Bluecorp Pty Ltd, Harris & Wilde v ANZ Executors & Trustee Co Ltd [1994] QSC 9

tate Reporting Bureau TRANSCRIPT OF PROCEEDINGS (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau.) SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION MACKENZIE J No 1050 of 1991 BLUECORP PTY LTD (IN LIQUIDATION) FORMERLY LLOYDS SHIPS HOLDINGS PTY LTD (IN LIQUIDATION) and ERNEST GEORGE HARRIS AND WILSON JOSEPH WILDE and ANZ EXECUTORS & TRUSTEE COMPANY LIMITED BRISBANE .. DATE 07/02/94 .. JUDGMENT 1 Plaintiff Second Plaintiffs Defendant 4th Floor, The Law Courts, George Street, Brisbane, 0. 4000· Televhone: (01) 227 4:~1in_ Farci -- 1 of 54 -- 070293 SDH (Mackenzie J) HIS HONOUR: The formal orders that I make are the following: 1. The plaintiff's action is dismissed. 2. I order the plaintiffs to pay the defendant's costs including reserved costs of and incidental to the action except costs which are solely costs of and incidental to the issues summarised in paragraphs 1-4 and 8-10 on pages 19 to 22 of the reasons that I am about to publish, to be taxed, such costs in the case of the second plaintiffs to be costs in the liquidation of the first plaintiff. 3. I order that the defendant pay the respective plaintiffs' costs which are solely costs of and incidental to the issues summarised in paragraphs 1 to 4 and 8 to 10 to be taxed. I publish my reasons. 2 10 20 30 40 50 -- 2 of 54 -- IN THE SUPREME COURT OF QUEENSLAND BETWEEN: Counsel: Writ No. 1050 of 1991 BLUECORP PTY. LTD. (IN LIQUIDATION} formerly LLOYDS SHIPS HOLDINGS PTY LTD (IN LIQUIDATION) ERNEST GEORGE HARRIS and WILSON JOSEPH WILDE Plaintiff Second Plaintiffs ANZ EXECUTORS & TRUSTEE COMPANY LIMITED Defendant REASONS FOR JUDGMENT - MACKENZIE J. Delivered the Seventh day of February, 1994 I Hanger QC and D Smith for plaintiffs I Callinan QC and P Wolfe for defendant Solicitors: Halletts for plaintiffs Feez Ruthning for defendant Hearing Dates: 22-26 February 1993, 1-3, 11 March 1993. -- 3 of 54 -- 'IN THE SUPREME COURT OF QUEENSLAND BETWEEN: AND: Writ No. 1050 of 1991 BLUECORP PTY. LTD. (IN LIQUIDATION) formerly LLOYDS SHIPS HOLDINGS PTY LTD (IN LIQUIDATION) ERNEST GEORGE HARRIS and WILSON JOSEPH WILDE Plaintiff Second Plaintiffs ANZ EXECUTORS & TRUSTEE COMPANY LIMITED Defendant REASONS FOR JUDGMENT- MACKENZIE J. Delivered the Seventh day of February, 1994 Qintex Limited was the ultimate holding company for a large number of subsidiaries which were involved in a wide range of business enterprises. One of the forms of business enterprise was the running of Mirage Resorts, in connection with which the ship Mirage III was used. The plaintiffs' claims are founded on the somewhat fortuitous circumstance that at points of time which are significant in relation to the collapse of the first plaintiff the vessel remained registered in the name of the first plaintiff. It will be necessary in the course of this judgment to examine the question whether there are any circumstances, -- 4 of 54 -- 2 notwithstanding this, which entitled the defendant to claim the vessel. On 21 June 1985 Gerehu Pty. Ltd. (later Queensland Ferries Pty. Ltd. and Hover Mirage Pty. Ltd.) ("Hover Mirage") entered into a contract with the first plaintiff then known as Lloyds Ships Holdings Pty. Ltd. ("Lloyds Ships") for the construction of Mirage III. An application was made on 21 October 1986 by Lloyds Ships to register Gerehu Pty. Ltd. as registered owner of the ship under the Shipping Registration Act 1981 but the application did not proceed because a requirement that the forms be signed by Gerehu was not complied with. On 26 May 1987 the ship was handed over to Hover Mirage. In the 12 months or so following that, no application was made to have Hover Mirage registered as owner under the Shipping Registration Act. However on 26 August 1988 documents seeking registration in the name of Lloyds Ships were lodged and on 12 September 1988 Lloyds Ships was registered in the Australian Register of Shipping as owner. For reasons which included the insistence by Christopher Skase and his wife upon a high standard of finish on the vessel as well as certain defects of other kinds it was returned to Lloyds Ships for modifications to be made. The obligation to pay sales tax on the sale from Lloyds Ships to Hover Mirage had also become an issue. In the event, a letter dated 31 May 1988 was written by Mr Peter Burden on behalf of the Board of Hover Mirage to the Manager of Lloyds Ships stating that the directors of Hover Mirage were unable to accept delivery of Mirage III since it had proved unfit for the specific purposes of Mirage Resorts -- 5 of 54 -- 3 Trusts. By letter dated 2 June 1988 Mr Newport, General Manager of Lloyds Ships acknowledged the decision not to accept delivery of the vessel and confirmed an arrangement that Lloyds Ships would take over the present crew to enable it to show the vessel off to the best advantage to prospective purchasers. The evidence establishes that the transaction in those letters was treated by both sides as a rescission although a factor, probably the major factor, the desire to further the case for avoiding liability to pay sales tax, remained unexpressed in that correspondence. The issue of such liability had been the subject of advice and correspondence prior to and after these two letters. As it turned out sales tax had to be paid. A formal credit advice for about $3.75 million was issued by Lloyds Ships on 31 August 1988, but none of the moneys from the sums paid to it in respect of construction of the ship were repaid by it. There was a letter relating to rescission and sales tax dated 12 August 1988 from Clark and Kann, Solicitors, following a conference with Messrs. Putland and Pratt of the "Qintex Treasury" which, Mr Callinan submitted, from internal evidence might cast doubt upon the accuracy of the dates on the two letters relating to rescission. This advice, drafted by Mr Russell, refers to a proposal that Hover Mirage "should return Mirage III to Lloyds Ships ... " as a decision which had been made. It also referred to the need, "for theatrical purposes" in pursuit of relief from sales tax, for the impression that negotiations had been conducted to be made apparent. Mr Pratt said that he had not seen the two letters relating to rescission prior to giving evidence in Court and other evidence touching -- 6 of 54 -- 4 upon the subject from Mr Burden, Deputy Chairman of QAL, is to the effect that his recollection was that the return of the vessel and the events associated with Lloyds re-taking control were in the May period not the August period. Although it does not matter in the resolution of the case, there is no reason to doubt that the letters were exchanged on or about the dates shown. On 13 September 1988 Lloyds Ships became the registered owner of the vessel on the Australian Register of Shipping. Registration on the register is prima facie evidence of ownership of the vessel (s. 77 Shipping Registration Act 1981). Hover Mirage had notified the Registrar of Ships on 31 August 1988 that it had no interest in Mirage III. The books of account of Hover Mirage for the year ending 30 June 1988 and of Lloyds Ships for the year ending 31 July 1988 reflect the rescission and return of Mirage III to Lloyds Ships. On 13 September 1988 Lloyds Ships executed a mortgage over Mirage III as security for a $4 million loan from Partnership Pacific Limited ( "PPL"). The mortgage was registered on the Register of Ships on 10 October 1988. Balance sheets for Lloyds Ships as at 31 January 1989 and 30 April 1989 continued to show Mirage III as an asset of Lloyds Ships. It is primarily events that occurred from 31 March 1989 onwards which have led to the present action. However another element, raised in the defendant's defence, is the creation of a charge on 3 August 1987 by Hover Mirage in favour of Mirage (Operations) Pty. Limited and the charge created on the same day between Mirage (Operations) Pty. Limited and the defendant. -- 7 of 54 -- 5 The background to the creation of the charges is important to the defendant's case because it is submitted in its simplest form that the defendant in its capacity as trustee advanced large sums of money which found their way through QAL subsidiaries to Lloyds Ships. At least $4.8 million of this was used to fund the construction of Mirage III and other sums were used to pay expenses of operating the vessel, alterations to it and sales tax. The argument ran that the purpose of making the advances was to acquire Mirage III as an asset for use in connection with the trusts and only for that purpose. It was submitted that, as Hover Mirage had been entrusted with the use of an asset purchased with moneys provided by the defendant, Hover Mirage and anyone else dealing with the property had a duty to act in the interests of the trust. To use it or deal with it in any other way involved a breach of fiduciary duty. To the extent that Lloyds Ships got property in the ship it was held on a constructive trust for the defendant. It was further submitted that loans made to subsidiaries of QAL by the trust could be identified with the sum of money used by Lloyds Ships to repay the PPL mortgage. I will refer in more detail to the debentures later. The charges were registered with the Australian Securities Commission on 17 September 1987. The charge created by Mirage Operations in favour of the defendant was discharged on 31 March 1989 although not signed on behalf of the defendant until 27 October 1989. It is convenient to mention here that there was some commonality of directorships. On 3rd August, 1987 when Mirage Operations and Hover Mirage entered into the charges Christopher -- 8 of 54 -- 6 Skase and Mr Burden were directors of both companies and Skase was also a director of Lloyds Ships. At the time of rescission Skase and Burden were directors of all three companies. At the date of the subscription agreement Skase had ceased to be a director of Lloyds Ships but remained a director of Hover Mirage and Mirage Operations. Burden remained a director of all three companies. Lloyds Ships' directors at the time of the subscription agreement were Mr Capps, who was in charge of Qintex Treasury and who had continuously been a director since before the charges were entered into, and Mr Poncini who was an accountant in Qintex head office. Skase and Burden were both directors of Hover Mirage and Mirage Operations at this time. Capps and Poncini resigned as directors