the vessel in Australia and send a brochure and photos to Fort Lauderdale.) Miller responded with the following memorandum dated 12 May 1988 to Skase with copies to Burden, Putland, Tabart and Dick: "The sooner we can relocate this boat to Fort Lauderdale, the better. Prospective international buyers, American, European or Japanese use Florida based brokers and converge on Fort Lauderdale to view and decide on the boat they like best. Such a buyer, confronted with visiting Brisbane to view one yacht and Fort Lauderdale to view five, will usually choose Fort Lauderdale which leaves Mirage III on the outer. The Sales Tax position is such that she should be exported as soon as possible." On 17 May 1988, Miller sent a further memorandum, this time to Burden, with copies to Capps, Putland and Dick: "Further to my memo to the Chairman last Friday, Adrian Newport sent the following note today. Last year the shipyard's enquiry rate rose while Bravo Papa IV was available for viewing by prospective buyers. Mirage III is a much better boat and if repositioned to Fort Lauderdale immediately will be able to sell more boats for Lloyds and so be able to sell Lloyds more effectively. -- 28 of 60 -- 27 Lloyds comes under your purview so it may be valuable to bring these matters to the Chairman's attention." Adrian Newport was the General Manager of Lloyds Ships, and reported to Miller and acted on his instructions. The plan to return the vessel to Lloyds Ships for it to sell it was put into place at the end of May 1988. A letter dated 31 May 1988, on Mirage Operations letterhead, signed on behalf of Hover Mirage by, it seems, Burden, met with an immediate co-operative response from Lloyds Ships on 2 June. The respective letters were in the following terms: "... 31st May, 1988 ... Re: MIRAGE III The Directors of the Company confirm their discussions with you that, after careful consideration, they have decided they are unable to accept delivery of Mirage III since it has in all its trials proved unfit for the specific purposes of Mirage Resorts Trust. In particular it has become clear over the period of the trials that the craft fails to meet the high standards required for operation as part of the facilities provided at the Mirage Resorts. The craft was originally received by us for trials on 26th May, 1987. It has yet to meet the standards required by us and accordingly, it has been impossible to accept delivery and promote it as being available for service. Continual faults have arisen in relation to: a) Vibration b) Airconditioning c) Decking d) Satellite Communication e) Blistering and weeping of paintwork f) Water ingress into such areas as cabins, decks and bulwarks g) Failure of engine room plumbing as a direct result of incorrect installation of anodes h) Suspect shafting and alignment. The craft has spent a considerable amount of time in the last year back at Lloyds for rectification works. The Directors request that Lloyds issue a credit note for the progress claims paid -- 29 of 60 -- 28 immediately. The Directors are prepared to discuss settlement details together with payment for other items on the craft not purchased through Lloyds. To finalise the above matter, please contact Mr. Alan Dick, Finance Director of Mirage Management Limited or, in his absence, Mr. Michael Madden. We will pay the crew through to the end of July, and will make them available to you to enable you to appropriately crew the vessel and display it to its best advantage to prospective purchasers." and: "... 2nd June, 1988 ... Re: MIRAGE III We acknowledge your letter and your decision not to accept delivery of the vessel for the reasons outlined in your letter. We will separately discuss with Mr. Alan Dick or Mr. Michael Madden the arrangements for refund of the progress claims paid by you. We confirm that we are prepared to take over the present crew to enable us to have a full crew available to display the vessel to the best advantage to prospective purchasers." On the same day, 2 June 1988, a memorandum went from Skase to Tabart, with copies to Burden, Capps, Putland, Miller, Dick, Newport and McCabe: "1. Mirage Resorts Trust has returned Mirage III to the Precision-Lloyds Marine Division, due to deficiencies in construction relative to original specification. 2. The Board of Mirage Resorts Trust has instructed the Precision-Lloyds Marine Division to seek a buyer of Mirage III and, if necessary, to reimburse Mirage Resorts Trust for any losses due to these deficiencies in construction. 3. Any bona fide buyers, from whatever source, division or company, are to be referred to Mr. John Tabart, who will be the sole arbiter as to whether the buyers are bona fide or not. 4. Those potential buyers who are considered to be bona fide, will have the -- 30 of 60 -- 29 opportunity to inspect Mirage III and to undertake any necessary sea trials. 5. Any inspection of Mirage III, whether on the precinct of the Precision- Lloyds Marine Division in Brisbane, or anywhere else, are to be conducted solely and exclusively by and under the authority of Captain Brook McCabe and his crew. Other members of the Precision-Lloyds Marine Division management and staff are not to participate unless specifically invited by the Captain. Mirage III will not leave Australian shores while the search for a potential buyer continues, however, Mr Tabart may elect to despatch sales information to Fort Lauderdale or anywhere else for that matter." Further memoranda were sent by Tabart on 16 June 1988. One was sent to McCabe, with copies to Skase, Burden, Putland, Miller, and Newport and stated: "Please assist Adrian in every way to present the craft in its usual pristine manner. Adrian is on instructions from the directors of Mirage Resorts Trust, to act as the vendor on their behalf. As you are aware from Items 1. and 2. of the attached memo, the boat has been returned to Precision/Lloyds for their sale per direction. Please assist Adrian in every way to have the sales presentation done the way he sees best." The other was sent to Newport, with copies to Skase, Burden, Putland, Miller and McCabe and stated: "RE: MIRAGE III Solomon Lew, the prominent Melbourne businessman, has indicated via Brook McCabe that he is an interested potential buyer of Mirage III. He will be visiting the Gold Coast this weekend and Brook is arranging for Mirage III to be at the Gold Coast on Sunday. Would you please be available and co-ordinate with Brook so that you can act as principal salesperson in the negotiations. The terms of sale, as you are aware, are as follows: 1. Final end sales price after all costs $5.5 million. 2. Availability of the craft is after calendar 88 and specifically following the Expo period and the international opening of the Mirage Resorts, -- 31 of 60 -- 30 scheduled for August 29/30/31/1st September, 1988. The vessel may be available to the purchaser prior to the period for specific times that he may elect if they do not conflict with our program (to be confirmed with Christopher Skase). Attached is a memorandum of 2nd June from Christopher Skase regarding sale instructions." Lloyds Ships’ 1987-1988 financial year concluded on 31 July 1988. By then, the vessel was in the possession of Lloyds Ships, as the respondent was aware. However, the respondent had no reason to suspect the financial viability of Lloyds Ships or that material information was being withheld from it. It believed, from what it had been informed by the Qintex group, that Lloyds Ships had the vessel on consignment, i.e., to sell on behalf of Hover Mirage. It was principally interested in having Lloyds Ships effect a sale of the vessel at a satisfactory price and pay the money to Hover Mirage. It probably had less reason for concern than might otherwise have been the case because the Qintex group was in the process of privatising the Mirage Resorts Trust. When the vessel had not been sold by the end of Lloyds Ships' financial year, additional factors came into consideration. Lloyds Ships had been losing large sums of money, and had liquidity problems; indeed, as its accounts for that financial year subsequently indicated, it was insolvent, with a large excess of liabilities over assets. Although the evidence does not establish when that first became known to Skase and his executives, it must have been about this time: see the appellants’ Second Further Amended Statement of Claim, para. 3A. It was decided to obtain further advice concerning sales tax, and to borrow a large sum from Partnership Pacific Limited on the security of the vessel. The following letter of advice, dated 12 August 1988 and addressed to Putland and Craig Pratt, Capps' assistant, was received from a firm of solicitors: "August 12, 1988 re: LLOYD'S SHIPS HOLDINGS PTY. LTD., [HOVER MIRAGE] AND MIRAGE III We refer to the writer's conference with you this morning in relation to your proposal that [Hover Mirage] should return Mirage III to Lloyd's Ships Holdings (‘Lloyd's’). It is not necessary for us to set out the facts which have led to this decision, other than to say that the principal reason behind your proposal is that you believe that -- 32 of 60 -- 31 by doing so, the prospects of establishing that the exemption under Item 19(1A) of Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1935 (‘the Exemptions Act’) should not thereby be impaired. You are concerned that if the vessel is not returned to Lloyd's, but rather onsold by [Hover Mirage], those prospects (which are regarded as slim) will be reduced to nil. As against that, we have asked you to consider the suggestion that [Hover Mirage] should not return title in Mirage III to Lloyd's, but should, in the atmosphere of a dispute between the parties, onsell the vessel itself. The question as to whether [Hover Mirage] should re-invest title in Lloyd's raises, in essence, three considerations:- 1. The impact of the return of title, on the original exemption claimed by [Hover Mirage]/Lloyd's; 2. A refund for the return of defective goods; and 3. The taxability of the on-sale transaction. Of course each consideration impacts on the others but it might assist if we set out an examination of each of them in turn. 1. IMPACT ON EXEMPTION CLAIM 1.1 The primary concern is that the Commissioner will view, with an extremely jaundiced eye, any on-sale of Mirage III by [Hover Mirage], in such a short space of time after the vessel first came into the possession of [Hover Mirage]. 