FEDERAL COURT OF AUSTRALIA Donnelly v McIntyre [1999] FCA 450 BANKRUPTCY - whether particular property is vested in the trustee of the bankrupt estate pursuant to s 58 Bankruptcy Act 1966 (Cth) - newsagency business previously owned by bankrupt transferred to bankrupt's niece - bankrupt maintained central role in the daily operation of the business - whether certain dealings concerning the business and its assets were voidable settlements - whether surrender of leasehold interest by bankrupt coupled with the granting of a new lease to the bankrupt's niece constituted a disposition of property - whether acquisition of the leasehold interest by the bankrupt's niece was for valuable consideration and in good faith - intention of parties in regard to the surrender of the lease - whether sale agreement vested title to assets of the business in the bankrupt's niece - emphasis on substance and not form of transaction. Bankruptcy Act 1966 (Cth) ss 58, 120, 121 Official Receiver v Delaton Pty Ltd (1996) 130 FLR 207 ICI Australia Ltd v Commissioner of Taxation (1996) 68 FCR 144 Caddy v McInnes (1995) 58 FCR 570 MAX CHRISTOPHER DONNELLY (THE TRUSTEE OF THE PROPERTY OF LESLIE JOHN KING, A BANKRUPT) v DONNA McINTYRE, FARNDALE HOLDINGS PTY LIMITED, LESLIE JOHN KING NG 7558 OF 1998 MOORE J 15 APRIL 1999 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 7558 OF 1998 BETWEEN: MAX CHRISTOPHER DONNELLY (THE TRUSTEE OF THE PROPERTY OF LESLIE JOHN KING, A BANKRUPT) Applicant AND: DONNA McINTYRE First Respondent FARNDALE HOLDINGS PTY LIMITED Second Respondent LESLIE JOHN KING Third Respondent JUDGE: MOORE J DATE OF ORDER: 15 APRIL 1999 WHERE MADE: SYDNEY THE COURT ORDERS AND DECLARES THAT: 1. The business known as the "Gateway Newsagency" and all property and assets pertaining thereto ("the business") at the premises shop 507, The Gateway, 1 Macquarie Place, Sydney New South Wales ("the Premises") together with a lease dated 19 November, 1997 of the Premises between Permanent Trustee Australia Limited and the second respondent ("the Lease") comprises property of the bankrupt vested in the applicant as trustee and devisable amongst the creditors of the Bankrupt pursuant to s 116(1)(a) of the Bankruptcy Act 1966 (Cth). 2. The first respondent holds any profits derived from the operation of the said business by her on trust for the applicant. 3. The disposition of the leasehold interest in the Premises by the third respondent in relation to the Premises is void against the applicant. 4. The second respondent do all things necessary and execute all documents to transfer the leasehold interest to the applicant. 5. The first respondent do all things necessary including executing all documents so as to transfer the business to the applicant. 6. The first respondent account to the applicant for any profits derived by her for the conduct of the business and the use of such property and assets since 30 October 1992. 7. An inquiry be held as to the amount of any profits received by the first respondent from the operation of the business. 8. The respondents pay the applicant's costs of the proceedings. 9. Grant liberty to apply for any further orders or directions as may be necessary to give effect to these declarations and orders. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 7558 OF 1998 BETWEEN: MAX CHRISTOPHER DONNELLY (THE TRUSTEE OF THE PROPERTY OF LESLIE JOHN KING, A BANKRUPT) Applicant AND: DONNA McINTYRE First Respondent FARNDALE HOLDINGS PTY LIMITED Second Respondent LESLIE JOHN KING Third Respondent JUDGE: MOORE J DATE: 15 APRIL 1999 PLACE: SYDNEY REASONS FOR JUDGMENT 1 These proceedings are brought by Mr Max Donnelly ("the Trustee") who is the trustee of a bankrupt, Mr Leslie John King ("King"). The sequestration order was made on 1 December 1992. An issue has arisen whether property constituted by a newsagency business at shop 507, The Gateway, 1 Macquarie Place, Sydney is property vested in the Trustee pursuant to s 58 of the Bankruptcy Act 1966 (Cth) ("the Act") and whether certain dealings concerning the business and its assets were voidable settlements : see s 120, or fraudulent dispositions: see s 121. The Background 2 The background against which this application is made is generally uncontentious though the proper characterization and legal effect of certain events is in issue. The evidence is mainly documentary. 3 Prior to his bankruptcy, King had been involved in the ownership and/or management of at least two newsagencies in the central business district of Sydney. One was the Gateway Newsagency the subject of these proceedings. The other was the Anchor Newsagency at 20 Loftus Street. On 3 March 1988 King executed a trader's bill of sale. As will be apparent later, its legal effect is of some significance in these proceedings. The bill identified one party as the State Bank of New South Wales, ("the State Bank") and the other party as: Leslie John King whose business or occupation is [blank in original] and whose place of business is at 2/20 Loftus Street, Sydney … and who intends to carry on business as a Newsagent at 2/20 Loftus Street, Sydney (which business is hereinafter called the "mortgaged business") under the usual name or style of Anchor Newsagency. 4 The bill was in a standard form and contained a provision in which King assigned to the State Bank: All and singular the chattels, effects and property described and comprised in the schedule hereto. 5 The schedule to the bill referred to: All and singular the vehicles, plant, fixtures and fittings and/or goods, wares, merchandise whatsoever which are now owned and used or intended to be used by the Mortgagor (King) in or in connection with the mortgaged business and now being in or upon or about the premises situated at 2/20 Loftus Street, Sydney some principal articles of which are [reference is then made to Annexure A]. 6 Annexure A referred to fixtures and fittings of the type ordinarily found in a shop used as a newsagency. The bill was registered with the Registrar-General on 24 March 1988. 7 On 25 August 1989 King executed a lease for shop 507 in the Gateway Building for a period of five years commencing on 26 March 1990 and expiring on 25 March 1995. The monthly rental was, at least in early 1992, $4,116.66. 8 On 9 August 1990 judgment was entered by NZI Capital Corporation Ltd ("NZI") against King and his wife in the Supreme Court of New South Wales in the sum of $336,612.98. The firm of Coyne & Whittemore acted for King in the action by NZI. Prior to the entry of judgment, that firm wrote, on 15 June 1990, to solicitors acting for NZI concerning the financial circumstances of King and, in particular, the value of the Gateway Newsagency. Coyne & Whittemore said: In relation to the newsagency business conducted by our client at the Gateway development at Circular Quay we advise as follows. The business comprises the following:- (a) a lease from Permanent Trustee Australia Limited for 5 years of shop 507 'Gateway' 1 Macquarie Place, Sydney. The lease has only just commenced in the past few weeks. We do not have the precise commencement date from the lessor's Solicitors as yet. (b) Stock of approximately $80,000.00 value. (c) Fixtures of approximately $90,000.00 value. (d) Deposit on lease of $20,000.00. (e) Leased equipment of approximately $41,000.00 in value. We are instructed that the turn over is presently approximately $7,000.00 per week which should improve to $10,000.00 in the coming months. It is estimated by our client that the business is worth $300,000.00 on the market without stock. 9 On 11 February 1991 King executed a trader's bill of sale in favour of Westpac Banking Corporation ("Westpac") assigning to Westpac chattels, effects and property owned by King and used by him in connection with the Gateway Newsagency at shop 507, 1 Macquarie Place, Sydney. 10 On 7 January 1992 Freehill Hollingdale & Page ("Freehills") wrote to King at the Gateway Newsagency on behalf of Permanent Trustee Australia Limited ("Permanent Trustee") which was the lessor of shop 507. The letter noted there had been a long history of default in the various payments payable under the lease including rent and outgoings. The letter also noted that on 5 November 1991 the lessor had issued a notice of termination of the lease and required King to vacate the premises. The letter recorded attempts made by King and the lessor to deal with King's failure to pay monies due. The letter concluded by demanding immediate payment of rent due on 1 January 1992 in the sum of $4,116.66, demanding all future payments be made strictly in accordance with the lease and demanding repayment of arrears in rent in a manner identified in the letter. The letter concluded by noting that any failure on King's part to comply with its terms would result in immediate action by Permanent Trustee. 