on 16th June, 1989 and were replaced by Mr Newport and Mr Hili. To understand relevant events it is necessary to explain the relationship of certain of the entities directly involved in relevant events. The defendant had since 1976 been the trustee of the Mirage Resort Trust ( "MRT"), trustee of Gold Coast Resort Trust ( "GCRT") since 1985 and trustee of Port Douglas Resort Trust ("PDRT") since 1986. Almost the whole of the issued units in MRT were held at material times by Qintex Australia Limited ("QAL") and other companies which were its subsidiaries. The defendant held, on behalf of MRT, the beneficial interest in all issued units in PDRT and GCRT prior to April 1989 when Japanese investors acquired a 49 per cent interest under a subscription agreement which provided for the issue of sufficient further units to provide for that result. -- 9 of 54 -- 7 There was also a company Mirage Operations Pty. Ltd. ("Mirage Operations") in which the defendant as trustee for MRT held all shares with a right to dividends and Presmarda Limited held all shares with voting rights and the right to appoint and remove directors. All shareholders of Presmarda Limited were unit holders in MRT with voting rights in proportion to their unit holdings. Mirage Management Limited was manager of each of the trusts. It was a wholly owned subsidiary of Qintex. Hover Mirage was a wholly owned subsidiary of Mirage Operations. Mirage Operations' and Hover Mirage's role was to carry on trading activity in respect of the Mirage Resorts at Port Douglas and the Gold Coast. Hover Mirage's particular functions included operating Hovercraft and Mirage III in connection with the resorts. Lloyds Ships was a wholly owned subsidiary of Queensland Merchant Holdings Limited (QMH). A wholly owned subsidiary of QAL, IPH Equities Pty. Ltd., had a direct 33 1/ 3 per cent interest in QMH. IPH Equities also held 18 per cent of the shares in Imbercliff Pty. Ltd. which held the other 66~ 3 per cent of the QMH shares. Thus QAL controlled at least 45 1/ 3 per cent of the shares in QMH directly or indirectly. The phrase "at least" is used because it was part of the defendant's case that QAL had a further interest in QMH which made its interest a controlling interest, because certain other shares in Imbercliff were held on trust for QAL or one of its subsidiaries. Apart from the 18 per cent held by IPH Equities the remaining shares in Imbercliff were held by Christopher Skase (one per cent) Jeserac Pty. Ltd. (forty per cent) and, so far as the ASC records indicated, by one -- 10 of 54 -- 8 Andrew Clark Miller (41 per cent). The latest annual return filed with the ASC was for the year to 31 July 1988. Mr Miller began his relevant employment on 20 May 1986 with Qintex Group Management Services Pty. Ltd., a company which was not a subsidiary of QAL but which provided administrative and consulting services for QAL and its subsidiaries. Later he was employed by QAL. He agreed that he held forty-one per cent of the shares in Imbercliff, but his recollection of the circumstances of his taking and holding them was not good. A passage of evidence at pp. 382-383 illustrates this. Its effect is that he did not know on whose behalf he held the shares. His recollection was that Mr Burden spoke to him about the shares but Mr O'Reilly might have been involved. He was unsure whether he had paid for the shares but he had no recollection of doing so and thought it unlikely. He thought he had signed a transfer when he had resigned. He said that he had never seen any documentation, if it existed, evidencing the trust. This evidence does not assist in resolving the precise identity of the beneficial owner of the shares, but shows that he believed that the beneficial owner was a company in the Qintex Group. In addition, the evidence is deficient as to what happened to the shares upon his signing a transfer when he resigned from his employment with QAL. The shares in Jeserac Pty. Ltd. were owned by Christopher Skase, Mr Burden, Mr Putland and Mr Capps in the proportions one:one:two:two. -- 11 of 54 -- 9 The evidence also establishes that the accounts of QMH and its subsidiaries were not included in the group accounts of QAL and its subsidiaries. The subscription agreement is important because it, amongst other things, includes as "GCRT and PDRT assets", in the schedule relating to trust properties "Mirage III and all such assets used in connection with the operation of Mirage III". The defendant as trustee of MRT represented and warranted that it, in its capacity of trustee of GCRT and PDRT respectively, was legal owner of and possessed good and marketable title to all trust properties. The subscription agreement was made on 31 March 1989. A closing memorandum was executed on 14 April 1989. At the time of execution of these documents the ship remained registered in the name of Lloyds Ships in the Australian Reqister of Shipping. It appears that that no formal steps were taken to transfer title in the ship from Lloyds Ships to one of the trusts until the middle of June 1989. This in practical terms coincided with the execution of a management buy-out agreement under which the general manager of Lloyds Ships, Mr Newport and interests associated with him were to purchase the business of Lloyds Ships. It was always understood that Mirage III would not be included in the assets of Lloyds Ships if the buy-out proceeded. These negotiations had been under way prior to the execution of the subscription agreement. A bill of sale was executed in blank by Mr Hili, a director of Lloyds Ships, on 20 June 1989 in conformity with a board resolution authorising him to sign a bill of sale for transfer title of Mirage III "to such person ( s) partnership or corporation as may be determined". Mr Hili said -- 12 of 54 -- 10 that the document 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 the entity, and his understanding was that the identity would be determined by those to whom he delivered the document. The document was then sent to the Mirage Resorts Office at Southport and it was only when a provisional liquidator was appointed to Lloyds Ships and it was publicised that the liquidator was asserting title to the ship that the partially completed bill of sale was completed and forwarded to the Registrar of Shipping for registration. subsequently effected and the vessel sold. Registration was The first plaintiff's case is relatively uncomplicated. It is that the defendant converted the vessel by assertinCJ ownership to it in November 1989 and subsequently selling it. There are also allegations that the first plaintiff was unable to pay its debts as and when they fell due from its own resources at all material times and that no consideration was given by the defendant for any transfer of any interest (equitable or legal) in the ship. Based on these allegations it is claimed that there was a disposition of property of the first plaintiff to the defendant after the commencement of the winding-up of the first plaintiff and that that disposition is void. It is further alleged that any transfer of an interest in the ship was void as against the second plaintiffs as a settlement, conveyance or transfer in contravention of s.120(1) of the Bankruptcy Act 1966. It is also alleged that the bill of sale executed in blank was void for uncertainty as against the first plaiAtiff by reason of -- 13 of 54 -- 11 its execution in blank without, inter alia, the date description of the ship or identity of the transferee being inserted therein. The defendant's case is rather more complex. It is implicit in the conduct of the defence that I am required to examine the transactions, including financial transactions between the entities described above, and it was submitted that such examination will lead to the conclusion that at the least the defendant had equitable rights in respect of the vessel or against Lloyds Ships. It is also implicit in the defence that I am obliged to consider the role played by various people, although they were not formally appointed as directors of Lloyds Ships, in the conduct of the business of Lloyds Ships. To put the defendant's case in context, it is convenient to begin by considering aspects of transactions which have a bearing on the return of the ship by Hover Mirage to Lloyds Ships. Because of concerns that the advancing of money by MRT to Mirage Operations may have breached provisions of the Companies Code relating to lending to the manager of trusts or associated companies, certain steps were taken, with the approval of the NCSC, including the granting of a mortgage debenture by Mirage Operations in favour of the defendant to secure loans made to Mirage Operations and the granting of a mortgage debenture by Hover Mirage in favour of Mirage Operations to secure loans made by Mirage Operations to Hover Mirage. The majority of their provisions are identical but some others illustrate how they are interlocked. The debenture given by Mirage Operations to the defendant has a more detailed provision for information to be given with respect to the intended manner of expenditure of -- 14 of 54 -- 12 moneys advanced by the defendant (cl.2.4(b)). This links with cl.2.5 which in each debenture gives the right to the mortgagee to refuse to advance moneys but in the case of the Mirage Operations - Defendant Debenture there is also an obligation upon the defendant to refuse to make an advance where it considered that the making of the advance was not in the interests of the unit holders of MRT. Further in cl. 2. 1 0 of the Mirage Operations - Defendant Debenture provision was made for the defendant to appoint one-quarter of the directors of Mirage Operations and any of its subsidiaries. In cl. 6. 17. 