1.2 It is thought that if [Hover Mirage] returns the vessel to Lloyd's, that will take some pressure off the possibility that the Commissioner will, when assessing the claim for exemption under Item 119(1A), form the view that an on-sale was always intended by Lloyd's and [Hover Mirage] and that the claim for exemption is accordingly wholly bad. 1.3 We do not disagree with that proposition, but we raise for your consideration the prospect of [Hover Mirage] and Lloyd's negotiating an agreement whereby [Hover Mirage] will on-sell the vessel and then seek to recoup any loss from Lloyd’s. 1.4 Our impression is that the Commissioner would not view either of those methods of disposing of the vessel materially differently. The other considerations therefore fall for decision. 2. REFUND FOR RETURN OF DEFECTIVE GOODS -- 33 of 60 -- 32 2.1 There is some provision in the sales tax legislation for obtaining a refund of sales tax paid, when defective goods are returned. 2.2 However, none of the provisions (Section 11B of the Sales Tax Assessment Act (No.5), Regulation 48(1)(m) of the Sales Tax Regulations, and Exemption Item 114(1) of Schedule 1 to the Exemptions Act) fits the present case. The goods to be replaced (Mirage III itself) were not imported and will not be replaced by another vessel (or at least not necessarily so for the time being). 2.3 Accordingly, for the purposes of your proposal, it does not matter whether [Hover Mirage] passes title back to Lloyd's, or whether [Hover Mirage] itself on-sells the vessel. The fact is that a refund is not available under the legislation. 3. TAXABILITY OF THE ON-SALE 3.1 If [Hover Mirage] on-sells the vessel itself, no tax will be payable. [Hover Mirage] is itself neither a manufacturer, importer or wholesaler, and nor will it be selling goods by retail for the purpose of the broader application of the legislation. 3.2 Accordingly, if [Hover Mirage] on-sells the vessel, there is no chance that such an on-sale will be subject to sales tax. 3.3 On the other hand, Lloyd's may well be assessed to a liability for sales tax in respect of the on-sale. It is true that there are numerous provisions in the legislation (principally in sub-regulation 48(1), but also in regulation 49) designed to avoid double taxation on goods. Unfortunately, none of the provisions directly fits the case here and so there is a prospect that Lloyd's will incur sales tax on its on-sale. 3.4 The only way to ensure that Lloyd's does not incur such a liability is to ensure that the on-sale comes within an unarguable exemption; and for present purposes, that means that Lloyd's must export the vessel (and thereby gain exemption under Item 110 of Schedule 1 to the Exemptions Act). 3.5 Providing that can certainly be done, there is accordingly no risk in [Hover Mirage] passing title back to Lloyd's. 4. SUMMARY 4.1 There is some difficulty in ensuring that the on-sale of Mirage III is tax- free. Either [Hover Mirage] will sell the vessel itself, or Lloyd's will on-sell the vessel by way of export. 4.2 The real difficulty is in deciding the impact of the manner of the on-sale on the present tax liability of Lloyd’s. -- 34 of 60 -- 33 4.3 That tax liability depends solely on the prospects of success of the present exemption claim for regular scheduled sightseeing tours under Item 119(1A). Since the on-sale is revenue neutral, and since to return the vessel to Lloyd's will not either attract a sale tax liability in [Hover Mirage], or allow Lloyd's to claim a refund of the original sales tax, then in that sense, the question of return of the vessel is also revenue neutral. 4.4 Accordingly, the only remaining factor to consider is the appearance of the transaction. We understand that you have direct information from sales tax officers to the effect that if the vessel is on-sold by [Hover Mirage], that will practically ensure that the exemption is disallowed. The writer initially had some reluctance but in view of: . The apparent availability of the export exemption for the on-sale; . The information from the sales tax officers; and . The fact that all other considerations are revenue neutral - we see no difficulty in [Hover Mirage] revesting title in Lloyd's by agreement. 4.5 Although the facility from Partnership Pacific Limited will be for working capital, it would not be a difficult matter for the Commissioner to ascertain that the purpose of the loan was to fund the refund of price from Lloyd's to [Hover Mirage]. Nonetheless, because there seemed to be no adverse sales tax implications in returning title to Lloyd's, it would appear safe to do so. 4.6 For theatrical purposes, however, the actual revesting of title should follow some reasonably detailed discussions between [Hover Mirage](by Mr. Cranwell) and Lloyd's (by Mr. Newport). Every appearance of an arm's length return should be given. ..." Although the date is unclear, it seems likely that an application for a loan was made to Partnership Pacific by Lloyds Ships at about that time. The "Proposal for Bridging Facility Mirage III", which Pratt prepared, probably in late July or early August 1988, presented an unduly favourable picture of Lloyds Ships' financial position, indicated that the loan would only be for a short period (less than a year) in which it was expected the vessel would be sold, informed Partnership Pacific that the shareholders in the companies holding shares in Queensland Merchant Holdings were Qintex "senior executives", and provided for Qintex Australia, to "guarantee [Partnership Pacific] is repaid in full". Sections "1. Overview" and "4. The Credit Issues" of the proposal were as follows: " 1. OVERVIEW -- 35 of 60 -- 34 In May 1987, Lloyds Ships Holdings Pty. Ltd. (‘LSH’) completed construction of the luxury motor yacht Mirage III for the Mirage Resorts Trust (‘MRT’). Since completion, the vessel has been utilised for promotion of the Mirage Resorts and for general charter while simultaneously marketing the LSH product to this ‘five- star’ market. The vessel has now served its marketing purpose. Mirage is commencing its second phase of condominiums in August, and is constructing 54, twice its original projection due to the sellout of all 102 of the currently completed condominiums and all but 4 of the as-yet-unbuilt 54 of Phase II. Mirage needs to allocate working capital for this very profitable component. Accordingly, MRT have arranged to hand the vessel back to Lloyds Ships for resale to a third party. To assist in purchasing the vessel LSH will require a bridging facility until the vessel is sold. It is this facility which forms the basis of this proposal. NOTE: Sale of the vessel by Lloyds rather than Mirage Resorts Trust results in favourable tax consequences." " 4. THE CREDIT ISSUES A. Servicing of the Debt Over the past eighteen months, LSH has undergone major changes in management, production and marketing as well as the movement of the shipyard itself. These changes were necessary in order to rectify the company's poor profit performance and were finalised early in 1988. Since that time, LSH has been cash neutral which is a significant improvement on past performance. It will, however, take some time to demonstrate further improvement in terms of profit and cashflow as the shipyard only completes 2-3 vessels a year and meaningful comparisons cannot be made over a short time frame. In order to avoid the lender becoming embroiled in internal projections which cannot be meaningfully compared to historical performances, we have structured this proposal so that interest is payable in advance. There is, therefore, no reliance on LSH to service the debt as interest will be paid upon drawdown and at commencement of the extension period if this period is utilised. B. Primary Takeout The prime source of takeout for the lender