11 On 14 January 1992 King wrote to Mr Murray Hood who was a Senior Property Manager with National Mutual Property Services (NSW) Pty Ltd ("NM Property Services") as, it appears, a managing agent for Permanent Trustee. The letter concerned the tenancy of shop 507. King referred to a conversation he had had with Hood on 13 January 1992 and told Hood that it would help him if rent was paid on the seventh of every month. King also said he would appreciate if the $5,000 per month backrent could be paid at $5,000 per month with the first instalment being paid on 7 February 1992. Hood replied on 17 January 1992 indicating acceptance of those terms but also indicating that both rent and arrears had to be paid promptly and any failure would result in an immediate withdrawal of the concessions. These terms were accepted by King who signed a copy of the letter on 7 February 1992 signifying his agreement with them. 12 On 4 February 1992 a bankruptcy notice was served on behalf of NZI on King (arising from the judgment obtained in August 1990) demanding payment of the balance of the judgment sum, namely $301,496.62. The notice had issued on 8 January 1992 and demanded payment within 14 days of service. The amount demanded was not paid and accordingly King committed an act of bankruptcy. The date of the commencement of his bankruptcy was 18 February 1992. On 5 June 1992 Perpetual Trustees (WA) Ltd (which was the lessor of shop 2, 20 Loftus Street, Sydney used to conduct the Anchor Newsagency) issued a notice demanding possession of that shop and terminating the tenancy. The stock at that newsagency was, with the consent of the State Bank, moved to the Gateway Newsagency. 13 On 11 June 1992 a facsimile letter was sent by Hood on behalf of NM Property Services to Mr Warwick Colbron, a solicitor then acting for King. The letter set out the rent that had been owing in November 1991 and the repayment history since. Hood noted that King had failed to pay the agreed sum of $5,000 for arrears in rent in the months April, May and June 1992. He also noted that there had been a shortfall in the payment of the May 1992 rent and the June 1992 rent remained unpaid. On 11 June 1992, Colbron wrote to Woodgate & Co, Chartered Accountants, on behalf of King. Colbron indicated that King agreed steps should be taken to sell the Gateway Newsagency business. Colbron indicated King would refer "the present potential buyer" to Woodgate & Co. Woodgate & Co had been appointed by the State Bank to oversee the administration of the business on its behalf. On 17 June 1992 Mr Giles Woodgate of Woodgate & Co wrote to King concerning the conduct of the Gateway Newsagency business. The letter directed King as to the basis upon which the business was to be conducted. A copy of that letter was sent to Colbron. 14 On 21 July 1992 Colbron wrote to Mr Brent McDonald of Woodgate & Co concerning a matter that Colbron and McDonald had discussed earlier that day. In the letter Colbron stated that he acted for Ms Donna King (she is, by her married name McIntyre, the first respondent to these proceedings) and her father, Mr David King who is King's brother ("King's brother"). Self evidently McIntyre is King's niece. They were the "potential buyer" referred to in the letter of 11 June 1992. In the letter Colbron, on behalf of McIntyre and King's brother, offered $70,000 plus stock at valuation (estimated at $20,000) to acquire the Gateway Newsagency business excluding book debts and liabilities and subject to an assignment of the existing lease. The letter noted that McIntyre would be providing the equity capital though it would be necessary for her to finance the balance of the purchase price with her father's assistance. The letter proposed exchange of agreements for sale within two weeks subject to finance or exchange and completion as soon as finance was available. Over the ensuing days there were several letters passing between Woodgate & Co and Colbron concerning the sale of the Gateway Newsagency. In a letter dated 28 July 1992 Woodgate wrote to Colbron complaining that a deposit cheque had not been received though it had been expected. The letter concluded: I will reconsider dealing further with your family only if the $10,000 bank cheque is received by me by 10 am tomorrow. In the meantime I will continue my negotiations with two other parties in relation to the sale of the newsagency, territory and delivery run. 15 It can be seen that in the last sentence reference is made to territory. As will be apparent later in this judgment the precise legal character of the notion of territory need not be addressed. However it should be noted that the territory attaching to a newsagency is, somewhat simplistically described, as an exclusive right arising from an agreement with the Newsagency Council of NSW and ACT ("the Newsagency Council") (representing the interests of publishers of newspapers and magazines) to sell and distribute newspapers and magazines, particularly by way of home delivery, in defined geographical areas. Each area is known as a territory: for a fuller discussion see Re 7-Eleven Stores Pty Ltd (1998) ATPR 41-666. 16 On 6 August 1992 Colbron wrote to McDonald and referred to the earlier letter of 21 July 1992 concerning the purchase of the Gateway Newsagency. Colbron noted that negotiations may have faltered due to his absence interstate and confusion about the legal entities involved in the negotiations. He went on to say: In order to remove that confusion may we make the following observations. 1. No negotiations should proceed with Mr Les King (cf your letter of 27 July 1992). Mr Les King is in effect your and your client's caretaker. The fact that Donna McIntyre is his niece and the fact that she is presently assisting her uncle (we draw to your attention; without charge) to maintain the viability of the business pending sale, are coincidences that should not affect the situation that she should be perceived as an independant [sic] purchaser in the same way that you are treating with other independant [sic] purchasers. 17 The letter then dealt with the need to pay $10,000 as deposit and went on: 3. The problems resulting from your dealing with Mr Les King in respect of the offer of "members of his family" include: (a) the potential prejudice of a misinterpretation by Westpac of Mr Kings [sic] present role in the Gateway Newsagency. (b) The present confusion in the mind of National Mutual whereby they might seek to secure their arrears of rental upon the proceeds of sale as a condition of agreeing to a new lease – a stipulation which they would not contemplate imposing on a clearly independant [sic] purchaser. 4. If Mr King is to stand in your client's shoes as notional vendor, he should not also play a role in acting for the purchaser, in negotiations. In order to resolve the confusion we have taken the unusual step of negotiating on behalf of Donna MacIntyre [sic] direct with National Mutual in respect of the grant of a new lease rather than leaving such negotiation to the vendor as part of the usual conditions of an agreement for sale of busines [sic]. In the result we are confident of achieving the following: (a) The acknowledgment of National Mutual that they will look for arrears of rental (at least until the date of their having notice of your role) from Mr Les King without seeking to impede a sale to Donna MacIntyre [sic]. (b) The grant of a new five year lease to Donna MacIntyre [sic] on acceptable terms which we are now fine-tuning. (Emphasis is in the original) 18 The letter went on to detail the terms upon which McIntyre would proceed with the purchase. 19 In a letter of the same date, 6 August 1992, Colbron wrote to the State Bank requesting funds sufficient to pay the July rental for shop 507. In that letter Colbron noted that he acted for both King and McIntyre and that his client McIntyre had made an offer to purchase the Gateway Newsagency. Also on 6 August 1992 a facsimile message was sent by Hood to Colbron concerning the lease of shop 507 by McIntyre. It was plainly a step in negotiations then on foot for McIntyre to rent the shop as part of the acquisition of the newsagency business generally. Hood identified, in summary form, a number of conditions for any lease and noted the commencement date for the payment of rent would be "on sale of shop". These were refined in further correspondence later in August 1992. The lease was to be generally on the same terms as the lease to King. The monthly rent was to be the same, namely $4,116.66, and McIntyre was to pay the rent for August 1992, being a period in which King, and not McIntyre, was the lessee in possession. 20 On 13 August 1992 NZI presented a bankruptcy petition in this Court which was served on King on 18 September 1992 after several earlier attempts had failed. It is not entirely clear when the earliest attempt at service was but an attempt to serve was made on 3 September 1992 at the Gateway Newsagency. The petition was returnable on 13 October 1992. 21 In mid to late August 1992 discussions were continuing between Colbron and McDonald in relation to the purchase of the Gateway Newsagency by McIntyre. In a letter of 20 August 1998 to McDonald, Colbron set out the proposed sale arrangements by way of offer to purchase which included the following in relation to the lease: Whilst we have negotiated a new lease with the current lessor we would of course require a condition in the agreement for sale for the procuring of a new lease upon the terms presently agreed [which were then set out]. 22 It can be assumed that the offer was made to Woodgate & Co as agent for the State Bank. 23 On 27 August 1992 there was an exchange of correspondence between Colbron and Woodgate. Colbron wrote to Woodgate & Co noting that the State Bank had accepted McIntyre's offer in the letter of 20 August 1992. Colbron asked for sale documentation to be forwarded to him. He also said: In all of the circumstances, we feel that it is appropriate that your client, the State Bank of New South Wales, exercise its power of sale, not only to ensure that there are no delays or problems in the vendor providing good title, but also so as to affirm the "arm's length" nature of the transaction. The nature of the terms of sale also militate towards a sale by your client. 