1 of the same debenture the obligation is cast upon the mortgagor to meet the mortgagee monthly and to provide a variety of information on financial and operational matters with respect to the mortgagor itself and with respect to Hover Mirage in respect of moneys advanced to it. As it turned out, the right to appoint directors was exercised in each case only from 27 July 1987 to 4 March 1988. By that time, an ANZ Group policy that employees should not hold directorships was in force. Nor were the monthly meetings contemplated by cl.6.17.1 held. There were meetings with Mirage Management Limited, the manager of the Trusts. By cl. 4.1 of the respective mortgage debentures the mortgagor charged to the mortgagee all its estate and interest in the whole of the mortgaged property to secure payment of the moneys secured to the mortgagee. The "mortgaged property" was defined as the undertaking and assets present or future of the mortgagor. Subject to one matter to which I shall refer shortly the respective cll.4.2 created a charge over, inter alia, plant, -- 15 of 54 -- 13 machinery, vehicles and all other assets of the mortgagor from time to time which were not acquired or disposed of on a regular basis in the normal course of and for the purposes of the normal business of the mortgagor. In each of the mortgage debentures cl.4.2(c) provided that the charge would forthwith attach and become fixed in respect of any part of the mortgaged property which was otherwise subject to a floating charge if the mortgagor took steps to transfer, convey, assign, charge or encumber that part of the mortgaged property in favour of any person except where that was done in the normal course of the business of the mortgagor. There were other provisions that are not presently material under which the charge became fixed. In all other respects and circumstances the charge was a floating charge. Events of default are specified in cl. 9.1 of each debenture. With the exception of the respective clauses (bb) they are the same in substance. In the Hover Mirage - Mirage Operations Debenture, sub-cl. (bb) specifies that there is an event of default if default is made by Mirage Operations under its debenture in favour of the defendant. In the Mirage Operations - Defendant Debenture sub-cl.(bb) specifies that it is an event of default if Mirage Management Limited is removed as the manager of MRT. Perhaps most importantly, the mortgage debenture granted by Hover Mirage to Mirage Operations is specifically included as one of the assets of Mirage Operations to which a fixed charge attaches under the Mirage Operations - Defendant Debenture. (cl. 4. 2). In the event of a breach of the agreements or obligations under the Hover Mirage - Mirage Operations Debenture -- 16 of 54 -- 14 the mortgagee's rights become exercisable in favour of Mirage Operations. Under cl. 6. 9. 1 of each, the mortgagors agreed not to "convey, sell, transfer, assign, dedicate, dispose of, vacate, abandon, forfeit ..... or otherwise .... part with possession of or deal with the mortgaged property" without the consent of the mortgagee in writing first had and obtained. There was a proviso that nothing was to be taken to prohibit any purchase or sale of stock in trade in the normal course of business "or any other dealings with customers or suppliers of the business of the mortgagor in the normal course of such business". Prima facie Mirage III would be property that was subject to the mortgage debenture granted by Hover Mirage in favour of Mirage Operations. However Mr Hanger submitted that the mortgage debenture should not be taken to have extended to it. The argument was that the ship was required to be registered under the Shipping Registration Act 1981 (Cth). The evidence established that the vessel had never been registered prior to its registration in Lloyds Ships' name on 13 September 1988. Mr Hanger's argument essentially was that a ship that was required to be registered should be equated to a registered ship. Therefore the exception in s. 200 ( 1 ) (d) in respect of ships "registered in an official register kept under a law in force in Queensland relating to title to ships" applied. The effect of that, he submitted, was that a mortgage of a ship could be created validly only if the procedure in the Shipping Registration Act was followed and that to the extent that the -- 17 of 54 -- 15 mortgage debenture might have extended to a ship it should be construed as not creating a valid mortgage. In my opinion the Shipping Registration Act does not operate to deny validity to a mortgage of an unregistered ship. While sanctions might apply (s.12(3)), and other benefits flowing from registration would not accrue if a ship which should be registered is not registered, the Act does not purport to deny effect to a mortgage entered into in some other way than that prescribed by the Act. This view receives some support from Union Bank of London v Lenanton (1878) LR 3 CPD 243. In my opinion, therefore, the ship fell within the property which was subject to the mortgage debenture granted by Hover Mirage to Mirage Operations. I do not consider it to be an asset acquired and disposed of on a regular basis for the purposes of the normal business of Hover Mirage, as that phrase is used in the mortgage debenture. The proper conclusion therefore is that the ship was part of the property that was subject to a fixed charge under the mortgage debenture between Hover Mirage and Mirage Operations and that therefore Hover Mirage would have been in breach of its obligations under that debenture if it disposed of the vessel without the prior consent in writing of Mirage Operations. Although the transaction which involved returning the vessel to Hover Mirage was referred to as a rescission in the proceedings, the precise nature of the transaction, bearing in mind the ambiguousness of the word, was not explored. I am satisfied that there was a genuine intention to return title to the vessel to Lloyds Ships. Probably the major motivation was the desire to create a situation in which it could be argued -- 18 of 54 -- 16 that sales tax was not payable. It is true that there were defects in the vessel and that that was the reason given for its return. However the reality of the situation was that it remained in use in connection with the Mirage Resorts and the proper conclusion is that what happened was a transaction in a category which required consent under the mortgage debenture. Mr Hanger also submitted that the transaction did not involve a breach of the mortgage debenture from Hover Mirage to Mirage Operations because the rescission of the contract occurred in the normal course of business of Hover Mirage. In this connection he relied on cl.6.9.1 of the mortgage debenture which contains a proviso to the restraint on alienation, that nothing should be taken to prohibit any purchase or sale of stock in trade in the normal course of the business of the mortgagor or any other dealings with customers or suppliers of the business of the mortgagor in the normal course of such business. He submitted that the return of the ship to Lloyds Ships by Hover Mirage was done in the normal course of business of Hover Mirage. While the literal construction of the words may be capable of supporting that proposition, I do not think that the construction of the document, as a whole, does. I therefore do not accept the argument. With respect to the issue of consent, although Mr Burden, who was at the relevant time a director of both Mirage Operations and Hover Mirage, was called as a witness he was not asked any questions relating to the consent of Mirage Operations to the transaction. Nor were any other witnesses. Such evidence as there is suggests quite plainly that Mirage Operations did not -- 19 of 54 -- 17 oppose the transaction. Mr Burden's letter of 31 May 1988 written by him on behalf of the directors of Hover Mirage and conveying the decision to return the ship to Lloyds Ships is, intriguingly, written on Mirage Operations letterhead. In terms of issues, the issue of breach of the provisions of the fixed charge was raised by the defendant (see for example cl.2.5(f) of the further amended defence). On the state of the evidence and in particular in the absence of specific evidence that Mirage Operations did not give its written consent to the transaction the conclusion to be drawn is that it has not been established that Hover Mirage was in breach of its obligations to Mirage Operations under the mortgage debenture. This conclusion flows, as much as anything from the minimalist approach taken in relation to proof of facts throughout the trial. In the event of a breach of the agreements or obligations under the debenture granted by Mirage Operations to the defendant, two consequences would follow. The first is that such breach is an event of default under that debenture enabling the defendant to exercise its rights as mortgagee under that debenture. Also it is an event of default pursuant to cl.9.1 (bb) under the debenture granted by Hover Mirage - Mirage Operations. Had there been a breach, the result would have been that, had it taken steps to do so, the defendant could have exercised any rights accruing to it through the debenture from Hover Mirage to Mirage Operations. If the sub-mortgage of Mirage Operations' interest under the mortgage of Mirage III to the defendant had the effect of transferring the property in Mirage III to the defendant subject -- 20 of 54 -- 18 to rights of redemption in favour of Mirage Operations and Hover Mirage, Hover Mirage could not convey full legal title to Lloyds Ships. There is no basis for suggesting that Lloyds Ships took without notice because Mr Burden was a director of both Hover Mirage and Mirage Operations at the time of granting of the two mortgage debentures and also, at the time of the rescission, a director of Lloyds Ships. However the defendant executed a memorandum of release on 27 October 1989 (purporting to operate from 31 March 1989) under which the property described in the schedule was released from the charge. Subject to arguments principally relating to fiduciary obligations which will be discussed later the effect of this would be that, as against Mirage Operations, the defendant relinquished any rights that it had under the mortgage debenture. From that point Lloyds Ships would hold only subject to any rights that might remain in Hover Mirage. As between Hover Mirage and Lloyds Ships, the return of the ship by Hover Mirage was not proved to have been done without the consent of Mirage Operations, and to that extent, Hover Mirage was not proved to be then in breach of its obligations to Mirage Operations under the debenture between them. The conclusion to be reached is that the mortgage debentures themselves do not affect the question of ownership of the vessel at the relevant time. It is convenient at this point to analyse the nature of the defendant's case. The claim that Lloyds Ships was in breach of fiduciary obligations owed to the defendant assumed primary importance. It encompassed claims that Lloyds Ships itself owed a fiduciary duty to the defendant