is obviously the sale of the vessel. The ability to sell the vessel within the proposed time frame will be influenced by marketing and price. -- 36 of 60 -- 35 i) Marketing - LSH has had ten years experience in marketing luxury vessels to the world market. Over this time it has built up a large network of contacts including both vessel brokers and customers. Its vessels are therefore well known throughout the world. An example of some of the vessels sold over recent years is attached as Schedule 1. In addition to its office in Brisbane, LSH have an office in Fort Lauderdale, Florida - the hub of the world's luxury vessel market and home to many substantial vessels and their owners. LSH also have a sister company in Perth, Precision Marine, with its own sales team which is marketing Mirage III to its client base. The location of these three offices, LSH track record in this market and the distribution of sales material though vessel brokers all combine to ensure Mirage III will receive maximum exposure to potential buyers. The success of this combination has already resulted in two firm offers for the vessel. These are discussed further in the following section. In an effort to keep the lender fully informed on the progress of the marketing programme, we will provide a monthly report on inquiries and negotiations. ii) Price - At the completion of construction in May 1987, Mirage III had cost $5.6 million to build. To construct and fitout the same vessel today would cost $6.3 million. Whilst we realise that 'cost' is only one indication of an item's value, our belief that the vessel is worth at least $5.8 million is further substantiated by the fact that we presently have a written offer on the vessel for $6.1 million. This price includes brokerage of $0.3 million. The offer is from Noel Carrol of BWN Industries in Melbourne. He has in fact placed an order with LSH for another vessel which is conditional upon him purchasing Mirage III. The latter vessel being used until his new vessel is completed in eighteen months time. LSH have allowed Carrol a 30-day ‘cooling-off’ period in respect of this contract. In addition to Carrol's offer, we have received an initial approach from Solomon Lew whose first offer was $4.7 million. We have advised Lew that we have no intention to sell at this price and will negotiate further with him. After giving due consideration to the vessel's historical cost and replacement cost and the firm offer we presently have, it can only be concluded that $5.8 million is a fair market price. It must also be concluded that on the basis of Solomon Lew's offer, the price of the vessel on a 'fire-sale' basis in approximately $5.0 million. -- 37 of 60 -- 36 In summary, it is our strong belief that LSH will dispose of the vessel for the required price and within the stated time frame for the following reasons: - the fact that two offers have been received within the first month of marketing and that one is at our required price; - experience has indicated that 9-12 months is an adequate period to sell a vessel for its fair price (we could certainly sell it earlier but at a discount to its true value); - LSH's vast experience in this market and its offices in Perth and Fort Lauderdale will ensure that should the present two offers fall through then additional potential buyers will be readily sourced. C. Secondary Takeout To further secure the lender Qintex Australia Limited's ('QAL') are prepared to underwrite the sale of the vessel for the amount of the lender's exposure. Therefore, should the vessel remain unsold at 30 July 1989, QAL will guarantee the lender is repaid in full." On 19 August 1988, in a letter to Hover Mirage signed on its behalf by Putland, Lloyds Ships acknowledged that it owed Hover Mirage $4,807,398.00 as at 30 June 1988. On 25 August 1988, entries, purporting to be effective from 30 June 1988, were made in the books of Hover Mirage removing the vessel as an asset and creating a debt from Lloyds Ships to Hover Mirage. Later, this position was reflected in the accounts of Hover Mirage for the year ended 30 June 1988. On 31 August, 1988, Lloyds Ships sent a further, contradictory letter, signed by Newport, to Hover Mirage stating that the "credit in respect of recision" of the contract between them was $3,750,057.55; however, that letter has been substantially ignored. On the same day, 31 August 1988, a document addressed to "The Registrar of Ships Canberra" was signed under the common seal of Hover Mirage with, it seems, Burden as a signatory. The document stated: "August 31, 1988 .... re: REGISTRATION OF "MIRAGE III" We refer to the application for registration of the above vessel lodged by Lloyd's Ships Holdings Pty. Ltd. -- 38 of 60 -- 37 We hereby advise and confirm that Hover Mirage Pty. Ltd. ... has no interest of any kind whatsoever in the Vessel known as ‘Mirage III’." The insurance policies relating to the vessel were also transferred to Lloyds Ships that day. On 6 September 1988, another employee, Masters, who was responsible to Burden and Putland for the financial position of Lloyds Ships, and conveyed instructions from Burden and Putland to employees of Lloyds Ships, sent the following memorandum to Putland, with a copy to Burden: "1. The situation is developing whereby Lloyds is quickly going to consume a large amount of cash over the six month period September 1988 to February 1989. As I indicated in my review of the three year budget, it was an optimistic budget with the major problem being a lack of marketing direction. The budget indicated a cash funding requirement of $l.3m in November 1989. I advised it was also likely that cash needs were understated in September/October 1988. 2. I have reviewed the cash requirements again and consider that if the business continues to build V17 and V18 as ‘spec’ vessels, the cash requirements of Lloyds will be $2m up until November at best, and $7m if contracts are not received within six months. 3. ‘Spec’ vessel construction is not an unusual feature of the industry and Lloyds' largest competitors all ‘spec’ build. If the company stopped production and lost its workforce, there would be little to offer a buyer. Cheap financing alternatives are available but are not used. If we remain in control, we should implement them. 4. Assuming Qintex's strategy is still to dispose of the yards, cut its losses and maximise cash inflow, I considered the alternatives: (a) Close the business and realise what is left. (b) Further trade-on for short term to establish track record. (c) Obtain a purchaser for the complete business. (d) Sale and lease back of property and divest business intact. 5. My opinion of the likely outcome of the alternatives is as follows: (a) The land and buildings, plant and equipment are greatly overvalued in the books. Independent valuations show possible realisation as follows: Book Value Market Value Realisable -- 39 of 60 -- 38 (excl interco) Total Assets 10,786 5,349 4,326 Total Liabilities 19,857 1,757 1,757 -------- ------- ------ Surplus/(Deficiency) (9,071) 3,592 2,569 -------- -------- ------ Contingent Liabilities - Watpac, Mystique, Sales Tax Warranties : $(1,676) ---------- (Assume land and buildings recover valuation - $3.585; plant and equipment - $300K; debtors 80% of book value; inventories 50%; sundry debtors and prepayments - nil). (b) Further trade-on should be considered warily in view of past losses and cash flow requirements. I consider the business has improved greatly in the past six months to a break-even position, but this was with the benefit of contracts in hand. However, the past losses do not encourage further trading: 1987 - $(2.477)m 1988 - $(2.481)m Continued trading is dependent upon the present general manager to hold it together. I consider he has done a great job in containing costs, increasing production efficiency but he has lean skills in marketing and needs support in financial analysis and planning. He does not seem to provide for the ‘downside’ in planning. Qintex are greatly exposed if he leaves at short notice. The business will be a considerable drain on funds unless other forms of finance are employed. The EFIC financing to off-shore purchasers should be utilised in any trade-on to decrease any immediate call on funds from Qintex. (c) The past losses, lack of an order book and net asset deficiency (excluding intercompany and land and buildings) make it extremely difficult to sell. An MBO seems the only possibility, but I understand the four financiers approached by Newport have turned it down. It is an unattractive proposition. -- 40 of 60 -- 39 No ready buyers are available that I know of, except MBO. (d) The sale and leaseback of the land and buildings is a mechanism to drop the funds required by an MBO to a working capital requirement only (around $2-2.5m). A property investor would need convincing of the viability of its prospective tenant. Putting an MBO into place on such terms could realise the funds available under alternative (a) immediately. It could also allow a benefit to accrue to Qintex by enabling further trading by the MBO and, if successful, repay further funds to Qintex up to a likely price of $4m. A trade-on under an MBO in this manner would still require Qintex's participation to allow EFIC financing of ‘spec’ vessels of at least V17, 18 and 19. Otherwise the working capital requirement precludes a buyout. I spoke to Kerry Heilbronn to countenance the value of the property on a sale and leaseback; the present summation valuation of $3.585 could conceivably rise to $4.25m on a buyback basis. In order to enable the buyout, I would suggest the vendor finance the MBO by taking only cash to the extent that was available under alternative (a) leaving the remainder in the MBO, whose tenancy is providing the increased value. The funds required by the MBO for working capital would fall to an achievable level - to be filled by individual investment and overdraft secured on plant and equipment. 