24 In Woodgate's letter of response that day he invited Colbron to take up directly with the solicitor acting for the State Bank the preparation of the appropriate documentation and the request of Colbron that the State Bank enter into possession of its security. 25 Also on 27 August 1992 Freehills wrote to Colbron on behalf of Permanent Trustee concerning the proposed lease of shop 507 to McIntyre. The letter enclosed a draft lease though it was noted that it did not include the commencement and termination dates for the lease which was a matter on which Freehills were awaiting instructions. However these issues were resolved by early September 1992 and, probably between 4 and 8 September 1992, a lease with Permanent Trustee was executed by McIntyre. King executed a surrender of his interest in the leasehold estate and in the lease for a consideration of $1. The surrender was probably not executed until some time shortly after 26 October 1992 which was the date of a letter from Freehills to Hood enclosing a draft surrender for King to sign. The surrender was effective 1 September 1992. The lease with McIntyre commenced on that day. Both transactions were later lodged for registration at the same time on 16 February 1993. McIntyre's lease of shop 507 was for a period of five years expiring on 31 August 1997. 26 On 8 September 1992 Colbron wrote to Freehills forwarding a copy of the lease executed by McIntyre and asking them to confirm that Permanent Trustee regarded McIntyre as the lessee. This latter request was because on 9 September 1992 an application was to be made to the Newsagency Council transferring the territory attaching to the Gateway Newsagency from King to McIntyre. Also on 8 September 1992 a solicitor acting for the State Bank, Mr Rod Cunich, wrote to Colbron about the Gateway Newsagency. The letter read: RE: King – Gateway Newsagency In order to facilate [sic] a sale of the assets the subject of the Bank's security we request that Mr King deliver possession of the assets to the Bank as mortgagee upon demand and that he provide to the Bank written acknowledgement [sic] that delivery of possession has taken place. The Bank will advise when it intends taking possession. If Mr King does not co-operate the Bank will enforce it [sic] rights under its security. This will result in extra cost to Mr King. We invite his co-operation. 27 In the same facsimile transmission another letter was sent by Cunich to Colbron enclosing a draft sale agreement for Colbron's consideration. 28 On 10 September 1992 Woodgate wrote to Colbron and said he had been advised by the State Bank that exchange and settlement would take place the following day, namely 11 September 1992. Woodgate noted that at settlement a cheque of $25,000 would be made payable to Woodgate & Co for the stock and would be held in trust until the stock had been valued. A further cheque of $70,000 would be made payable to the State Bank. It was relatively clear that Woodgate was anticipating a speedier sale than Colbron and it appears Colbron spoke to Woodgate after the letter of 10 September 1992. On 11 September 1992 Woodgate again wrote to Colbron and said: I confirm your advice of yesterday that you will supply the Bank with any comments on its Agreement for Sale in relation to the newsagency at the commencement of trading on 14 September 1992. The Bank is ready is exchange and settle. 29 Three days later, 14 September 1992, Freehills wrote to Colbron acknowledging receipt of the lease and confirming that the Permanent Trustee then viewed McIntyre as the lessee. On the same day Woodgate wrote to Colbron, in substance, complaining about the delay in finalizing the terms of the agreement for sale. 30 On 15 September 1992 King and McIntyre executed an agreement in which King purported to sell to McIntyre: All of the right, title and interest of [King] in the assets comprising the present business of the [Gateway] Newsagency accepting thereat the secured assets and the leased plant and equipment but including the benefit accruing to [King] of the right to service the territory as a credited newsagent subject to the rule for the purchase price of twenty thousand dollars ($20,000). 31 It is about this time that, on the evidence, Westpac became involved in the transaction being developed between Colbron, Woodgate & Co and the State Bank. On 16 September 1992 Mr Anthony Olson of the Loans Management Unit of Westpac wrote to McDonald at Woodgate & Co indicating its position in relation to the transaction. He said: Re: L J KING Trading as Gateway Newsagency Further to your recent discussions with my assistant Fred Marabani we confirm that the Bank will release its charge over the newsagency subject to the following:- 1. The Bank is to be paid an amount equivalent to 80% of the value of the stock. As discussed with Mr McDonald the stock value is approx. $20,000 therefore the Bank would expect to receive an amount in the vicinity of $16,000. 2. … 32 It is to be recalled that on 18 September 1992 the creditor's petition was served on King returnable on 13 October 1992. On either 23 or 24 September 1992 a letter was sent to Colbron by the State Bank enclosing a further draft of the sale agreement reflecting changes they had discussed. Colbron replied by letter dated 30 September 1992 proposing changes to the draft including a clause in which the Bank would indemnify McIntyre for losses sustained if it transpired the Bank had no capacity to transfer to McIntyre an interest in the territory. 33 The State Bank responded by letter dated 7 October 1992 agreeing to most but not all of the changes that had been proposed or at least the substance of them. The State Bank did, however, refuse to agree to the indemnity that had been sought. It also refused to agree to the warranty. Colbron's response was made in a letter dated 12 October 1992. In relation to the dispute concerning the territory Colbron wrote: In relation to the bank's capacity to sell we draw your attention to the fact that it is the bank, and its solicitors', assertion that it has every legal capacity to sell. If that assertion is bona fide, then why does the bank refuse to so warrant? Our client is quite happy to complete the purchase of the territory from L J King for valuable and bona fide consideration and leave the bank and L J King's creditors to dispute entitlement to such consideration. It is only because of the bank's assertion that the purchaser is prepared to acquire the Territory from the bank but then only subject to a warranty (amendment 9) a conditional sale (amendment 12) and an indemnity (amendment 15). 34 That letter also proposed a rescheduling of the payments that had earlier been discussed having regard to the fact that McIntyre had been paying rent since 1 September 1992 and was incurring liabilities to publishers. An adjustment to the purchase price was also proposed. 35 Solicitors for the State Bank responded on 13 October 1992. As to the warranty they said: The Bank will not provide a warranty. Your client Ms McIntyre is closely associated with Mr King, the original proprietor of the business, and shares a common legal adviser with him. In those circumstances Ms McIntyre stands in as good as if not better position than the Bank to assess the matters the subject of the warranty she seeks. In fact it was Mr Colbron in conversations with Mr Cunich who raised issues concerning the validity of the Bank's security when speaking on behalf of his client Mr King. The Bank has no knowledge of any defect in its security however, in the circumstances will not give the warranty requested. Your client should rely on her own enquiries. 36 The following was said in relation to the proposal to vary the terms concerning the purchase price: Until the terms of any sale are agreed there is no agreement. It is quite evident, even at this stage, that there is no final agreement. The fact that your client indicated some two months ago that it had some interest in acquiring the business is not relevant. So have a number of other persons. 37 Colbron replied the following day and proposed a modification to the draft falling short of a warranty in relation to the territory but indicated that the indemnity was sought for any loss flowing from the fact that the Bank did not have title to pass in the territory. Colbron indicated that if the Bank was not prepared to give the indemnity then McIntyre proposed to complete the purchase of the territory from King. 38 The Bank responded to the suggestion from Colbron that King would sell to McIntyre the territory in a letter of 15 October 1992 with the following: If Mr King attempts to sell any asset the subject of the Bank's security (including goodwill) the Bank will take necessary steps to restrain such sale. Your client is on notice of the Banks [sic] interest. 39 The Bank continued to indicate it would not provide a warranty or indemnity concerning the territory. 40 While these negotiations were going on between Colbron and the State Bank, Colbron was representing King in the bankruptcy proceedings arising from the creditors petition presented by NZI in August 1992. On 13 October 1992 Colbron filed on behalf of King a notice of intending to appear at the hearing of the petition in opposition to it. The only ground identified was that it would be for the advantage of creditors that King's affairs be administered under a deed pursuant to Part X of the Act. Steps were taken to give effect to such an arrangement in early November 1992. 