and that it was also liable to -- 21 of 54 -- 19 account for the breach of fiduciary obligations owed by others to the defendant. Mr Callinan reduced his argument to a number of propositions. In summary they were the following:- 1 . The defendant had a proprietary claim to the ship by reason of breach of fiduciary obligations owed to the defendant by Lloyds Ships, Mirage Operations, Hover Marine, Skase and each of the QAL Group. More specifically, five propositions were advanced. They were that: (a) Lloyds Ships obtained legal title to the ship in breach of those fiduciary obligations and held it on a constructive or resulting trust for the defendant; (b) Lloyds Ships (and other Qintex Group companies, including QMH) obtained the proceeds of the PPL loan facility at the direction of Qintex Treasury in breach of the fiduciary obligations; (c) Lloyds Ships (by QAL Burden and others in the QAL Group) represented to the defendant that the defendant as trustee was entitled to all right title and interest in the vessel: (i) by entering into the subscription agreement; and (ii) by making representations and giving instructions (by its nominated directors and those who controlled it) to the manager of MRT and PDRT as to the return and transfer of the vessel to MRT and PDRT. (d) Lloyds Ships (and others including the QAL group) obtained enrichment with a corresponding deprivation to the defendant; and -- 22 of 54 -- 20 (e) Lloyds Ships was effectively controlled by those who controlled QAL no matter who were the nominated directors or shareholders of Lloyds Ships. 2. Those alleged to be fiduciaries owed a duty to the defendant to safeguard and further the interests of the defendant as trustee of MRT, PDRT and GCRT and that they had a duty not to use their position to gain a profit or advantage to themselves other than with the informed consent of the defendant. 3. Lloyds Ships was bound by the subscription agreement to transfer the ship to the defendant. Lloyds Ships was a subsidiary of QAL and any dealings with the Mirage III were transacted by persons who were directors of Lloyds Ships within the extended meaning of the term in s.5(1) of the Companies (Queensland) Code. 4. The defendant was entitled to rely on the purported exercise of directors' powers and QAL's assurances. It was entitled to rely upon its mortgage debentures, the trust deeds relating to MRT, PDRT and GCRT and upon the subscription agreement and the closing memorandum. There had been nothing to put it on inquiry about ownership of the vessel. 5. Registration under the Shipping Registration Act did not give Lloyds Ships indefeasible title. The claim in conversion failed because the defendant was in possession of the vessel and entitled to possession and title of it at all material times. -- 23 of 54 -- 21 6. The bill of sale by which registration of the defendant as owner of the vessel was obtained was valid. 7. If the defendant did not have right title or interest in the vessel prior to the making of the entries in mid 1989 in the books of Lloyds Ships transferring the vessel from Lloyds Ships and repaying the debt owed as a result of the transfer to Lloyds Ships from Hover Mirage, then there was valuable consideration for the transfer and the defendant obtained the beneficial interest upon the transfer occurring. 8. Lloyds Ships would gain unjust enrichment because the defendant had paid twice for the ship. Lloyds Ships had an obligation to make fair and just restitution for benefits gained at the expense of the trustee. This proposition was based on a series of payments. It was submitted that up to 31st July 1986 the defendant had paid $2.1 million to Hover Mirage by way of reimbursement of progress payments made to Lloyds Ships by Hover Mirage. From 31 July 1986 to 25 May 1987 almost $2.36 million had been paid by Hover Mirage to Lloyds Ships. These moneys were advanced by the defendant and secured by the mortgage debenture. By May 1988 a further $348,000, the ultimate source of which was the defendant, had been paid by Hover Mirage to Lloyds Ships for repairs and alterations. After April, 1989 outgoings of almost $1.37 million in the form of sales tax, insurance and running expenses were paid in respect of the vessel by the defendant. In May, 1989 $4 million of a larger sum advanced to QAL by the defendant were advanced to QMH which -- 24 of 54 -- 22 paid the sum to Lloyds Ships to use to discharge the PPL mortgage. 9. The defendant held a beneficial interest in the ship by reason of the mortgage debentures granted by Hover Mirage to Mirage Operations and Mirage Operations to the defendant. Upon acts of default occurring the defendant was entitled to possession of the ship. 10. There was an estoppel, founded on the assumption by the defendant that Lloyds Ships would not claim the beneficial interest in the ship at any material time. This assumption was encouraged by the controllers of Lloyds Ships representing expressly or by conduct that binding contracts culminating in the subscription agreement had been entered into. The detriments suffered by the defendant were:- (a) that it did not exercise its powers under the debenture; (b) that it entered into the subscription agreement; (c) that it counselled or procured the Japanese investors to subscribe for further capital; and (d) that it caused book entries to be made in relation to debts arising out of the transfer of the vessel. 11 . The acquisition of the ship by the defendant was not a settlement or disposition which was caught by ss.120 and 122 of the Bankruptcy Act or s.451 of the Companies (Old) Code. Nor was it caught by s.368 of the Code. This analysis provides a convenient framework in which to consider the issues. Mr Callinan submitted that there were breaches of fiduciary obligations owed by a variety of persons, -- 25 of 54 -- 23 including Lloyds Ships, to the defendant and that Lloyds Ships was liable to account for any benefit that it received as a result of those breaches of fiduciary duty. One of the fundamental propositions relied on was that there was a fiduciary duty owed by a number of corporations and by Skase to the defendant. These fiduciaries, it was submitted, breached their fiduciary obligations at the direction of or with the consent of:- (a) Skase (on behalf of the QAL Group and the QMH Group); (b) Qintex Treasury, (Capps and Burden); (c) QAL (by Skase, Burden, Capps, Pratt, Putland, Miller and Masters); and (d) Mirage Operations and Hover Mirage (by their officers, Skase, Burden, Capps, Pratt, Putland, Miller and Masters). There was a related argument that several of the persons had assumed the role of directors of the corporations involved within the extended meaning of the term in s. 5 ( 1 ) of the Companies (Queensland) Code. The submission was that the corporations described as fiduciaries in the pleadings and the nominated or actual directors who dealt with Mirage III were fiduciaries within the meaning of Mason J's test in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 96-7. Recognizing that the scenario was complex and that the parties did not fit within one of the traditionally recognised categories of fiduciary relationships, Mr Callinan relied on Gibbs J's observations in Hospital Products at 68 to the effect that there was no reason to suppose that categories of fiduciaries are closed. The duty owed to the defendant was -- 26 of 54 -- 24 categorised as one to safeguard and further the interests of the defendant as trustee of the trusts and not to use their position to gain profit or advantage other than with the informed consent of the defendant. Mr Callinan submitted that QAL and Mirage Operations, in particular, were in an analogous position to promoters having regard to the role they played in relation to the use of Mirage III in the Mirage Resorts Project. As promoters had been recognised as a category of fiduciary (Erlanger v New Sombero Phosphate Co. (1873) 3 App Cas 1218, 1229; Tracv v Mandalay Pty Ltd (1953) 88 CLR 215) they should be regarded as fiduciaries. It was also submitted that the commercial aspects of the matter, namely that the defendant had security by way of the mortgage debenture and obtained remuneration for services as trustee, did not necessarily remove it from the fiduciary regime (Hospital Products, Mason J, 100). That can be accepted as a general proposition but the possibility of its application in the present case is linked to the more fundamental question of the existence of the fiduciary relationship alleged between others, including Lloyds Ships, and the defendant. The crux of that argument was that those who controlled QAL and its subsidiaries controlled not only Mirage Operations and Hover Mirage but also Lloyds Ships. They were the same persons who controlled Imbercliff and QMH, which controlled Lloyds Ships. Viewed in the context of Mirage Operations' and Hover Mirage's relationship with the defendant as trustee for the trusts, Mirage Operations and Hover Mirage were in a fiduciary relationship with the defendant. If the companies were fiduciaries, there was a duty -- 27 of 54 -- 25 to act with the informed consent of the party to whom the duty was owed. The defendant in its capacity as trustee of MRT had reimbursed QAL and others for payments made to Lloyds Ships by Hover Mirage. Further payments were made by loan to Mirage Operations and to Hover Mirage or by the payment of moneys for expenses paid on the basis that the defendant as trustee was entitled to the ship. The fiduciaries and their directors were subject to fiduciary obligations giving rise to obligations of disclosure which were breached. Because the fiduciaries had, through their directors, knowingly induced and procured breaches of duty by dealing with Mirage III the fiduciaries were accountable and liable for those breaches. The way in which the argument was formulated was that pursuant to the debentures the defendant held an interest in the vessel. It held at least a mortgagee's proprietary interest in all assets subject to the fixed charge. After the rescission it had a chose in action with respect to the vessel. It had an interest as mortgagee in the property subject to the fixed charge. The interest in property was held on constructive trust for it by those involved in transactions relating to the property. Mirage Operations had no power to dispose of the chose in action over the vessel. It was further submitted that default under Mirage/Mirage