6. I understand a similar sale/leaseback proposal is being pursued by Andrew Miller and that $8.5m is being sought. I think it unlikely any prudent banker/financier would lend $8.5m on the basis of either the value of the land or the expected cash flow from the tenant. I presume there must be something else in the deal or they have a different balance sheet." (The reference to “MBO” was to a management buy-out; i.e., a purchase of Lloyds Ships by employees.) On 13 September 1988, Lloyds Ships was registered as the owner of the vessel in the Register of Australian Shipping. The transaction involving the return of the vessel to Lloyds Ships and its registration as owner was severely criticised in the respondent’s submissions. However, its assertions that the return of the vessel was a gift and that the transaction for its return was a sham cannot be sustained. All those materially involved, which did not include the respondent, intended the vessel to revert to Lloyds Ships and for it to pay Hover Mirage the promised consideration after the vessel had been sold, as was intended. The trial judge was correct when he said ((1994) -- 41 of 60 -- 40 A.C.S.R. 386 at 401): “... the evidence does not establish ... that there was no real expectation at the time the ship was returned that Hover Mirage would eventually be reimbursed for the debt in respect of the vessel. For example, the sale of the vessel was being genuinely pursued, as negotiation with potential purchasers shows, and the expectation appears to have been that when a sale occurred, Hover Mirage would be reimbursed." Nonetheless, the potential detriment to Hover Mirage (and Mirage Operations and the Mirage Resorts Trust) in the return of the vessel to an insolvent Lloyds Ships in return for an unsecured liability to repay the amount which Hover Mirage had paid for the vessel is starkly evident, and would have been obvious to Skase and his fellow executives at the time. However, their purpose was not to benefit Lloyds Ships at the expense of Hover Mirage, and ultimately the Mirage Resorts Trust; they were concerned with the Qintex group as a whole. As has been seen, they hoped to sell Lloyds Ships and, as will be seen, they intended, in the short-term at least, to continue to support it. Further, they were privatising the Mirage Resorts Trust and, as unitholders, they would lose if the Lloyds Ships’ creditors, and not Hover Mirage, received the proceeds of sale of the vessel. One advantage to the Qintex group (and Lloyds Ships if it was not technically a member of that group) in the return of the vessel to Lloyds Ships was that it could be used as security to borrow from Partnership Pacific; that might have been possible in the name of Hover Mirage if the respondent consented, but then the respondent would probably have had to be informed of the financial position and the proposed sales tax evasion, and the borrowed money would not have been available outside the Mirage Resorts Trust as “working capital”, which was needed in the short-term. Further the return of the vessel to Lloyds Ships, and the associated falsification of information and documentation, was essential to the attempt to evade a large, accrued sales tax liability (in relation to which Hover Mirage had given an indemnity to Lloyds Ships); the evasion of sales tax was a major, and probably the dominant, reason for what occurred. The attempt to evade sales tax does not mean that property in the vessel did not pass to Lloyds Ships: Leonard v. Booth (1954) 91 C.L.R. 452, 483 per Taylor J. ; Ison v. Australian Wheat Board (1967) 86 W.N. (Pt. 2) (N.S.W.) 377. However, that factor is important in considering whether or not the directors of Hover Mirage and Mirage Operations acted for an impermissible purpose. Their material decision as directors of Hover Mirage was to return the -- 42 of 60 -- 41 vessel to Lloyds Ships in return for an unsecured promise to pay by an insolvent company, and their material decision as directors of Mirage Operations was to consent, as chargee, to that course if such a consent is to be inferred. (There was no written consent, as required by the mortgage debenture from Hover Mirage to Mirage Operations.) Whether or not the position might be different if the Qintex group had, by then, acquired all the issued units in the Mirage Resorts Trust (cf. Walker v. Wimborne (1976) 137 C.L.R. 1, 6), a conclusion that the directors of Hover Mirage (and Mirage Operations) acted for impermissible purposes seems to me inescapable. It follows that the transaction involving the return of the vessel to Lloyds Ships, and Mirage Operations’ consent to that course, if consent was given, were voidable: Whitehouse v. Carlton Hotel Pty Ltd (1987) 162 C.L.R. 285. Lloyds Ships received the vessel with full knowledge of the circumstances, and provided no consideration save a promise of payment which it could not fulfil at that time and might never be able to fulfil; accordingly, its interest in the vessel was subject to the avoidance of the voidable transaction: Harlowe’s Nominees Pty Ltd v. Woodside (1968) 121 C.L.R. 483, 500; Whitehouse at p. 295; Australian Growth Resources Corporation Pty Ltd v. Van Reesema (1988) 13 A.C.L.R. 261; Linter Group Ltd. v. Goldberg (1992) 7 A.C.S.R. 580. If a consent to the return of the vessel from Hover Mirage to Lloyds Ships is not to be attributed to Mirage Operations, Lloyds Ships’ ownership of the vessel was also subject to the interest of the respondent as trustee of the Mirage Resorts Trust, under its mortgage debenture. A number of matters were the subject of contest between the parties at this point. The appellants’ primary contention was that both the transaction in which the vessel was returned to Lloyds Ships and in which it was registered as owner, and a liability by Lloyds Ships to repay the amount which it had been paid by Hover Mirage was recorded by book entries showing Lloyds Ships as a debtor for $4,807,398, involved a rescission of the contract of 21 June 1985 between Hover Mirage and Lloyds Ships (which had been completed on 26 May 1987) with the consequence that property which had passed was retrospectively divested from Hover Mirage and revested in Lloyds Ships more than a year later. I do not propose to dwell on this: even a rescission properly so called would not mean that property in the vessel had not passed to Hover Mirage, or that parties with which it had dealt in relation to the vessel which would otherwise have acquired interests in the vessel had not done so. However, that need not be pursued - the “rescission” was not for cause but consensual, and could only operate to transfer the vessel to Lloyds Ships prospectively. In any event, it does not seem to me to matter whether Lloyds Ships -- 43 of 60 -- 42 obtained ownership of the vessel retrospectively or prospectively if it was the vessel’s owner after the voidable 1988 cancellation or reversal of the sale of the vessel to Hover Mirage. The respondent argued that Lloyds Ships did not become the beneficial owner of the vessel pursuant to the voidable 1988 transaction but was, instead, a constructive trustee for Hover Mirage (see Rolled Steel Products (Holdings) Ltd v. British Steel Corporation [1985] 3 All E.R. 52; Lintner Group at pp. 622ff.); in that event, the retransfer of the vessel to Hover Mirage during the preference period or after the commencement of the winding-up of Lloyds Ships would have been unobjectionable: cp. Burns v. Stapleton (1959) 102 C.L.R. 97; N.A. Kratzmann Pty Ltd (In Liq.) v. Tucker [No. 2] (1968) 123 C.L.R. 295, 302. However, the appellants submitted that Hover Mirage’s right to avoid the voidable 1988 transaction was not an equitable interest in the vessel but a mere “equity” (cf. Wickham Developments Pty Ltd v. Parker (C.A. No. 212 of 1994, unreported, judgment delivered 20 June 1995), which would not have been enforceable against the appellants in the winding-up of Lloyds Ships. I will return to that later. A mortgage over the vessel in favour of Partnership Pacific was executed by Lloyds Ships on 17 September 1988 and registered on 10 October 1988. That mortgage was repaid and released on 23 May 1989, in circumstances which are later referred to. Most of the money borrowed by Lloyds Ships from