41 On 16 October 1992 Colbron wrote to the Executive Officer of the Newsagency Council. The letter enclosed several documents including the sale agreement between King and McIntyre of 15 September 1992. The correspondence between Colbron and the Bank concerning the indemnity continued. On 20 October 1992 Colbron wrote to the solicitors for the Bank insisting upon the indemnity and by letter dated 20 October 1992 the Bank agreed though a monetary limit was placed on the indemnity. In the period leading to the exchange of the sale agreement on 30 October 1992 there was correspondence passing between Colbron and the solicitors acting for the State Bank attending to matters of detail which are unnecessary to set out. Also involved in the events immediately preceding the execution of the sale agreement was Westpac which, at the request of Colbron, provided an authority of sorts to the State Bank to sell stock on behalf of Westpac. By letter dated 29 October 1992 Westpac wrote to the State Bank confirming that under bills of sale dated 11 February and 17 April 1991 Westpac held security given by King and that Westpac was entitled to sell stock in trade at the Gateway Newsagency. The letter went on to indicate that Westpac agreed to sell the stock to the State Bank for $19,015.94 and noted that the State Bank would then sell the stock to McIntyre. Ultimately the State Bank received $4,754 (20% of the realized value) for the stock following the sale to McIntyre. 42 The sale agreement was exchanged on 30 October 1992. 43 It is necessary to set out several of the relevant provisions of the agreement for sale. The State Bank was identified as the vendor in its capacity as mortgagee in possession pursuant to the bill of sale executed 3 March 1988. The purchaser was identified as McIntyre. The recitals provided: (A) King at all relevant times carried on a newsagency business at Gateway Plaza, Cnr Loftus & Alfred Streets, Sydney (the "Newsagency"). (B) On 3 March 1988 King executed the Bill granting security to the Vendor over certain assets which now form part of the Newsagency. (C) The Vendor has entered into possession as mortgagee of all King's assets which are secured pursuant to the bill and capable of transfer of possession. (D) To the best of the Bank's knowledge and belief King is the accredited agent within the definition of that term contained in the rules ("the Rules") of the Newsagency Council of New South Wales and Australian Capital Territory ("the Council") for the territory determined by the Council pursuant to the rules ("the Territory") as the applicable territory for the Newsagency. (E) The right to operate as an accredited Newsagent within the Territory is a right which (subject to the Rules) forms part of the goodwill of the Newsagency and for the purpose of this Agreement such right has been assigned the value of $20,000. (F) The Purchaser has offered to purchase and the Vendor has agreed to sell the Assets (as hereinafter defined) pursuant to the Bill all upon the terms and subject to the conditions contained herein. 44 The agreement went on to define the subject of the sale. The relevant property was "the Assets". That expression was defined as follows: (a) that part of the property, assets and undertaking of King which are, at the date of this Agreement, in the possession of the Vendor pursuant to the Bill, including stock in trade. (b) certain stock in trade currently situated at the Gateway newsagency over which security has been given by King to Westpac Banking Corporation Limited ("Westpac") pursuant to Registered Traders Bill of Sale Nos: 9100495 and 910218 respectively dated the 11th February 1991 and 17th April 1991 (the "Westpac bills") and which the Vendor has agreed to purchase concurrently with the Execution of this Agreement for the purpose of resale to the Purchaser. (c) the plant and equipment referred to in the Lease Agreement dated 26 April 1990 between the Vendor and King a copy of which is annexed hereto and marked "B" ("the Lease"). (d) all the goodwill of an appurtenant to the Newsagency including but not limited to the right to service the Territory subject to the approval hereinafter referred to of the Council. 45 The principal clause effecting the sale provided: 2.1 The Vendor hereby sells and the Purchaser hereby purchases the Vendors right, title and interest to the extent of such interest in the Assets for the Purchase Price, set out in Clause 2(b). 46 The contract also dealt with the transfer of title and provided: 2.5a) The right title and interest of the Vendor in the stock shall be transferred to the Purchaser upon payment of the money referred to in Clause 2.4(1) and the Vendor shall concurrently with such payment hand to the Purchaser, proof of purchase of the stock from Westpac and discharges of the Westpac Bills. b) Subject only to (a) above. transfer of the Vendor's right title and interest in the Assets shall not take place until the Vendor receives the Purchase Price. 47 Clause 2.4 dealt with the purchase price and required the payment of $23,769.93 at the time of execution, $38,000 within 14 days and $20,000 within 28 days. The contract also provided: 9.1 No variation, modification or waiver of any provision of this Agreement nor consent to any departure by any party therefrom, shall in any event by of any force or effect unless the same shall be confirmed in writing, signed by the parties, and then such variation, modification, waiver or consent shall be effective only to the extent for which it may be made or given. 9.2 No failure, delay, relaxation or indulgence of the part of either party in exercising any power or right conferred upon such party in terms of this agreement shall operate as a wavier [sic] of such power or right, nor shall any single or partial exercise of any such power or right preclude any other of future exercise thereof, or the exercise of any other power or right under this agreement. 48 Certain fittings in shop 507 had been leased to King from the State Bank. In September 1992 King's liability under the lease was $37,759. At some stage, and probably in September 1992, the State Bank made a decision not to seek to recover the leased fittings as it was not commercially viable. 49 On 2 November 1992 several documents were created in Mr Colbron's office. One was a letter from him to McIntyre dated 2 November 1992 noting the exchange of contracts with the State Bank and setting out, in summary form, several provisions relating to the payment by her of the purchase price and related financial questions. It also included a paragraph: Enclosed is an acknowledgment of Mr L. J. King of such taking of possession and the effect of his acknowledgment and the agreement is to replace the previous agreement between you and Mr King for the purchase of the territory rights. As it is not now necessary to complete such an agreement, it can be rescinded and then will not be liable to stamp duty. If it is not rescinded it will commence to attract liability for fees for late payment of duty as and from 24th November, 1992. 50 The letter then went on to deal with the liability of King to various publishers and the mechanism for the discharge of the liability by way of payment. It also said: In this regard we note that you have agreed to employ Mr L. J. King on a weekly basis, on a salary of $250.00 per week to assist you in collecting book debts and general operation of the business during your absences in New Zealand. 51 A shorter version of this letter was also prepared and signed that day. Another document prepared in Mr Colbron's office was a letter from King to McIntyre dated 2 November 1992 addressed to her at 32 Morris Avenue, Croydon Park. It read: Dear Ms. McIntyre, I acknowledge that as at this day, State Bank of NSW took possession of all the assets secured by the Traders Bill of Sale in its favour. I also confirm that Westpac Banking Corporation Limited sold to the State Bank, all of its legal entitlement to the stock on the premises, although I am not aware what that legal entitlement was. In any event I was agreeable to the sale which was based upon the valuation of independent valuers. I accept your offer to employ me as an Assistant Manager at a weekly salary of $250.00 to assist you in the running of the business. Yours faithfully, L. J. KING 52 Colbron also wrote a letter on 2 November 1992 to Mr Robert Shaw of the Newsagency Council. In it he said: RE: GATEWAY NEWSAGENCY As you know, we act for Ms Donna McIntyre and Mr L J King. We confirm that the purchase of the assets of the Gateway Newsagency occurred on Friday last 30th October, 1992 and our client Donna McIntyre is now in possession, not only of the premises, but of relevant assets. … Mr L. J. King is assisting Donna McIntyre with the business for an indefinite period particularly in the collection of book debts and the liabilities owed by L. J. King until the full amount of the publishers liability is satisfied. 53 That letter was acknowledged by Shaw in a letter dated 4 November 1992 to Colbron. 54 On 9 November 1992 Colbron signed a notice of a creditors meeting to consider a debtor's proposal. Colbron had been authorized by King to call a meeting of creditors. In a statement of affairs prepared by King at this time he records total liabilities in the sum of almost $6.5 million and assets of a little less than $30,000. In that statement he says: Pursuant to an agreement for sale dated 24th September, 1992 my rights to the territory accredited to me by the Newsagency Council of N.S.W. and A.C.T. in respect of the Gateway Newsagency have been sold to D. J. King (McIntyre) for the sum of $40,000. 