Operations debenture gave a right the Hover to Mirage Operations to possession of the vessel. Mirage Operations was in default under its debenture to the defendant because : (a) it failed to preserve the assets; -- 28 of 54 -- 26 (b) it failed to exercise its rights under its debenture; and (c) it dealt with the vessel in contravention of both charges because there had been no consent to the dealing. Procuration of registration of Lloyds Ships as owner of the vessel, of itself, or without recognition of the defendant's interest was a further default. It was further submitted that because of the common directorships, each company had knowledge of the situation and if the companies were fiduciaries there was an obligation to act with the informed consent of the party to whom the duty was owed. It was submitted that notice of Hover Mirage's default had been kept from the defendant. Mirage Operations could not consent to the rescission without the defendant's informed consent. It was further submitted that the balance sheet did not reveal the fact of the rescission and that even if it did, it did not lead to the conclusion that there had been informed consent by the defendant. The last proposition has reference to the fact that, from the financial documents, some of which found their way into the systems of the defendant, it could easily be inferred that the vessel had, on the face of it, passed from Hover Mirage and been replaced by a debt in its accounts. For some reason this was never adverted to by the defendant. One might infer that the decision, in compliance with the ANZ Group's policy, not to continue with the appointment of an officer of the defendant as director and the apparent failure to require information to be provided with the frequency envisaged by the debenture may have -- 29 of 54 -- 27 contributed to this. One other aspect of this is that Mr MacRonald, the defendant's Queensland Manager, said that he had been told that Mirage III had been "returned" to Lloyds Ships but had not inquired about the implications of the return. He had assumed that it had only been physically returned so that Lloyds Ships might find a buyer for it and pay the proceeds to Hover Mirage. Apparently, it did not occur to him that more might have been involved. Reliance was placed on Gibbs J's analysis of the position of a stranger, in case of breach of fiduciary obligations, in Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373, 398. It was submitted that the principle which made Lloyds Ships accountable was to be found in that paragraph and in Ravinder Rohini Pty Ltd v Kriziac (1991) 30 FCR 300, 312 where it was said by Wilcox J "It is a breach of duty for a person in a fiduciary relationship, without the consent of the other parties involved, to appropriate personally an advantage which occurs to him or her by reason of that relationship. In Chan v Zacharia (1984) 154 CLR 178 this principle was applied by the High Court even in relation to an advantage which enured after the dissolution of the partnership, but before its affairs were wound up. In their submissions counsel for the appellants did not really contest these two propositions. The next question which arises in the case based on breach of fiduciary duty, on my assessment of theprimary facts, is whether a third party is accountable for a benefit which it takes by virtue of a breach of fiduciary duty by another. Neither counsel addressed this question. But it arises because of the circumstance that the fiduciary relationship was between Mr Krizaic and Mr Sharma, whereas the benefit of the breach of the fiduciary duty was taken by Ravinder Rohini. The authorities make clear that theanswer to that question is in the affirmative, at least where the third party takes with actualknowledge of the breach of duty." -- 30 of 54 -- 28 I should also note an argument that if Hover Mirage had no real expectation that it would be paid by Lloyds Ships the transaction was tantamount to a gift. It was submitted, on the authority of Ointex Australia Limited v ANZ Executors and Trustee Co Ltd (1991) 2 Qd R 360 that that was not a proper corporate purpose and was beyond power. It is sufficient to dispose of this particular argument to say that the evidence does not establish the threshold proposition 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. Another issue argued was whether Lloyds Ships was a subsidiary of Qintex. There is no doubt that it was a subsidiary of QMH as QMH owned 100 per cent of the shares in Lloyds Ships. Section 7 of the Companies (Queensland) Code defines certain tests for determining whether a company is a subsidiary of another. There was no substantial evidence relating to the tests in s.7(1)(i) or (iii). As to s.7(1)(ii), the test is that the other corporation is in a position to cast or control the casting of more than one half of the maximum number of votes that might be cast at a general meeting of the first mentioned corporation. That, in the case of Lloyds Ships, depends on whether QMH is a subsidiary of Qintex. QMH is not treated as a subsidiary in the group accounts of Qintex. Section 266 of the Code defines "group of companies" in relation to a holding company as the holding -- 31 of 54 -- 29 company and the corporations that are subsidiaries of the holding company. Section 269 ( 3) casts a duty on the directors of a holding company to make out group accounts dealing with the company and its subsidiaries for the preceding financial years. Mr Burden, who is a solicitor, said that Lloyds Ships was not a subsidiary of Qintex because it did not satisfy the three tests in s.7 of the Code. There is nothing in the accounts of Lloyds Ships itself to suggest that it is a subsidiary. Hover Mirage classified it as unrelated in its accounts. Lloyds Ships balance sheets and annual returns identified Imbercliff as the ultimate holding company in 1988. As against this there is the unsatisfactory evidence of Mr Masters with respect to the character in which he held his shares. There is also evidence of various witnesses referring to Lloyds Ships as if it was a subsidiary. Mr Callinan submitted that given the sums of money being poured into Lloyds Ships by Qintex it was not surprising that it was treated for accounting purposes as not being part of the Qintex group. He submitted that nonetheless it was a subsidiary. In my view the weight of evidence is that Lloyds Ships was not a subsidiary within the meaning of the Companies Code. However, it may be that its status in that respect is not critical in the resolution of the matter. Perhaps more importantly, it was submitted that Lloyds Ships was subject to "the absolute control of QAL, QMH, Skase, Burden, Putland and Capps and, through them, it was subject to the directions of Masters and Miller. Newport, Poncini and Hili were accustomed, and did act in accordance with their directions." It was submitted that Skase, Burden, Putland, Capps, Masters and -- 32 of 54 -- 30 Miller were "directors" within the extended meaning of the term of both Lloyd Ships and Hover Mirage at all material times. It was submitted that so far as there were dealings with the ship and the making of entries in the books of Lloyds Ships, Hover Mirage and Mirage Operations, the nominated Board of Directors from time to time of those companies acted in accordance with the directions and instructions of Skase, Burden, Qintex Treasury, Putland, Masters and Miller. A good deal of evidence was led to demonstrate that Skase, in particular, let his views be known, sometimes forthrightly, about dealings involving Mirage III. At the time of creation of the charge and the rescission he was a director of Lloyds Ships, Hover Mirage and Mirage Operations. There was also evidence that persons in executive positions received instructions from executives of the Qintex Group about matters of management and finance. The written submissions record the references in the evidence to matters relied upon by the defendant to establish that the persons referred to were "directors". The relevant provision of the Companies (Queensland) Code relevantly defines director as including:- ( a) any person occupying or acting in the position of director of the corporation, by whatever name called and whether or not validly appointed to occupy or duly authorised to act in the position; (b) any person in accordance with whose directions or instructions the directors of the corporation are accustomed to act. The first paragraph of the definition is not concerned with the question with which I am presently concerned. It is -- 33 of 54 -- 31 concerned with the designation of a person performing the functions of a director (Harris v S (1976) 2 ACLR 51). The second paragraph has the effect set out in the following passages from Harris v S. At 63 Wells J said the following:- ". . . the extension has effect only where there are directors who are fulfilling their role and functionas directors, but who carry out that role and function in accordance with directions or instructions given by someone dehors the directorate, such as the governing director of a holding company, who directs and instructs the directors of the subsidiary what to do. For this provision to apply it must appear, first, that although the outside person calls the tune, it is the directors who dance in their capacity as directors; and second, that the directors perform positive acts, not simply forebear to act or desist from acting. It seems to me that if the directors simply stand aside - either voluntarily or under compulsion - and allow another to supersede them, it cannot truly be affirmed by them that they are accustomed to act on the instructions or directions of him, who, in effect, replaces them." Sangster J at 71 said the following:- " ... for any person to be a 'director' (as defined by the Act) by virtue of his control of 'the directors', it must be shown (leaving aside for the moment the distinction between control de facto and control de jure) that it was his will, and not the independent will of the appointed directors, which determined the resolutions of the board of directors. For a person to be lawfully substituted pro tern for the whole board is quite another matter. So, too, in my opinion, for a person (again leaving aside for the moment) the distinction between control de facto and control de jure) to control the acts of a managing director, not in relation to his functions as a member of the board of