Partnership Pacific was paid to Queensland Merchant Holdings or QMH Finance, and used as working capital, in part at least, to enable Lloyds Ships to continue trading. On 13 October 1988, the Qintex group provided Lloyds Ships’ auditors with a letter signed by Skase, containing an assurance that Lloyds Ships would be supported “for at least the next 12 months”. On 20 October 1988, entries were made in the books of Lloyds Ships recording the vessel as "stock" and showing the debt as owed to Mirage Operations instead of Hover Mirage. Later, this liability was reflected in Lloyds Ships' accounts for the year ending 31 July 1988, and its balance sheets as at 31 January and 30 April 1989. The trial judge also referred to other evidence, and said that, after the end of August 1988, it was "... apparent ... that the [vessel] was being treated as the property of Lloyds Ships". As a statement of what the documentary evidence revealed, that is plainly correct. Further, it seems to have been contemplated by all concerned that the vessel would be sold, and Hover Mirage paid what it was owed according to the voidable transaction. In November 1988, a sales tax assessment of $889,628.71 was received in respect of the -- 44 of 60 -- 43 initial transaction between Lloyds Ships and Hover Mirage in June 1985. That assessment was not paid until some months later. At the time when the assessment was received, efforts to sell the vessel were continuing, although Newport, at least, thought the price too high, as appears from his letter dated 28 November 1988 to Burden, which stated: "Re: Mirage III The Sales Tax Office has assessed Mirage III as liable for tax. The amount is assessed by the S.T.O. at $889,628.71. Copy correspondence is attached and is self explanatory. My question to Christopher Skase of November 7th is in respect of challenging the decision through the courts. My personal feeling is that we would be unsuccessful if we litigated this matter. Please bear in mind that we are offering MIRAGE III for sale at a figure of A$6.8M, which is inclusive of tax (to be paid by the vendor). Therefore if we sell the boat for that price there is really no harmful effect in regard to tax. We are finding some objection to the price of the vessel in the market place. Even though she is highly regarded by potential clients and the boat shows very well in sales demonstrations and presentations, she is nevertheless priced at a level which is somewhat out of the market. I will keep you informed if and when we have a genuine offer at a figure short of the A$6.8M requirement. In the meantime, I regrettably must ask you to indicate to me whether or not payment should be made of this $889K." The voidable 1988 transaction under which the vessel was transferred to Lloyds Ships in 1988 was never avoided; the need to do so disappeared because the transaction was consensually cancelled or, perhaps, reversed in 1989 in conjunction with two other transactions; a sale by the Qintex group of a 49% interest in the resorts to Japanese investors; and a management buy-out of Lloyds Ships by Newport and perhaps others associated with him, which eventually did not proceed. Once sales tax had to be paid, there was no longer any reason for Lloyds Ships to own the vessel or sell it as owner. Further, it suited Qintex group purposes to have the vessel, and the sales tax liability, in the resort trusts in which a 49% interest was to be acquired by Japanese investors, and also for the vessel and Lloyds Ships' corresponding debt to Hover Mirage to be removed from Lloyds Ships' balance sheet for the management buy-out; that was also what Newport wanted. At least from early in 1989, all negotiations with respect to the Japanese investment -- 45 of 60 -- 44 (which became the subject of a “Subscription Agreement” on 31 March 1989) and the management buy-out (which became the subject of a share sale agreement on 16 June 1989) proceeded on the basis that Lloyds Ships did not owe money to Hover Mirage under the voidable 1988 transaction, and that the vessel was the property initially of Hover Mirage, and finally of the respondent as trustee of the Port Douglas Resort Trust. The resort assets, including those held by Hover Mirage (and perhaps Mirage Operations) were transferred to the respondent as trustee of the Gold Coast Resort Trust and the Port Douglas Resort Trust as part of a restructure which took place as a preliminary to the Subscription Agreement. Because a small proportion of the issued units in the Mirage Resorts Trust were still held by members of the public, the resort assets were transferred by book entries from that trust to the other two trusts, in which all issued units were held by the respondent as trustee of the Mirage Resorts Trust. Under the Subscription Agreement, the Japanese investors then acquired 49% of the units in the other two trusts, the Gold Coast Resort Trust and the Port Douglas Resort Trust, leaving the Mirage Resorts Trust as the holder of the other 51%, and the Qintex group as the holder of all issued units in that trust except for the small proportion which it had not yet acquired from the public. In consequence, as will be seen, most of the money from the Japanese investors went to the Qintex group. Book entries made in March 1989 included entries in the books of the Mirage Resorts Trust and the Port Douglas Resort Trust to the effect that the vessel was transferred from Lloyds Ships to the Mirage Resorts Trust for the amount owed by Lloyds Ships to Hover Mirage and from the Mirage Resorts Trust to the Port Douglas Resort Trust for that amount plus the amount of the sales tax liability. These entries overlooked the debt from Lloyds Ships to Hover Mirage, and no entries were made in the books of either of those companies at that time. Further, the accounts of Lloyds Ships at 30 April 1989 still did not reflect the transaction for the transfer of the vessel from Lloyds Ships to Hover Mirage, although steps to remedy that deficiency were later taken. On 31 March 1989, the Subscription Agreement was executed by, among others, the respondent, Qintex Australia Limited, and the Japanese investors. It provided for the acquisition by the Japanese investors of 49% of the issued units in each of the Gold Coast Resort Trust and the Port Douglas Resort Trust, and treated the assets associated with each of those resorts as owned by the appropriate trust. In particular, "Mirage III and all ... assets used in connection with the operation of Mirage III" were included in the Port Douglas Resort Trust's assets. Consistently with this, the mortgage debentures from Hover Mirage to Mirage Operations -- 46 of 60 -- 45 and from Mirage Operations to the respondent were later released. (Once again, the paperwork was imperfect - the release, purporting to operate from 31 March 1989, was not signed until 27 October 1989 .) I will assume in favour of the appellants, in accordance with their submission, that, from this point on, the mortgage debenture can be ignored. On 31 March 1989, the day the Subscription Agreement was signed, Burden sent the following memorandum to Masters and Newport: "SUBJECT: MIRAGE III _____________________________________________ The agreement with the Japanese investors in the Mirage Group includes as a resort asset Mirage III. In accordance with your many requests the Mirage Resorts Group will reimburse you for all running expenses of Mirage III and will cover the sale tax assessments received by Lloyds for the vessel and will immediately reacquire the launch. Would you please arrange immediately for the transfer of Mirage III to Mirage Resorts." On 5 April 1989, Burden sent the following memorandum to Cameron: "As you are aware, the assessments were issued last November for Mirage III for an amount of $889,628. The Taxation Department is now threatening to issue proceedings against Lloyds and I have indicated to Adrian Newport that on or before 14th April (settlement of Mirage transaction with the Japanese investors), the sales tax will be paid to Lloyds." Cameron sent a copy of the memorandum to Max Hutchison, an employee of Mirage Management Limited, instructing payment on 14 April, and Hutchison arranged with Newport for an invoice from Lloyds Ships which was sent by facsimile on 12 April. The amount required was provided to Lloyds Ships by Hover Mirage with funds provided by the respondent, as trustee of the Mirage Resorts Trust, on 14 April. As Burden's memorandum to Cameron on 5 April foreshadowed, 14 April 1989 was the date on which the Subscription Agreement was completed. Thereafter, the respondent, as trustee of the Port Douglas Resort Trust, paid all outgoings in respect of the vessel, including insurance, wages and operating expenses, totalling hundreds of thousands of dollars. -- 47 of 60 -- 46 After the Subscription Agreement was completed, the Gold Coast Resort Trust and the Port Douglas Resort Trust established their own finance facilities, and another Qintex subsidiary, Mirage Port Douglas Management Pty Ltd, was appointed to manage the Port Douglas resort. The Mirage Resorts Trust ceased to conduct