55 A meeting of creditors took place on 11 February 1993. On 19 May 1993 King was publicly examined. 56 At all material times King continued to work at the newsagency. Indeed in November and December 1992 and in at least January, February and April 1993, the rental accounts sent by NM Property Services were addressed to King at shop 507. King approached NM Property Services in probably early February 1993 with a proposal to install a drink machine in shop 507 which was rejected by them by letter dated 11 February 1994. In May 1994 a representative discussed with King the appearance of shop 507 and King advised him that new shelving was to be installed shortly as was a new carpet. King's dealings with NM Property Services concerning the lease of the shop were also evidence in a file note of that company dated 20 October 1995 recording a request to meet with King over, I infer, the lease of the shop. 57 In 1997 King he negotiated the lease of shop 507, at the expiry of the lease to McIntyre on 31 August 1997, to Farndale Holdings Pty Ltd ("Farndale") which is a company in which King's wife, Mrs Maria King ("King's wife"), is the sole shareholder. On 22 May 1997 Jones Lang Wootton ("JLW") wrote a letter on behalf of Permanent Trustee concerning the lease of shop 507. The addressee in the letter appeared as follows: Mrs Donna McIntyre C/- Mr Les King Shop 507 Gateway Quayside 1 Macquarie Place Sydney NSW 2000 58 The letter then commenced: Dear Les Lease Renewal – Shop 507, Gateway Quayside 1 Macquarie Place, Sydney I refer to our earlier discussion and have pleasure in offering you a new lease on the following terms and conditions: 59 The letter then identified matters typically associated with a lease including rental, the term of the lease and the like. Next to the heading "Name of Lessee" appears "To be clarified". The letter concludes: Could you kindly acknowledge your acceptance of the above terms and conditions by signing and returning to me the attached copy of this letter, I can then instruct our Solicitors to prepare the lease document. 60 The bottom of the letter contains a typed provision to be completed by hand to signify acceptance to its terms. It is signed by King "on behalf of D McIntyre". There is also written, I infer in King's handwriting, under King's acceptance: "Please make out lease to FARNDALE Pty Ltd". Further correspondence passed between King and JLW about the proposed lease with the addressee being "Mr L King, Farndale Pty Ltd". It also included, incidentally, a letter dated 29 July 1997 from JLW to "Mr L King, Farndale Pty Ltd" refusing a request that King had made to install a drink machine. The letter said, in part: Unfortunately I must say NO. The size of your shop is only 42m2 (compared to AMP Centre 102m2) and I believe both your business and Gateway would benefit by:- * Obtaining the Lotto Agency. * Larger range of stationery, cards, ribbons and wrapping paper (feedback I have received). * Better overall presentation. I have checked the Bank Guarantee position and yes you are correct, we do hold an amount $5908.03) with National Mutual Trustees, I assume we now convert that to being held on behalf of Farndale Pty Ltd – please confirm. I also require the CAN for Farndale – could you please provide. 61 It is clear that JLW viewed King as the proprietor of the Gateway Newsagency business. It continued to deal with him this way in correspondence in December 1997 concerning the upgrading of the fitout and in March 1998 concerning estimates of outgoings. The lease to Farndale was executed by Maria King as a director of that company which, as earlier noted, is a company in which she is the sole shareholder. The lease commenced on 1 September 1997 and was for a period of 5 years expiring 31 August 2001. 62 In evidence are file notes of and correspondence involving the Advance Bank Australia Ltd ("Advance") which, without detailing their contents, disclose an ongoing and active involvement on King's part in securing funds from Advance to fund the Gateway newsagency business and other business activities of his or with which he was associated and the proposed purchase of the newsagency by Farndale in late 1997 and early 1998. 63 In early 1998 Colbron was still acting for McIntyre and was endeavouring to persuade a creditor, Esanda Finance Corporation Limited ("Esanda"), not to execute a sheriff's writ. Colbron wrote to Esanda on 18 February 1998 informing it that McIntyre was proposing to sell the Gateway Newsagency business to Farndale and in the letter Colbron noted that Farndale was already the lessee of the premises in which the business was conducted. He also noted that the purchase price of the business was likely to exceed substantially the amounts owing by McIntyre to Esanda. That the sale of the business to Farndale was proposed is evident from a letter dated 18 February 1998 from the Commonwealth Bank to King's wife approving an advance of $250,000 to purchase the Gateway Newsagency. However, as far as I can glean from the evidence, this sale did not proceed. In April 1998 a valuation of the Gateway Newsagency business was undertaken on behalf of the Commonwealth Bank with a view to it providing security for a loan to King. The valuer, Mr Barry Coad, gave evidence in these proceedings. The import of the evidence was that when inspecting the premises, shop 507, and obtaining details of the business, he dealt with King. King acted as if he was the owner of the business. Other evidence 64 Several witnesses, apart from Colbron, gave evidence which is unnecessary to detail given the approach the parties took to various issues at the hearing and the conclusions I have reached on a number of legal issues. While Colbron's evidence touched on a number of factual issues concerning the transactions to which these proceedings relate, his independent recollection of events in 1992 was, or at least was claimed to be, extremely limited though he did give evidence about King's solvency which I have accepted and refer to later. Generally, however, this is a case where, in my opinion, the clearest picture of what occurred emerges from the documents. King, his wife and McIntyre did not give evidence and that fact is significant: see Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372 at 422. Issues 65 The issues in the proceedings arise against a background in which s 58 of the Act vested in the Trustee, on 18 February 1992, all property of King divisible amongst his creditors (see s 116). It is to be recalled that 18 February 1992 was the date of the commencement of King's bankruptcy. What constituted his property is contentious in two respects. The first concerned a proposition of counsel for the Trustee that the newsagency "business" could, in globo, be treated as property of King. If not, it was common ground (with one qualification) that the relevant property was the various components of the newsagency business, namely King's leasehold estate in shop 507 and rights under the lease agreement, the goodwill of the newsagency, stock in hand, fixtures and fittings, and the territory. Whether the territory was property of King for the purposes of s 58 was the second contentious issue. However ultimately counsel for the Trustee indicated, for what were perceived to be practical reasons, no orders were sought in relation to the territory and if the Trustee was otherwise successful in these proceedings he would make his own arrangements with the Newsagency Council. 66 However the operation of s 58 is subject to dealings with the property. If there had been a conveyance, transfer or assignment by King of any of the relevant property before 1 December 1992 for valuable consideration (s 123(1)(b)) which is not invalid because the transaction was in good faith and in the ordinary course of business (s 123(1)(g)) then the rights the Trustee could assert by operation of s 58 would have been diminished. However the respondents did not seek to invoke the provisions of s 123. Rather the matter proceeded on the basis that the contentious questions included the following. One was whether there had been a disposition of property by King, namely his leasehold interest in shop 507. If so whether it was with intent to defraud creditors which would be void against the Trustee unless it had been disposition for valuable consideration in favour of a person who acted in good faith (s 121) which, in the present case, is McIntyre. Another was whether there had been a divesting of King's property to McIntyre by a mortgagee in possession, namely the State Bank. The relevant property 67 I should first address what, for present purposes, should be treated as the property of King as at 18 February 1992 which vested in the Trustee by operation of s 58. What is comprehended by property is not to be viewed narrowly: see Cummings v Claremont Petroleum NL (1996) 185 CLR 124. Whether, however, a business of the type in question in these proceedings is, in globo, property upon which ss 58, 116, 120 and 121 do or might operate is unclear. Counsel for the Trustee referred to In re Carl Hirth (1899) 1 QB 612 and In re Fasey (1923) 2 Ch 1. A more recent authority to similar effect is Official Receiver v Delaton Pty Ltd (1996) 130 FLR 207. O'Bryan J considered the operation of s 58 on a business trading under the name "Naturale