directors but only in relation to his functions as a working executive (and I regard the phrase 'managing director' as importing a dual function of 'director' and 'principal executive') is of no moment in an enquiry whether he controls the acts of 'the directors'." When the evidence led on the issue is placed in this context I am not satisfied that the necessary criteria have been established to constitute any of the persons alleged to be "directors" as directors. The other cases to which I was -- 34 of 54 -- 32 referred, Re a Company (No. 005009 of 1987), ex parte Copp (1989) BCLC 13, Re Lo-Line Electric Motors Ltd (1988) BCLC 706 and Corporate Affairs Commission v Drysdale (1978) 3 ACLR 760 are of no assistance. The first was a striking out application and does not provide any definitive guidance because of the test applied on such an application. The second was concerned with a situation where a person acted as a de facto director after the appointed director disappeared. It was held that he was not a "shadow director" since the definition presupposed that there was a Board of Directors who acted in accordance with instructions from someone else. The third was concerned with the question whether, under the first limb of the definition, a person whose appointment had expired but who continued to hold himself out as a director occupied the position of director. Mr Hanger for the plaintiffs submitted that when the ship was built there was an arms-length contractual arrangement between Hover Mirage and it. He submitted that the financial arrangements between the defendant and other companies with which it had dealings was therefore irrelevant to Lloyds Ships' position. He submitted that the rescission was recorded in the books of each of the companies with the result that a $4.8 million debt was created in favour of Hover Mirage. He submitted that the reference to a debt created in favour of Mirage Operations was of no significance. It was merely a book-keeping error. He submitted that the defendant's case was largely a plea ad misericordiam on the basis that it had paid for the ship and lost considerable sums of money by virtue of its investments. He submitted that there was no fiduciary -- 35 of 54 -- 33 relationship between Lloyds Ships and the defendant. He said that none of the ordinary kinds of fiduciary relationships had been established between Lloyds Ships and the defendant and that Lloyds Ships had no direct relationship with the defendant. At the most it was an indirect debtor of the defendant. He submitted that this kind of relationship was not a fiduciary relationship and that it was only in exceptional circumstances that such a relationship arose out of a commercial transaction. To the extent that the defendant's submissions relied on a money trail as creating a fiduciary relationship Lloyds Ships was not a party to the creation of the trail and could not have its rights affected by it. No doubt a fiduciary relationship can arise in a number of ways and the categories are not necessarily closed. The difficulty in this case is to fit within the framework of the concept of a fiduciary duty, what was initially a commercial arrangement under which Lloyds Ships was to build the vessel, which subsequently became entangled in a transaction designed to strengthen the case for removal of liability for sales tax for the benefit of Hover Mirage, and perhaps indirectly for the benefit of others. The scheme involved the substitution of a debt from Lloyds Ships to Hover Mirage instead of Hover Mirage having property in the vessel. Despite Lloyds Ships' financial position at the time there was no reason to suppose that the debt would not be eventually extinguished in some way, most probably by sale of the vessel. Further I have made findings contrary to the defendant's submissions as to Lloyds Ships' status as a subsidiary and on the issue whether certain persons were -- 36 of 54 -- 34 "directors" within the extended definition. On this aspect of the matter I conclude that the fiduciary relationships contended for have not been established. The arguments in the first two steps of the defendant's submissions are therefore not made out. It was also submitted that there was a constructive trust in favour of the defendant. The absence of a fiduciary relationship leads to the conclusion that a constructive trust cannot be made out. The pleadings also allege a resulting trust. No specific submissions were made in the written submissions in this regard, and no basis has been made out for such a finding. I turn now to the submission that the defendant was entitled to rely on s.68A of the Companies (Queensland) Code. Section 68A( 1) provides that certain assumptions may be made where a person has dealings with a company. In any proceedings in relation to those dealings, any assertion by the company that the matters that the person is entitled to assume were not correct shall be disregarded. To bring itself within this provision the defendant would need to show that it fitted the description of a person having dealings with Lloyds Ships in relation to the subscription agreement. As I understand it, the defendant does not say that it was such a person in a direct way. The involvement of persons who were alleged to be directors of Lloyds Ships in the negotiations relating to the subscription agreement is really the genesis of the submission. The submission is really that, insofar as those persons conveyed the impression that the vessel was not the property of Lloyds Ships, the defendant was entitled to assume that, if title had vested in Lloyds Ships at any time, all necessary steps had been or were -- 37 of 54 -- 35 being taken to transfer title to the Trust. I have previously found that, whatever status the intermeddling may have had, the evidence does not establish that those persons had authority to bind Lloyds Ships. Section 68A(2) provides that a person having dealings with a person who has acquired or purports to have acquired title to property from a company (whether directly or indirectly) is entitled to make certain assumptions. In any proceedings relating to those dealings, any assertion by the company or by the person who has or purports to have acquired title to property from that company that the matters were not correct is to be disregarded. The difficulty under this limb is that case presented that the defendant cannot on the facts, fit itself into the category of a person having dealings with a company which has had dealings with Lloyds Ships in which the company purported to acquire title to the vessel from Lloyds Ships. I turn now to the transactions concerning the vessel subsequent to the rescission. A book entry was made in the books of Hover Mirage on 25 August 1988 (purporting to be effective on 30 June 1988) removing the ship as a fixed asset and creating a loan due from Lloyds Ships to Hover Mirage. This was reflected in the accounts of Hover Mirage for the year ending 30 June 1988 with the debt being shown as a receivable owing "by other persons". A book entry was made in the books of Lloyds Ships on or about 20 October 1988 transferring the vessel into Lloyds Ships as stock. The books showed a liability to Mirage Operations. It is not easy to see why this should be the case. One would have thought that the liability should have been to -- 38 of 54 -- 36 Hover Mirage. The entry concerning the ship was reflected in the accounts of Lloyds Ships for the year ending 31st July, 1988 where the ship is shown as an asset. The corresponding amount of the debt is shown as under "creditors and borrowings". The insurance policies relating to the vessel were transferred to Lloyds Ships on 31 August 1988 and subsequently a debit of premiums due in September 1988 was made to Lloyds Ships loan account. It is apparent from these transactions that the ship was being treated as the property of Lloyds Ships. These transactions preceded the subscription agreement. It was at about the time of the subscription agreement that journal entries were made in the books of MRT and PORT purporting to transfer the vessel from Lloyds Ships to MRT for about $4.88 million and then from MRT to PORT for $1 million more, the difference reflecting an estimated sum of $1 million for sales tax. There were no corresponding entries in the books of Lloyds Ships at that time. Messrs Capps and Poncini were directors of Lloyds Ships at that time. Mr Poncini was not involved in any dealing reflected in the book entries. Mr Capps was not called to give evidence. There are no other documents supporting the transactions. Then on 14th June, 1989 (when Poncini and Capps were still directors) a journal entry in the books of Lloyds Ships purporting to be effective from 31 April 1989 reversed the entry made on 20 October 1988. The journal entry purported to record the removal of the vessel from Lloyds Ships and the elimination of Lloyds Ships indebtedness to Mirage Operations. It appears that this transaction was instigated by an inquiry by Mr Hili -- 39 of 54 -- 37 after consultation with Mr Masters. Hili was at that time financial controller of Lloyds Ships but not a director. It will be recalled that the indebtedness to Mirage Operations had been first recorded in ttie entry of 20 October 1988. The accounts for the year ending 30 July 1989 reflected these entries. Then on 16 June 1989 Poncini and Capps were replaced as directors of Lloyds Ships by Mr Newport and Mr Hili. At this point the various books were in a state of disarray in relation to dealings with Mirage III and showed that: (a) Lloyds Ships owed no moneys, having extinguished its debt to Mirage Operations by transfer of the vessel (b) Hover Mirage was owed $5.88 million by Lloyd Ships (c) MRT owed Lloyds Ships $4.88 million (d) PDRT owed MRT $5.88 million (e) PDRT had the ship as an asset. On 31 July 1989, the debt shown in Hover Mirage's books ((b) above) as owing by Lloyds Ships to Hover Mirage was transferred to MRT. This had the effect of removing that debt from Hover Mirage's books. As between Lloyds Ships and Hover Mirage the books of neither then showed an indebtedness to one another. It would unduly lengthen this judgment to recite in detail the various book-keeping steps that followed. The result was that by a process of legerdemain by journal entry extending over a period of months until 6 December 1989, all existing debts and debts created during the process of the book-keeping entries were extinguished by degrees, and the registration of the vessel in the name of the defendant was obtained on 6 December 1989 following completion by Mr Grant, Financial Controller for the -- 40 of 54 -- 38 Mirage Resorts of the bill of sale executed in blank on 20 June, 1989 by Mr Hili. For the purpose of considering the issues involved in this aspect of the matter another relevant factor is that on 17 November 1989 an application to wind up Lloyds Ships was made and a provisional liquidator appointed. The winding-up order was made on 12th December, 1989. The defendant's submissions, particularly those summarised in paras. 