business operations, and effectively acted only as a holding vehicle for the Qintex group's 51% interest in each of the Port Douglas Resort Trust and the Gold Coast Resort Trust. Appropriate alterations were made to the Mirage Resorts Trust deed in mid-1989, a minority unitholders' fund was established to allow outside unitholders to redeem their units, and the units were delisted from the Australian Stock Exchange. In May 1989, a large sum was provided by the respondent, as trustee of the Mirage Resorts Trust, to the Qintex group, which advanced $4 million to Queensland Merchant Holdings. That amount was then paid to Lloyds Ships, which used it to pay out Partnership Pacific's mortgage over the vessel on 23 May 1989. A release of the mortgage was then registered. However, no step was taken at that time to effect a transfer of the vessel on the Australian Shipping Register from Lloyds Ships. On 26 May 1989, Pratt instructed Hili that all payments in relation to the vessel were to be channelled through the Port Douglas Resort Trust, and this course was followed. On 1 June 1989, the crew of the vessel were transferred from the payroll by Lloyds Ships to the payroll of Mirage Port Douglas Management. Later that month, Lloyds Ships was reimbursed for expenses paid in respect of the vessel, including crew's wages, from 1 August 1988 to 31 May 1989. On 14 June 1989, entries purporting to be effective from the end of April that year, were made in the Lloyds Ships' books reversing the entries that had been made on 20 October 1988; the vessel was re-transferred to Hover Mirage and the debt from Lloyds Ships to Hover Mirage was cancelled; the Lloyds Ships' accounts for the year ended 31 July 1989 reflected these changes. The agreement for the sale of the shares in Lloyds Ships to give effect to the management buy-out was signed on 16 June 1989 on the basis that Lloyds Ships did not own the vessel or owe any debt in respect of the vessel; Lloyds Ships was a signatory to that agreement. Capps and Poncini were replaced by Newport and Hili as directors of Lloyds Ships that day. Hili was Lloyds Ships’ Financial Controller, and acted on the instruction of Masters. His appointment and the appointment of Newport as directors of Lloyds Ships was related to the management buy-out and they resigned when that transaction did not proceed, Hili on 12 September and Newport on -- 48 of 60 -- 47 10 November 1989; Burden and Masters became directors on the same day. At a meeting on 20 June 1989, Newport and Hili resolved that Hili "be authorised to sign a Bill of Sale to transfer Title of the Vessel, Mirage III, official number 852324, to such person(s), partnership or corporation as may be determined"; on the same day, Hili affixed Lloyds Ships’ common seal and signed the bill of sale, leaving the name of the transferee, the consideration and the date blank, and sent it to the Mirage Management office at Southport. The bill of sale had not been countersigned by Lloyds Ships’ secretary, as required by its Articles of Association. Presumably by oversight, it was not completed and used until after provisional liquidators were appointed to Lloyds Ships, when it was back-dated to 31 March 1989. Further book entries were made during the period when the management buy-out was proceeding; for example, in August 1989, entries, purportedly effective from 31 July 1989, were made in the books of Hover Mirage and further entries were made in the books of Mirage Resorts Trust. It is pointless to analyse the various book entries in detail; all were directed to the elimination of the debt owed by Lloyds Ships under the voidable 1988 transaction and the transfer of the vessel to, ultimately, the respondent as trustee of the Port Douglas Mirage Trust. The trial judge was critical of the book entries, which is understandable, and said in relation to those made in the books of Lloyds Ships prior to the execution of the management buy-out share sale agreement that there was “no satisfactory evidence that the actual directors of Lloyds Ships at the time (Poncini and Capps) approved of the transaction, acquiesced in it or, for that matter, knew about them”. That finding cannot be sustained. Capps was the Qintex group Treasurer, and Poncini was a middle-level employee, whose role was to act on his superiors’ instructions. The evidence that Lloyds Ships was party to the cancellation or reversal of the 1988 voidable transaction is overwhelming. However, so far as I can see, the significance of his Honour’s finding was limited to an implicit conclusion that Lloyds Ships was the beneficial owner of the vessel at the beginning of the preference period prior to the commencement of its winding-up. I will return to that later. The management buy-out did not proceed and was rescinded at the end of October 1989; as earlier noted, Newport and Hili ceased to be directors, and Masters and Burden became directors. The audited statutory accounts of Lloyds Ships and the Port Douglas Resort Trust for the 1988-1989 financial year treated the vessel as an asset of that trust and the Lloyds Ships' debt as cancelled, and the respondent continued to be unaware that Lloyds Ships was insolvent or might -- 49 of 60 -- 48 assert a claim in relation to the vessel until after provisional liquidators were appointed on an application for winding-up filed on 17 November 1989. At that time, the vessel was being utilised in relation to the resorts and was shown in the books as an asset of the Port Douglas Resort Trust, and that trust was paying all the expense including the crew's wages. Only a day or so before the application to wind-up Lloyds Ships was filed, the manager of the Port Douglas Resort Trust, Mirage Port Douglas Management, had requested the respondent, as trustee of that Trust, to execute a document to formalise the transfer of the vessel to the respondent, as trustee, not from Lloyds Ships but from Hover Mirage, which the respondent continued to believe was the owner of the vessel on behalf of that trust. It was only after the provisional liquidators of Lloyds Ships attempted to seize the vessel that the respondent was requested by the Qintex group to execute the bill of sale which had been signed by Hili on behalf of Lloyds Ships, so as to transfer the vessel to the respondent from Lloyds Ships. After that was done and the transfer registered, it was the respondent which was the prima facie owner of the vessel in accordance with ss. 19 and 77 of the Shipping Registration Act. The trial judge saw the Lloyds Ships’ execution of the bill of sale as the critical event and held that, although it was executed in blank, the respondent, as trustee of a trust which he did not specify, became entitled to “an equity in the vessel”. He said at p. 392: "Mr Hili's evidence was that the bill of sale was executed in the belief that the vessel was to be transferred to an entity within the Mirage Resorts group. The reason for the form of the resolution was that he was not aware of the identity of that entity, and his understanding was that that would be determined by those to whom he delivered the document.” And at pp. 407-409: “The management buy-out agreement, which was effected by transfer of shares in the company, was signed on 16 June 1989. Mr Newport and Mr Hili were appointed directors on the same day. The resolution which resulted in Mr Hili signing the bill of sale in blank and sending it to Southport was passed on 20 June 1989. In the context of the previous discussions the form of the resolution is understandable. Assuming that the bill of sale executed in blank and delivered to the Southport Office was sufficient to create equitable rights upon its execution, those rights were created within six months of the application for liquidation of Lloyds Ships. ... The clear inference to be drawn is that the intention in executing the bill of sale in blank and delivering it to the Mirage Resorts Office at Southport was to effectuate the transfer of the vessel to the entity within the Mirage Resorts structure which was entitled to the vessel and to create at least an equity in it. While the journal entries in the books of PDRT and MRT made on 8 April 1989 could not bind Lloyds Ships they demonstrate, as -- 50 of 60 -- 49 between the entities within the Qintex Group, in whom the vessel was intended to be vested. In my view, from the time of the execution of the bill of sale in blank at the latest, the defendant was entitled as trustee to an equity in the vessel and what happened subsequently must be seen in that light. That is a time for determining any necessary states of affairs or states of mind in connection with the second plaintiff's claim that the transaction is voidable." The statement in the last sentence quoted was related to the appellants' contention that the transfer of beneficial ownership of the vessel to the respondent was a voidable preference under s. 451 of the Companies (Queensland) Code. His Honour found that it was not, because the respondent acted in good faith and gave valuable consideration in that "the basis upon which the bill of sale was executed in blank