Cosmetics" which his Honour described as a business of manufacture, importation and distribution of deodorant products. It was a business established by two bankrupts, in partnership, during their bankruptcy. The business name was, after trading commenced, registered by a third party. The third party later declared she held "Naturale Cosmetics" on trust for the two bankrupts who were beneficially entitled to all property owned by Naturale Cosmetics. The business was subsequently sold by the third party to a company of which she was a director. Of the relationship between the bankrupts and the business O'Bryan J said (at 209): The first issue is concerned with the business sale and transfer to Delaton Pty Ltd effected by Valerie Higson on 10 May 1994 when both Anthony Askew and Darren Askew were undischarged bankrupts. It is common ground, for the purposes of this proceedings, that Anthony Askew and Darren Askew were the legal owners of the business prior to 2 March 1993 and became the owners in equity when the declaration of trust was made by Valerie Higson on 2 March 1993. In my opinion, the definition of "property" in s 5 of the Act is sufficiently wide to include Anthony and Darren's equitable interest in the business between 2 March 1993 and 10 May 1994. Personal property of every description including any estate, interest or profit is "property" for the purposes of s 58(1) of the Act. The property sold and transferred to Delaton included the goodwill and assets of the business and the business name "Naturale Cosmetics". In my opinion, property rights in the business and business name of which Anthony Askew and Darren Askew were the beneficial owners vested in the first plaintiff when they became bankrupts on 22 October 1991 and 28 February 1992 respectively and Delaton holds that property on trust for the first plaintiff. Delaton did not acquire property rights in the business and business name on 10 May 1994 for it is "after-acquired property" of the bankrupts which vested in the Official Trustee pursuant to s 58(1) of the Act. (Emphasis added) 68 The orders made giving effect to these conclusions were: 4. Declare that the second and third defendants' property rights in the business assets and business name "Naturale Cosmetics" vested in the first plaintiff in or about July 1992. 5. Declare that Delaton Pty Ltd the first defendant holds all property transferred to it pursuant to the sale of the business by Valerie Higson on 10 May 1994 on trust for the first plaintiff. 69 What does not appear from this judgment is what the specific rights were to which the orders related though it was probably unnecessary for his Honour to identify them as there appears to have been no separate dealings, both in time or form, in relation to any of them. That is not the situation arising in these proceedings. 70 In the present case it is, in my opinion, desirable and probably necessary to scrutinize the way King and others dealt with the various and disparate rights and interests that, compendiously, constituted the business of the Gateway Newsagency even though, in the result, an order might be made which, in terms, relates to the business constituted by the Gateway Newsagency. The lease 71 As at 18 February 1992, King held the leasehold estate in shop 507. He surrendered that interest by executing a surrender at some stage after 26 October 1992 but effective 1 September 1992. The lease of shop 507 by McIntyre commenced that latter day. The first issue in relation to the lease arises from a submission by counsel for the first and second respondents ("the respondents' counsel") that the surrender of the lease did not constitute a conveyance settlement or disposition of property for the purposes of ss 120 or 121 and reference was made to observations of Sundberg J in ICI Australia Ltd v Commissioner of Taxation (1996) 68 FCR 122 at 144. 72 An issue that arose in ICI Australia (supra) was whether the performance of a contract is a disposal of the asset it constitutes for the purposes of s 160M(1) of the Income Tax Assessment Act 1936. Section 160M(1) deemed a change in the beneficial ownership of an asset to have effected a disposal of the asset and s 160M(3) treated, inter alia, a surrender of a right in property as a change in ownership. Sundberg J said (at 148): In ordinary usage "disposition" in relation to an asset contemplates the continued existence of the asset, with one owner before the disposition and another after it. This is reflected in subs (1) – "the person who owned it immediately before the change … the person who owned it immediately after the change". And subs (2) does not in this respect modify subs (1). It merely describes a number of ways in which a change within subs (1) may occur. But subs (3) gives instances of changes in ownership where after the "change" there is no new owner because the asset has ceased to exist. Most of the concepts listed in subs (3) – cancellation, release, discharge, satisfaction, surrender, forfeiture and expiry – involve the asset going out of existence, and thus expand the notion of disposition beyond its ordinary meaning: see Cooling at 60. A lease that has been surrendered does not survive in the former lessor's hands. The lessor has the land free from the lease. So with a forfeiture. From the time of re-entry, the lessor has the land as if the lease had not been made: Hartshorne v Watson (1939) 4 Bing NC 178 at 182; 132 ER 756 at 757-758. In the case of a debt, its payment discharges it. In the case of a contract, its performance discharges it. "Discharge" is the technical legal word appropriate to describe the effect of the payment of a debt and the performance of a contract: see G C Cheshire and C H S Fifoot, Law of Contract (4th Aust ed, 1981), par 2301. 73 Notwithstanding these observations there is authority that a surrender of rights may amount to a disposition of rights: see IRC v Buchanan (1957) 2 All ER 400 at 402 and Re Azoulay; Ex parte Andrew v Townsend (1989) 90 ALR 37. 74 Generally the surrender of a leasehold interest results in a merger of the leasehold and freehold estates. However circumstances can arise where a leasehold may revive after surrender if the leasehold is surrendered for a new leasehold which is ineffectual: see Corporation of Canterbury v Cooper (1908) 99 LT 612 at 615: see also Rhyl UDC v Rhyl Amusements Ltd [1959] 1 All ER 257 at 267-268. This arises where the surrender is by operation of law, not deed. The surrender is treated as conditional. Whether it is conditional is to be ascertained having regard to the intention of the parties. Thus, at general law, the surrender of a leasehold interest does not necessarily divest the lessee of all interests in the leasehold estate immediately. 75 In the present case, the words "settlement" and "disposition" appear in an entirely different statutory context to that considered in ICI Australia (supra) operating on materially different facts. In the Act the question of whether a particular transaction constitutes a settlement or disposition is not to be approached on a narrow and technical basis. What is comprehended by the word "disposition" in the Act was considered by a Full Court in Caddy v McInnes (1995) 58 FCR 570. The Full Court's discussion commenced at 580: Although "property" is defined very widely in s 5 of the Act, there is no statutory definition of the term "disposition" other than the inclusive definition in s 121(3) which picks up a mortgage etc: N A Kratzmann Pty Ltd v Tucker, Liquidator of Reid Murray Developments (Qld) Pty Ltd (No 1) (1966) 123 CLR 257 at 284, 293. The relevant dictionary (Macquarie) meaning of "to dispose of" is: "… to make over or part with, as by gift or sale." The material dictionary definition of "disposition" is: " … bestowal, as by gift or sale." In Norgard v Rocom Pty Ltd (unreported, Federal Court, Full Court, 16 august 1990) after citing Re Williams; Williams v Lloyd (1934) 50 CLR 341 at 375 per Dixon J and Barton v Official Receiver (1984) 4 FCR 380 at 395 per Lockhart J; and in the High Court, Barton v Official Receiver (1986) 161 CLR 75 at 78 per Gibbs CJ, Mason, Wilson and Dawson JJ, their Honours said (at pp 8-9): "These authorities show that, as the term 'settlement' includes 'any disposition of property', the form of the transaction is not significant, so long as a disposition of property, including money, is involved. Nevertheless, s 120 will not operate to avoid a transaction unless the disposition was intended to secure an enduring benefit and there was no contemplation of the immediate dissipation or consumption of the property which passed." [Emphasis added.] (See also PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515 at 533-534.) 