3, 4, 7, and 10 above, were concerned with the effect of the subscription agreement. The parties to the subscription agreement were the defendant as trustee for MRT, GCRT, and PORT, five Japanese companies, QAL, and three other Qintex companies. Despite Mr Hanger's submission that there was an ambiguity in the subscription agreement I am satisfied that Mirage III was included in the schedule of GCRT and PORT assets and was subject to a warranty by the defendant in that regard. The defendant's case is that in relation to the subscription agreement, the defendant held all right, title and interest in the ship because: "Lloyds Ships by QAL, its subsidiaries, and their directors, particularly Burden, represented to ANZ trustees that - (i) the ship was not registered in Lloyds Ships (ii) (iii) (iv) name; the ship was not encumbered ; the ship was an asset of the trustee; and the Japanese investors would, on completion of the subscription agreement, have full -- 41 of 54 -- 39 beneficial title (assured by legal title in the trustee) in Mirage III." It was further submitted that by the subscription agreement and the closing memorandum Lloyds Ships, by QAL and Burden, agreed to transfer and/or assured all right, title and interest in and to the ship to ANZ Trustees in consideration of the repayment of all moneys owing by Lloyds Ships to Mirage Operations or Hover Mirage. Lloyds Ships was not a party to the subscription agreement. There is no evidence that it was involved directly in the negotiations. As the form of the claim indicates, the case is that persons, particularly Skase and Burden, were directors within the extended meaning of the term of Lloyds Ships and that on behalf of QAL, its subsidiaries and Lloyds Ships, they agreed to divest Lloyds Ships of title to the vessel. There is no evidence except an assertion by Burden that Capps (who was not called as a witness) was aware of the arrangements with the Japanese investors and would have known of the inclusion of the ship as an asset of GCRT and PDRT, that the actual directors of Lloyds Ships at that time were in any way involved in any representations. It was submitted that in all of the circumstances the defendant was entitled to the vessel. Running largely parallel with that claim and based on essentially the same factual basis is a submission that Lloyds Ships was estopped from denying the defendant's title. In my opinion neither of these propositions is made out. Even if, as is abundantly clear, statements were made with respect to the vessel in the context of the subscription agreement, the failure -- 42 of 54 -- 40 of the defendant to appreciate that what was represented had not been properly effected does not, in a commercial context, entitle it to simply assume that those with whom it is dealing were acting with the authority of Lloyds Ships or to rely on what those people said uncri tically. In my opinion neither the proposition that the terms of the subscription agreement obliged Lloyds Ships to transfer the vessel nor the submission that there was an estoppel can succeed. Running parallel to the negotiation of the subscription agreement is the negotiation of the management buy-out agreement which culminated in its execution on 16 June 1989 and the resolution of the new directors of Lloyds Ships to sign the bill of sale in blank on 20 June 1989. There is ample evidence that Mr Newport was pursuing the possibility of a management buy-out of Lloyds Ships prior to the execution of the subscription agreement and that in the course of those discussions it was made plain to him that if that occurred Mirage III would not be included in the assets of the company which passed to the new owners. The subscription agreement proceeded on the basis that Mirage III was a Trust asset. The unilateral book entries in the books of account of MRT and PDRT on 8 April 1989 purported to transfer Mirage III from Lloyds Ships and the later entry on 14 June 1989 purported to remove Mirage III from Lloyds Ships' stock and eliminate the liability which was probably erroneously recorded as a debt to Mirage Operations. Those are the only documentary evidence of the respective transactions. There is no satisfactory evidence that the actual directors of Lloyds Ships at the time (Poncini -- 43 of 54 -- 41 and Capps) approved of the transaction, acquiesced in it or for that matter, knew about them. The negotiations with respect to the management buy-out agreement appear to have been held with Mr Newport who was the General Manager. No further light can be thrown on the matter because he was not called as a witness. 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. If it was only sufficient to create rights upon execution of the document by the defendant on 28 November 1989, that occurred after the application for winding-up had been made. Section 451 of the Companies (Queensland) Code provides that a settlement, conveyance or transfer of property, a payment made or an obligation incurred by a company that if it had been made or incurred by a natural person would in the event of his becoming a bankrupt be void as against the trustee and bankruptcy, is in the event of the company being wound up void as against the liquidator. Two provisions relied on were ss.120 and 122 of the Bankruptcy Act 1966. Section 120(1) provides that a settlement of property, not being a settlement made in favour -- 44 of 54 -- 42 of a purchaser in good faith and for valuable consideration is, if the settlor becomes bankrupt and the settlement came into operation after or within two years before the commencement of the bankruptcy, void as against the trustee in the bankruptcy. It will be noted that the issues of good faith and valuable consideration fall for determination under s. 120 ( 1 ) (a). Section 120 ( 2) is concerned with settlements of property not being settlements referred to in the specific paragraphs of s. 120 or settlements that are void as against the trustee by reason of the operation of s.120(1). In such a case if the settlor becomes a bankrupt and the settlement came into operation after or within five years before the commencement of the bankruptcy the settlement is void as against the trustee and bankruptcy unless the parties claiming under the settlement prove:- (a) that the settlor was at the time of making the settlement able to pay all his debts without the aid of the property comprised in the settlement; and (b) that the settlor's interest in the property passed to the trustee at the settlement or to the donee under the settlement on its execution. Section 120 ( 2) only becomes relevant if adverse findings are made against the defendant on one or both of the elements of good faith and valuable consideration. It is not necessary to enter into a discussion of the meaning of a "settlement" which has been the subject of some divergence of judicial opinion. It is widely defined as any disposition of property. On the assumption that the transfer of the vessel is a settlement it will be necessary -- 45 of 54 -- 43 in due course to consider the issues of good faith and valuable consideration. Section 122 of the Bankruptcy Act is concerned with conveyances or transfers of property or payments made by a person who is unable to pay his debts as they become due from his own money in favour of a creditor, having the effect of giving that creditor a preference, priority or advantage over other creditors. The relevant relation back period is six months before the presentation of the winding-up petition. In this instance s.122(2) provides that nothing in the section affects, inter alia, the rights of a purchaser or payee in good faith and for valuable consideration and in the ordinary course of business. The defendant submitted that in the present case there was no debtor/creditor relationship between the defendant and Lloyds Ships and that therefore s.122 did not apply. To activate s.122 there must be a conveyance or transfer of property. The creation in the defendant of a right in the ship would amount to that. If there is a conveyance in favour of the defendant the next requirement is that it has the effect of giving the defendant a preference, priority or advantage in its capacity as creditor over other creditors. On the findings that I have made the case does not fit into the framework of the section. Even if it were the question whether the defendant took in good faith and for valuable consideration in the ordinary course of business would be a further matter to be considered. Objectively the evidence establishes that Lloyds Ships was unable to pay its debts as they came due from its own money. It -- 46 of 54 -- 44 is true that by virtue of the injection of moneys into the company, as typified by the letter of comfort given to the auditors, the company was in fact paying its debts as they fell due with assistance of the moneys from external sources. The injection of moneys appears to have continued in consequence of the analysis made by Mr Masters and a hope that with better business practices Lloyds Ships' position might improve to the extent that it could ultimately be sold as a going concern. However, as Mr Callinan submitted, the letter of comfort and the kind of analysis necessary to establish insolvency is not necessarily irrelevant when one comes to consider the question of good faith. There are two phases in the steps taken with respect to the vessel. The first so far as Lloyds Ships' actions were concerned was on 20 June 1989 when the bill of sale was signed in blank by Hili. The second is the flurry of activity on the part of the defendant in November and December 1989 to obtain registration of the vessel in its name. Section 368 of the Code is concerned with invalidating dispositions made between the time of filing the application for winding-up and the time of making the winding-up order. It was submitted by Mr Callinan that the provision did not apply because the defendant held the beneficial interest in the ship prior to its lodging the bill of sale. He referred to authority which suggested that the word "disposition" normally had a meaning connoting a change in the beneficial ownership of an asset by transfer or other type of dealing (Re Loteka Pty Ltd (In Lig) (1990) 1 Qd R 322; Re Country Stores Pty Ltd (1987) 5 ACLC 636). -- 47 of 54 -- 45 It is desirable to conduct an overview of the position, initially on 20 June 1989 when the bill of sale was signed in blank by Hili. At that time, so far as the defendant was concerned the vessel had been described in the subscription agreement in the section relating to assets of GCRT and PDRT. So far as Newport, who joined with Hili in authorising the execution of the bill of sale in blank was concerned, the parallel negotiations with respect to the management buy-out of Lloyds Ships had always been conducted over a period of months on the basis that Mirage III would not be included in the assets of Lloyds Ships in the event that the management buy-out went ahead. It is true that he was not a director of Lloyds Ships during the negotiations. He was General Manager. But the course of those negotiations does cast light on the intention behind the execution of the bill of sale by Lloyds Ships within days of his becoming a Director of the company. 