and the result of the various book entries was that any indebtedness on the part of Lloyds Ships in connection with [the vessel] was extinguished". The appellants challenged those conclusions, which present some difficulty. While findings that the respondent acted in good faith and gave valuable consideration are amply justified by the evidence, the notion that beneficial ownership of the vessel passed directly from Lloyds Ships to the respondent upon Lloyds Ships’ execution of the bill of sale seems to me unsustainable. Earlier I mentioned two matters to which it would be necessary to return. One was the trial judge’s view that Lloyds Ships was the beneficial (as well as legal) owner of the vessel at the beginning of the preference period prior to the commencement of its winding-up. That conclusion was, in turn, necessarily founded on the premise that Lloyds Ships obtained the beneficial ownership of the vessel in the voidable 1988 transaction (and that it was not transferred back to Hover Mirage before the beginning of the preference period prior to the commencement of Lloyds Ships’ winding-up). That premise forms a vital element in the appellants’ case, which I propose to assume in their favour, although I consider it incorrect. The other matter concerned the appellants’ submission that Hover Mirage’s “equity” to avoid the voidable 1988 transaction would not have been enforceable against Lloyds Ships after the beginning of the preference period prior to the commencement of its winding-up; it was said that if the “equity” had been enforced during the preference period by avoidance of the voidable 1988 transaction, the “transfer” of the vessel from Lloyds Ships would have been void against the second appellants by virtue of s. 451, and if the equity had been enforced after the commencement of the winding-up of Lloyds Ships, the “disposition” of the vessel by its transfer from Lloyds Ships would have been void against the second appellants by virtue of sub-s. 368(1). -- 51 of 60 -- 50 (Sub-section 368(1) and s. 451 of the Companies (Queensland) Code would be of no practical significance in the present circumstances if, despite those provisions, Hover Mirage’s “equity” would have been enforceable in Lloyds Ships’ winding-up; it would not benefit the appellants to have the cancellation or reversal of the voidable 1988 transaction and the transfer of the vessel (or beneficial ownership of the vessel) to Hover Mirage, and thence to the respondent, held void if the consequence would be that the voidable 1988 transaction could still be avoided: cp. Carey v. Palmer (1924) 34 C.L.R. 380; reversed on another point [1926] A.C. 703.) Once again, I propose to assume the correctness of the appellants’ contention in their favour, although that seems to me a matter of considerable doubt: see Sonenco (No. 77) Pty Ltd v. Silvia (1989) 89 A.L.R. 437, and cases cited; Harris v. Truman [1882] 9 Q.B.D. 264: Re Eastgate; ex p Ward [1905] 1 K.B. 465; Tilley v. Bowman Ltd [1910] 1 K.B. 745; cf. Re Ashwell ex p Salamon [1912] 1 K.B. 390. (Nothing seems to me to turn upon the technical difference between the position in bankruptcy, in which a bankrupt’s property is vested in his or her trustee (see ss. 58 and 116 and the definition of “property” in sub-s. 5(1) of the Bankruptcy Act 1966 (Cth.)), and in a company liquidation, in which the property of a company in liquidation ordinarily continues to belong to the company: see McPherson The Law of Company Liquidation, 3rd ed., pp. 6 and 163. The difference provides no basis for a conclusion that equities and liabilities do not continue to affect the property of a company in liquidation to the same general extent as they continue to affect a bankrupt’s property vested in his or her trustee: see McPherson The Law of Company Liquidation at pp. 165, 167 and n 66; McPherson “Avoiding Transactions in Insolvency” in Corporate Insolvency Law, J.P.G. Lessing and L.F. Corkery (eds), 1995 pp. 186ff, particularly at 192); Re Androma Pty Limited [1987] 2 Qd.R. 134, 146 per McPherson J.) As earlier noted, the trial judge held that Lloyds Ships’s beneficial ownership of the vessel passed directly to the respondent upon Lloyds Ships’ execution of the bill of sale, a conclusion which I consider incorrect. There were two directly material transactions with respect to the vessel prior to the commencement of the winding-up of Lloyds Ships and (it is assumed in favour of the appellants) after the beginning of the preference period; one between Lloyds Ships and Hover Mirage, and one between Hover Mirage (or the Mirage Resorts Trust) and the respondent as trustee of the Port Douglas Resort Trust. In its simplest form, the respondent’s case is that it became the beneficial owner of the vessel through those transactions prior to the commencement of the winding-up (although in the preference period) and that legal title was -- 52 of 60 -- 51 subsequently transferred to it when the bill of sale was registered. On this approach (as I do not think the appellants disputed) sub-s. 368(1) of the Companies (Queensland) Code is irrelevant, and the appellants must found their claim on s. 451 (or contend that, irrespective of that section, beneficial ownership of the vessel would not have passed to the respondent under the general law by the transactions which took place during the preference period). In the first of those transactions, the parties to an earlier improper transaction entered into for an impermissible purpose cancelled that transaction and/or reversed what had been done in carrying it into effect, except that the material asset, the vessel, was not formally transferred on the Register of Australian Shipping to the party entitled to the vessel on the cancellation and/or reversal of the improper transaction, Hover Mirage; thereafter, those parties proceeded on the basis that Hover Mirage was the owner of the vessel, and that the debt from Lloyds Ships had been discharged. Both parties were aware at all material times of Lloyds Ships’ insolvency, but the cancellation and/or reversal of the voidable transaction occurred in the context of an expected management buy-out of Lloyds Ships based on the return of the vessel to Hover Mirage and the discharge of Lloyds Ships’ debt. Apart from the statutory provisions which became operative upon Lloyds Ships’ subsequent liquidation, notably s. 451 as I have said, I cannot conceive of any basis upon which Lloyds Ships could maintain a claim to beneficial ownership of the vessel against Hover Mirage in those circumstances. What occurred was a classic - although informal and poorly documented - instance of a transfer of the beneficial ownership of property from the legal owner by an agreement to do so and performance by the other party of its contractual obligations in advance of the transfer of legal title: cp. Stern v. McArthur (1988) 165 C.L.R. 489, 523. By then, the vessel was registered and Lloyds Ships was registered as owner. Legal title remained with Lloyds Ships because there was no bill of sale in accordance with s. 36 of the Shipping Registration Act, but Hover Mirage’s beneficial ownership was enforceable against Lloyds Ships by virtue of s. 47. Hover Mirage would have been entitled to an order for specific performance, i.e., for execution and delivery of a registrable bill of sale: Behnke at p. 659ff; Ex parte Holthausen; In re Schriebler [1874] L.R. 9 Ch. 722; Powell v. Marshall Parke & Co. [1899] 1 Q.B. 710, 713; Re Taylor [1910] 1 K.B. 562; Re Wilson [1926] Ch. 21; cf. Ex parte Rabbidge; re Pooley [1878] 8 Ch.D. 367; Re Densham [1975] 1 W.L.R. 1519. The respondent (and others whom it represented such as the Japanese investors in the Port Douglas Resort Trust) were unaware of either the 1988 voidable transaction or its cancellation or reversal, or any adverse claim by Lloyds Ships to the vessel or any interest in the -- 53 of 60 -- 52 vessel, which was believed to belong to Hover Mirage. The only matter which can be pointed to against the respondent is its omission to ensure that Hover Mirage was the registered owner of the vessel, or to search the Australian Shipping Register, which would have disclosed Lloyds Ships as the registered owner. There is nothing in the Shipping Registration Act which makes such registration a general notification of Lloyds Ships’ interest in the vessel. Taken by itself, sub-s. 256(1) of the Property Law Act 1974 might, by implication, convey that notice is to be imputed of information that would have been ascertained by reasonable inquiries and inspections; however, sub-s. 256(3) excludes that construction, and indicates that sub-s. 256(1) is to be given an entirely negative operation which either corresponds with, or cuts down, the knowledge which would be imputed under the general law. What, if any, knowledge the law imputes from the fact of registration in an official register is not clear. One view seems to deem notice from registration: see, e.g., In re Dehy Fodders (Australia) Pty Ltd; Winter v. The Bank of Adelaide (1973) 4 S.A.S.R. 538, 549. Another view, which is theoretically different but perhaps little different in practical effect, is that while notice is not attributed from registration, a person who has not searched is in no better position than he or she would be if he or she had searched and ascertained the information which a search had revealed: Mills v. Renwick (1901) 1 S.R.