76 Their Honours then referred to the judgments of Lockhart J in Barton v Official Receiver (1984) 4 FCR 380 and Vaughan Williams J in Vansittart; Ex Parte Brown [1893] 1 QB 181. The Full Court then said (at 581): In Re a Debtor; Ex parte Official Receiver v Morrison, Stamp J, speaking of the English counterpart of s 120 of the Act, said (at 1504-1505): "Holding as I do that the whole purchase price was provided by the debtor, subject only to this, that part of it was advanced on the security of that which was purchased and to which was added a life policy and a joint covenant, it would be a defect in s 42 if the transaction escaped its ambit. In construing the section, I must have regard to the fact that it is clearly framed to prevent properties from being put into the hands of relatives to the disadvantage of creditors, and as was said, in effect, by Sir George Jessel MR in Re Pumfrey; Ex parte Hillman (1879) 10 Ch D 622 …the section falls to be construed in a commercial sense. Here something over Ł1,000 was subtracted from the debtor's property and was utilised in providing a house for the debtor's wife, just as much as if he had paid the money to the wife and she had purchased the house with it: a transaction which, I think, would clearly have been within the section. Similarly, if the debtor had entered into the contract and had caused the conveyance to be made to his wife, the transaction would clearly have been within the section. I cannot hold that s 42 of the Act of 1914 may be defeated by the conveyancing machinery adopted for carrying out a transaction which would otherwise be within it. The fact that Mrs Morrison's was the hand that signed the contract does not, in my judgment, affect the matter and the debtor did in my judgment settle the property in favour of his wife within the meaning of s 42." [Emphasis added.] 77 Reference was also made to Trautwein v Richardson [1946] 52 Arg LR 129. Their Honours then quoted with approval the following observations of Drummond J in Official Trustee in Bankruptcy v Baker (at 582): In Official Trustee in Bankruptcy v Baker (unreported, Federal Court, Drummond J, 5 August 1994) his Honour said (at p 86): "… when one person intends to pass his property to another in order to deprive actual creditors or identifiable potential creditors of timely recourse to the property and he does that in what, as a matter of fact, can be identified as a single transaction, it does not matter whether the transaction comprises a single step, eg, an assignment of the property directly from disponor to disponee or whether, as here, a number of steps involving persons additional to the original disponor and the person he intends to be the ultimate recipient of his property are involved: the term 'disposition' is wide enough to cover both kinds of transaction. It is true that a disposition of property will occur immediately the owner divests himself of a right in that property by transferring it or by diminishing his interest in the property, eg by encumbering it. But the ordinary meaning of 'disposition' is, according to the Shorter Oxford English Dictionary, 'arrangement (of affairs, measures etc), especially for the accomplishment of a purpose or plan'. The term used in its ordinary sense is apt to describe the accomplishment of a plan by the implementation of a number of separate steps all taken to achieve the planned objective." [Emphasis added.] With respect, we agree. 78 It is clear it is the substance and not the legal form of the transaction that is relevant and the form may involve several steps which effectuate a disposition for the purposes of the Act. 79 In the present case the surrender by King of his leasehold estate was done, in my opinion, to perfect the arrangements (which I discuss in more detail shortly) that had been negotiated on his and McIntyre's behalf by Colbron. That is, the surrender (which was ineffective until registered: see Shell Co of Australia v Zanelli (1973) 1 NSWLR 216 at 221) was effected for the purpose of enabling the creation of a leasehold interest in McIntyre albeit for a longer period. The surrender was executed shortly after 26 October 1992 which was almost two months after McIntyre executed the lease agreement. The efficacy of the lease agreement was plainly dependent on the surrender by King. Notwithstanding a suggestion to the contrary in a draft statutory declaration prepared for Hood by Freehills, I am satisfied that at all times during 1992 King remained in physical possession of shop 507 and probably in legal possession as well. That is, in legal possession until the surrender and lease were registered in February 1993. 80 To the extent that the lease between Permanent Trustee and McIntyre was for a longer period than that agreed to with King in August 1989, McIntyre secured a leasehold interest that differed from that held by King at the time of surrender. In other material respects the leasehold of McIntyre was held on the same terms. However the interest gained by McIntyre included that formerly held by King and, in any event, the terms of the lease with King included a holding over clause (clause 10.4) which would have enabled King, with the consent of Permanent Trustee, to remain in possession after the period of the lease expiring on 25 March 1995. 81 In my opinion it would involve an unduly narrow approach to what is comprehended by the expressions "settlement" and "disposition" in ss 120 and 121 of the Act to treat the surrender by King and the creation of a leasehold estate in McIntyre as anything other than the disposition of King's leasehold interest to McIntyre. 82 The next question is whether it was a settlement or disposition void against the Trustee by operation of s 120 and s 121. No submissions were made by the respondents' counsel that the settlement was for valuable consideration and thus no reliance placed on the exclusionary effect of s 120(1)(a). Thus, by operation of s 120(1), the settlement is void against the Trustee. 83 An additional question is whether the disposition of the leasehold interest was made by King with the intention to defraud his creditors thus attracting the operation of s 121. The disposition of the leasehold interest has to be viewed in the context of the other arrangements being negotiated by Colbron. The approach to them of the first and second respondents in these proceedings may be summarized this way. Their counsel drew attention to the fact that the various steps taken on King's behalf to relinquish his interest in the leasehold of shop 507 and, on McIntyre's behalf to acquire an interest, were transparent. Moreover, they entailed the active involvement if not co-operation of Permanent Trustee, its solicitors, Freehills, and agents, NM Property Services. The steps took place against a background in which King was having difficulties meeting the rent payments, payments to publishers and was being pressed by the State Bank who had engaged Woodgate & Co to oversee the conduct of his business. To the extent that the surrender of the lease was part of a wider transaction involving the sale of the newsagency business or parts of it, that transaction was also transparent and entailed the active involvement if not co-operation of the State Bank, Woodgate & Co, the State Bank's solicitors and Westpac. Third parties may have been interested in purchasing the business or at least that much of it that the State Bank could sell. Viewed this way the steps taken by King were explicable and dictated by the commercial pressures he was experiencing. However this, in my opinion, does not answer entirely the question of why King acted in the way he did. 84 It is to be recalled that in June 1990, solicitors acting for King put a value on the Gateway Newsagency business of $300,000 excluding stock which was valued at $80,000. The tangible assets identified in the letter (some of which were leased) were considerably less than the value placed on the business. It can be inferred that King believed that the value of the business included, as a significant component, goodwill. It is also to be recalled that a bankruptcy notice was served on King on 4 February 1992. The evidence indicates King endeavoured, for some months into 1992, to continue to operate the business himself and was engaged in negotiations with NM Property Services about the payment of rent. However by July 1992 a scheme had been conceived involving the sale of the Gateway Newsagency business to McIntyre. It is relatively clear that at this time King was insolvent. It was a scheme in which King had been actively involved in formulating and implementing. That is to be inferred from events as they unfolded fortified by the failure of King or McIntyre to explain, in evidence, why they conducted themselves in the way they did: see PT Garuda v Grellman (1992) 35 FCR 515 at 523-526. 85 A central figure in effecting the disposition of the leasehold interest in shop 507 as well as the sale of whatever interests or rights the State Bank had under its bill of sale (and indirectly those of Westpac) was Colbron. In my view Colbron can be treated, at all relevant times, as acting for both King and McIntyre in any dealings concerning the lease of shop 507 in mid 1992 and in negotiating the sale agreement involving the State Bank, Westpac and McIntyre. The opening gambit in the sale by the State Bank was the communication to McDonald by Colbron in July 1992 which had been preceded by the letter of 11 June 1992 referring to the "potential buyer" King was going to introduce to Woodgate & Co. It was Colbron who was urging the State Bank to exercise its powers under the bill of sale for reasons including an affirmation of the "arm's length" nature of the transaction. 