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 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 -- 48 of 54 -- 46 states of affairs or states of mind in connection with the second plaintiff's claim that the transaction is voidable. As Mr Callinan pointed out in his submissions it was not put to any of the persons connected with the transaction that the attempt to register the Mirage III in the name of the defendant had not been done in good faith. The evidence plainly suggests that it was done in pursuance of a belief that the vessel was the property of the trust and that the steps to register the vessel were done in pursuance of that belief. In s.122(4)(c) there is an extended statutory definition of good faith. The creditor is deemed not to have acted in good faith if it can be inferred from the circumstances that the creditor knew or had reason to suspect that the debtor was unable to pay his debts as they became due from his own money and that the effect of the conveyance, transfer or payment would be to give him a preference, priority or advantage over other creditors. There is an element of objectivity involved in the definition. That degree of objectivity would normally be applicable to the concept of acting in good faith. Subjective knowledge is not the sole criteria. It was submitted that had the defendant done so it would have discovered from the accounts of Lloyds Ships that it was in a state of insolvency over a lengthy period. As against that Mr Callinan referred to the letter of comfort and the fact that moneys were apparently paid by QAL to Lloyds Ships on request for the purpose of working capital. He submitted that in all of those circumstances it was not incompatible with good faith for the transaction to occur. In my opinion the element of good faith has been satisfactorily established. In all these -- 49 of 54 -- 47 circumstances, as the matter stood at the time of the execution of the bill of sale in blank the defendant took an equity in the property in good faith. So far as valuable consideration is concerned 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 Mirage III was extinguished. The consideration was of real and substantial value in a commercial sense and not merely nominal, trivial or colourable. So far as s. 120 is concerned the establishment of those two matters places the transaction within the category in s.120(1)(a). Consideration of other aspects of the section therefore becomes unnecessary. In relation to s.122 there is an additional requirement that the transaction be in the ordinary course of business. It has been said that this expression refers to a transaction into which it would be usual for a creditor and debtor to enter, as a matter of business, in the circumstances of the particular case uninfluenced by any belief on the part of the creditor that the defendant might be insolvent (Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd (1948) 76 CLR 463, 480; Re K & R Fabrications (Old) Pty Ltd (In Lig) (1980) 40 ALR 547). It has also been described as a transaction made according to the common flow of transactions in affairs of business (Re Hembury (1985) 10 FCR 249). The expression does not require an investigation of the course pursued in any particular trade or vocation and it does not refer to what is normal and usual in the business of the debtor or that of the creditor (Taylor v White (1964) 110 CLR 129). If the relevant transaction is characterised as one which -- 50 of 54 -- 48 involved the transfer of an asset from a company which was being purchased to another company in consequence of the agreed basis of the purchase of the company and in consideration of extinguishment of the taken-over company's liabilities, the transaction is one in the ordinary course of business. Accordingly the three requirements that must be established under s.122 have been established and in my opinion, if s.122 otherwise applies, it does not avoid the transaction as against the plaintiffs and, in particular, the second plaintiff. If it is correct that an equity was created by the transaction of 20 June 1989 and that the procuration of the registration of the vessel subsequent to the making of the winding-up application is no more than a perfection of this equity there is in my opinion no "disposition" within the meaning of s. 368. Accordingly s. 368 does not render the transaction void as against the liquidator. As I said at the outset the claim was based on the somewhat fortuitous circumstance that the vessel was at critical times registered in the name of Lloyds Ships. When the evidence is analysed, it shows that Lloyds Ships built Mirage III and was paid in full for it. The vessel was later returned to Lloyds Ships. The stated reason was that it had defects and was unsuitable for the purposes of the Mirage Resorts, but another important motive was to attempt to strengthen a case for exemption from sales tax. As Lloyds Ships did not repay the purchase price, it had the moneys paid as purchase price as well as the vessel, and owed a debt equal to the purchase price. In the months that followed, the vessel was mortgaged for -- 51 of 54 -- 49 $4 million, unsuccessful attempts were made to sell it on the open market, discussions about a management buy-out of Lloyds Ships·were held and Japanese investors acquired an interest in the trusts. In the discussions about the management buy-out, the understanding was that Mirage III would not be included as an asset of Lloyds Ships. When the subscription agreement with the Japanese investors was made, the defendant made representations that were incorrect about ownership of Mirage III because it accepted, uncritically, without proper verification, that the vessel belonged to the trusts. It was not until 2~ months later, when the management buy-out agreement was signed, that the incoming directors of Lloyds Ships authorised execution of a transfer document for Mirage III and sent it for completion to the Mirage Resorts Office at Southport. However, for reasons which are not clear, the transfer was not completed until the application to wind up Lloyds Ships had been made and the second plaintiffs were asserting a right to the vessel. By a series of book entries over a period of time, the debt owed by Lloyds Ships representing the unrefunded purchase price of the vessel had been extinguished. I have found that an equitable right to the vessel in favour of the defendant was created by the transfer executed after the management buy-out by the incoming directors of Lloyds Ships, and that the subsequent registration of the vessel in the defendant's name in the Australian Register of Shipping was consequential to that. An incidental effect of the findings is that the anomalous situation which would have occurred if Lloyds -- 52 of 54 -- 50 Ships had been entitled to retain both the vessel and the benefit of the purchase price does not occur. It follows from what I have found that the plaintiffs' claims must fail. However in view of the complexity of the matter, largely brought about by the haphazard methods of transacting and recording events by those associated with the Qintex companies and the failure of the defendant to exercise the degree of scrutiny that one would expect in connection with an asset of the value of Mirage III, the second plaintiffs were acting properly in accordance with their duty in bringing the action to have the matter resolved by the court. Although the defendant has successfully defended the action a number of issues were raised upon which it was unsuccessful. Furthermore it has in a real sense brought the action upon itself by failing to ensure that the position which it represented in the subscription agreement had been properly effectuated and appropriate documentation completed when the subscription agreement was entered into. A good deal of the material admitted in evidence was relevant not only to the unsuccessful defences but also to the successful defences. However substantial parts of the case and the submissions were concerned with the unsuccessful defences. In the circumstances it is inappropriate for the defendant to recover its full costs. In all these circumstances I propose to order that the plaintiffs pay the defendant's costs of and incidental to the action limited to the defences upon which it succeeded to be taxed, and to pay the plaintiff's costs of the other issues. -- 53 of 54 -- 51 The formal orders are the following:- 1. The plaintiffs' action is dismissed. 2. I order the plaintiffs to pay the defendant's costs of and incidental to the action except costs which are solely costs of and incidental to the issues summarised in paragraphs 1-4 and 8-10 on pp.19-22 of these reasons to be taxed, such costs in the case of the second plaintiffs to be costs in the liquidation of the first plaintiff. 3. I order that the defendant pay the respective plaintiffs' costs of and incidental to the issues summarised in paragraphs 1-4 and 8-10, to be taxed. -- 54 of 54 --