(N.S.W.) (Eq.) 173. See also Devine Shipping at p. 465. Whilst Sykes and Walker The Law of Securities (5 ed.) asserts that the register does not operate as notice [802, 812, 838] relying upon Joseph v Lyons 1884 15 Q.B.D. 280, the Q.L.R.C. Report 16 on the Property Law Act observes that the equivalent to s. 256 gives effect to the decision in Mills. Meagher Gummow and Lehane Equity: Doctrines and Remedies [854] relate the test of constructive knowledge for the failure to search as to whether a person has neglected to do "that which is usually done by men of business in similar circumstances, as a matter of prudence with a view to their own security." This is picked up in Drulroad Pty Ltd v Gibson [1992] NSW Conv R 55, 637 at 59, 644 by Hodgson J who observes that Mills reflects the NSW equivalent to section 256 and that prudence requires a final search in the case of a purchase. Assuming (again in favour of the appellants) that the respondent knew of Lloyds Ships’ registration as owner of the vessel, it nonetheless - to Lloyds Ships’ knowledge - dealt in good faith with Hover Mirage (or the Mirage Resorts Trust) and, in the belief that the vessel belonged to the Mirage Resorts Trust, purchased and paid for it (in money or by book entry). Indeed, s. 451 of the Companies (Queensland) Code aside - and the respondent was unaware of Lloyds Ships’ insolvency - the respondent was correct in its belief, which Lloyds Ships shared; the vessel -- 54 of 60 -- 53 was beneficially owned by Hover Mirage. The transaction between the respondent and Hover Mirage was a valid equitable assignment of the beneficial ownership of the vessel according to the general law: see Norman v. Commissioner of Taxation (1963) 109 C.L.R. 9, 30; Meagher Gummow and Lehane Equity: Doctrines and Remedies 3 ed. [602] [625] [663] [6102-6103]. The appellants submitted that, nonetheless, s. 451 of the Companies (Queensland) Code avoided the transfers of beneficial ownership which had occurred during the preference period, i.e., from Lloyds Ships to Hover Mirage and from Hover Mirage to the respondent. I propose to assume in favour of the appellants that s. 451 had that effect upon the former transfer, or would have done so but for the transfer on from Hover Mirage to the respondent. However, despite the language of s. 122 of the Bankruptcy Act - by reference to which s. 451 of the Companies (Queensland) Code materially operated - the transfer of beneficial ownership of the vessel from Lloyds Ships to Hover Mirage was voidable, not void ab initio: Re Carter and Kinderdine’s Contract [1877] 1 Ch. 776; In re Brall, ex p Norton [1893] 2 Q.B. 381; Re Hart, ex p Green [1912] 3 K.B. 6; Re Tucker v. Reid Murray Developments (Qld) Pty Ltd [1969] Qd.R. 193, 208- 209, per Lucas J., with whom Douglas J. agreed; Noakes v. J. Harvy Holmes & Son (1979) 26 A.L.R. 297; cf. National Acceptance Corporation Pty Ltd v. Benson (1988) 13 A.C.L.R. 1. See also McPherson “Avoiding Transactions in Insolvency” at pp. 188-192; Benjamin [7-025 - 7- 026]. The transaction between Hover Mirage and the respondent was therefore an equitable assignment of Hover Mirage’s voidable beneficial ownership of the vessel to the respondent. Under the general law, the respondent thereupon became the beneficial owner of the vessel (Sale of Goods Act, s. 25; Benjamin 7-023; Sykes & Walker, pp. 402, 834), and that title is not void against, or voidable by, the second appellants: see In re Brall; Re Hart e.g. at pp. 9-10; In re Gunsbourg [1920] 2 K.B. 426; Re Dombrowski ex p Trustee [1923] 92 L.J.Ch. 415; Price v. Parsons (1936) 54 C.L.R. 332, 352; Brady v. Stapleton; Sonenco at pp. 445, 457. See also the cases referred in Benjamin [7-023 - 7-032] when considering the equivalent English section. McPherson (The Law of Company Liquidation) suggests that the respondent’s beneficial ownership of the vessel is also beyond the reach of the second appellants under s. 451 of the Companies (Queensland) Code by virtue of sub-s. 122(2)(b) of the Bankruptcy Act, which provides that nothing in s. 122 “affects: ... (b) the rights of a person making title in good faith and for valuable consideration through or under a creditor of the debtor; ...”. Of course, for the purpose of s. 122 of the Bankruptcy Act, Hover Mirage was the “creditor” and Lloyds Ships the “debtor”. The author states at pp. 320- -- 55 of 60 -- 54 321 that sub-s. 122(2)(b) “may be summarily disposed of by saying that it protects bona fide third parties who took without notice of facts that a preference had been given”, pointing out later (on p. 321) that, except where a special meaning is given by statute - and that is not so for the purpose of sub-s. 122(2)(b) - “good faith” may be taken to connote absence ... of any knowledge that a preference has been given ...”. In the foregoing discussion, a number of assumptions have been made in favour of the appellants, which would have to be reconsidered if I were not of opinion that, despite those assumptions, the respondent is entitled to succeed. There would also be other matters to be considered which might also required the dismissal of the appeal; for example, the respondent’s argument raised questions of estoppel, unjust enrichment and unconscionability. I merely note in passing that the second appellants’ position as liquidators appointed by the Court raises special considerations with respect to unconscionability: see, for example Re Condon, ex p James [1874] L.R. 9 Ch. 609; In re Tyler [1907] 1 K.B. 865; In re Thelluson [1919] 2 K.B. 735; Scranton’s Trustee v. Pearse [1922] 2 Ch. 87; Re Nitschke (1930) 2 A.B.C. 36; Re Richards (dec’d) (1936) A.B.C. 218; Downs Distributing Co Pty Ltd v. Associated Blue Star Stores Pty Ltd (1948) 76 C.L.R. 463; Re De Wit; Custom Credit Corporation Ltd v. Official Receiver (1962) 19 A.B.C. 63; In re Clifton Place Garage Ltd [1970] Ch. 477; In re Clarke; Official Receiver v. Tenaco Ltd [1975] 1 W.L.R. 559; Re Roberts; Official Receiver v. Lincoln Investments Ltd (1976) 26 F.L.R. 330; In re Byfield [1982] Ch. 267; Re Walsh, ex p Waters [1978] Qd.R. 134; Re Ayoub, ex p Silvia (1983) 67 F.L.R. 744; Hartogen Energy Ltd (In Liq.) v. Australian Gas Light Co. (1992) 109 A.L.R. 177, 189 ff. There might also be other matters to be considered, but none of them would avail the respondents; for example, if Hover Mirage had possession of the vessel after the voidable 1988 transaction, it might have been in a position to pass title to the vessel to the respondent even if the appellants could avoid the later cancellation or reversal of that transaction: see Sale of Goods Act, s. 27; Mercantile Credits Ltd v. Upton & Sons Pty Ltd (1974) 48 A.L.J.R. 301. Alternatively, the respondent might have been able to take comfort from s. 86 of the Bankruptcy Act: cf. Hastings Deering (Qld) Pty Ltd v. G.L. Starkey as Liquidator of Allan Fitzgerald Pty Ltd (In Liquidation) (C.A. No. 257/1993, unreported, judgment delivered 2 December 1994); cf. McPherson, The Law of Company Liquidation, p. 193; Benjamin [7-030]. None of these matters require to be considered. Finally, it should be mentioned that neither appellants nor respondent suggested that any -- 56 of 60 -- 55 provision in the Bills of Sale & Other Instruments Act 1955 might be material: see sub-ss. 6(1)(l) and (2A). In summary, in my opinion, the appeal should be dismissed with costs to be taxed. -- 57 of 60 -- -- 58 of 60 -- IN THE COURT OF APPEAL SUPREME COURT OF QUEENSLAND Appeal No. 39 of 1994 Brisbane [Bluecorp P/L v. ANZ Executor s & Trustee Company] BETWEEN: BLUECORP PTY LTD (IN LIQUIDATION) formerly LLOYDS SHIPS HOLDINGS PTY LTD (IN LIQUIDATION) (Plaintiff) First Appellant AND: ERNEST GEORGE HARRIS and WILSON JOSEPH WILDE (Second Plaintiffs) Second Appellants AND: ANZ EXECUTORS & TRUSTEE COMPANY LIMITED (Defendant) Respondent MACROSSAN C.J. FITZGERALD P. DAVIES J.A. Judgment delivered 03/11/1995 REASONS FOR JUDGMENT OF THE CHIEF JUSTICE AND DAVIES J.A., SEPARATE REASONS OF FITZGERALD P., CONCURRING AS TO THE ORDER. APPEAL DISMISSED WITH COSTS TO BE TAXED. CATCHWORDS: COMPANY LAW - contract for construction of vessel - whether court will lift the corporate veil - whether deed in blank is a nullity - whether rescission is a sham - whether trustee had proprietary interest in the vessel - preference periods in relation to bankruptcy and liquidation. TRUSTS - inter-relationship of corporate entities participating in co- operative endeavours - whether vessel held on implied or resulting -- 59 of 60 -- trust. - Shipping Registration Act 1981 (Cth) - Companies Code (Qld.) - Bankruptcy Act 1966 (Cth) Counsel: R.I. Hanger Q.C. with him D. Smith for the Appellant I. Callinan Q.C. with him Ms P. Wolfe for the Respondent Solicitors: Halletts, Solicitors for the Appellant Feez Ruthning for the Respondent Date(s) of Hearing: 5-6 September 1994 -- 60 of 60 --