86 It was Colbron who, in July 1992 foreshadowed a lease to McIntyre and later negotiated the terms of the lease with NM Property Services and Freehills. It was Colbron who negotiated both these transactions to finality on behalf of King and McIntyre. Indeed he effectuated the agreement between King and McIntyre of 15 September 1992 (when the former purported to sell the territory of the agency to the latter) and used that agreement in both his dealings with the Newsagency Council and in negotiating the terms of the sale agreement with the State Bank. 87 King continued to be involved in the business after the surrender of the lease and the sale by the State Bank. The sale to McIntyre was on the basis, from her perspective, that King was to be engaged to assist in the running of the business. That arrangement would provide King with an income. It would also provide King with a means by which he could continue other business activities in the face of increasing financial pressure and even his ultimate bankruptcy. This was because King was able to rely on the cash flow of the Gateway Newsagency business to enable the use of the account the business had with the Advance Bank to support other ventures. Indeed not only was King actively running the business from October 1992 onwards, it is probable McIntyre was not involved in running it other than on the most spasmodic basis. 88 McIntyre was not living permanently in Australia and was often absent. She was domiciled in New Zealand. Before the lease commenced on 1 September 1992 McIntyre had been in Australia for most of the year. However for the remainder of 1992 she was in Australia for approximately six weeks and probably in New Zealand for the rest of that time. She left Australia in late October 1992 and did not return until mid April 1993. She then spent approximately two and a half months in Australia and then a period of six months in New Zealand. Thus during 1992 she was in Australia for approximately two and a half months only. In 1994 she spent approximately six months in Australia and six months in New Zealand. In 1995 she spent approximately a month in Australia. She spent a similar period in Australia in 1996 and only three weeks in 1997. The evidence does not establish she played any continuing active role in the management of the Gateway Newsagency. The evidence establishes that King did. 89 From mid 1992 onwards King, against a background of having been served with a bankruptcy notice, set about creating a situation where the Gateway Newsagency business was placed in the hands of his niece but would be under his control. In his public examination, King said that McIntyre had grown up with him in his household and she was like a daughter. That relationship provided King with a sound basis for believing that the business, once transferred to her, would remain available to him. By these means the value of the business, including its goodwill, would no longer be in his hands and, as he believed or hoped, beyond the reach of creditors and would not form part of his estate were he to be made bankrupt. In the result the disposition by King of his leasehold interest in shop 507 was made with intent to defraud his creditors and is, by operation of s 121, void against the Trustee. 90 The creation of the leasehold interest of Farndale in 1997 received limited attention in the submissions of the parties. I am inclined to accept the submission of counsel for the Trustee that in effect, the lease to Farndale was a sham and Farndale should for present purposes concerning the leasehold of shop 507, be treated as King. The sale agreement of 30 October 1992 91 It is to be recalled that the sale agreement of 30 October 1992 between the State Bank and McIntyre concerned "Assets" as defined. The "Assets" were constituted by stock secured by State Bank's bill of sale, stock secured by Westpac's bills of sale, plant and equipment leased to King by the State Bank, and goodwill. It was probably open to the State Bank to sell stock transferred to the Gateway Newsagency from the Anchor Newsagency which was the business to which the State Bank's bill of sale related and to which, in my opinion, the bill's operation was restricted. That stock was transferred in June 1992 when the Anchor Newsagency closed. How much, if any, of that stock remained in October 1992 is not known. Having regard to the arrangement with Westpac, it was open to the State Bank to sell stock at the Gateway Newsagency that had been secured by Westpac's bill of sale, assuming Westpac's rights to sell had been enlivened. Whether it had is not clear. The State Bank could sell the legal interest it had in the fixtures and fittings which had been leased to King. The status of King's leasehold interest in those fixtures and fittings at 30 October 1992 is obscure. There is no clear basis, evident to me, that would have justified the State Bank selling the goodwill of the Gateway Newsagency business in exercise of its bill of sale over the "vehicles, plant, fixtures, fittings and/or goods, wares or merchandise" at the Anchor Newsagency. 92 However the extent of the State Bank's interest in the property it purported to sell is a matter that need not be determined conclusively. That is so for two reasons. The first is that no orders are sought by the Trustee in relation to the then existing stock sold under the agreement. The second is, as submitted by counsel for the Trustee, that the title in the remainder of the property to which the agreement of 30 October 1992 related never vested in McIntyre. It is to be recalled that clause 2.5(b) of that agreement provided that the State Bank's "right title and interest in the Assets" were not to be transferred until the purchase price was paid except in relation to stock. Title in the stock vested, by operation of clause 2.5(a), on the payment of the sum of $23,769.93 at the time of settlement. The purchase price was, in total, $81,769.93. The evidence establishes that the first amount due under the agreement, $23,769.93, was paid. The respondents' counsel did not seek to prove directly the payment of the residue. I am satisfied the balance of the purchase price was never paid. 93 In evidence is a memorandum of 16 February 1993 from Woodgate summarizing a discussion with an officer of the State Bank. There is also in evidence an internal document of the State Bank dated 11 March 1993 entitled "Submission for write off" concerning the affairs of King. It is clear from these documents that McIntyre made no further payments after the initial payment of $23,769.93 for the stock. Accordingly clause 2.5(b) denied McIntyre title in the "Assets" (save for stock). That is, the agreement of 30 September 1992 did not vest title in the "Assets" (save for stock) in McIntyre. 94 The respondents' counsel sought to resist this conclusion by submitting that the State Bank had abandoned the contract. Reference was made to Summers v The Commonwealth (1918) 25 CLR 144 (which concerned the abandonment of a contract to supply goods by inactivity and the effluxion of time), Paal Wilson & Co v Partenreederei Hannah Blumenthal (1983) AC 854, Fitzgerald v Masters (1956) 95 CLR 420 at 432 (which concerned the abandonment of an entire contract), Pearl Mill Co Ltd v Ivy Tannery Co Ltd (1919) 1 KB 78 (which concerned an inordinate delay in seeking the supply of goods under a contract leading to an implied abandonment of that part of the contract that had not been completed) and W A Fisher Ltd v Eastwoods Ltd (1936) 1 All ER 421 (which concerned an election of a purchaser not to seek the partial performance of a contract to sell goods leading to the abandonment of the contract). For a more contemporary consideration of this issue see also DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 434, and In the Marriage of Drew (1985) 81 FLR 238. However the relevant legal question is not whether the agreement between the State Bank and McIntyre has been abandoned, but rather whether title to the Assets (save for stock) has passed to McIntyre. In my opinion it has not. Clause 9.1, in substance, provided that the terms of the agreement would continue to apply in the absence of written agreement that they not apply. Clause 9.2 provided, in substance, that delay in implementing the agreement or parts of it would not alter rights arising under it. In the face of these express terms, it is difficult to see how title might have passed to McIntyre by the combination of the failure of the State Bank to insist upon payment and the effluxion of time. 95 However if the contract can be now treated as abandoned, that would have the effect that it is at an end. Its terms cannot now be relied upon to support title in McIntyre. An analogous situation arises in an abandoned contract for the sale of land. The purchaser is entitled to a return of the deposit, not because of a contractual right for its return because the contract no longer exists, but because it would be inequitable for it to be retained by the vendor: see Lombok Pty Ltd v Supetina Pty Ltd (1987) 14 FCR 226. In the present case it is unnecessary, indeed inappropriate, to ascertain precisely what the rights, if any, of the State Bank are under the 30 October 1992 agreement qua McIntyre. It is sufficient to indicate, as I earlier did, that title in the "Assets" (save for stock) never vested in McIntyre. The State Bank is aware of these proceedings and the issues they raise. They do not seek to assert any rights to any property constituting the Gateway Newsagency business in February 1992 that vested in the Trustee by virtue of s 58 of the Act. 96 The orders I make are intended to give effect to these reasons. I have, in the orders, made no special provision for the territory or the stock sold to McIntyre in October 1992. It appears to be unnecessary to do so in view of the position adopted by the Trustee in these proceedings in relation to both matters. If it is thought necessary by either party that I expressly deal with them, then the liberty to apply can be exercised. The same can be done if there is any real residual issue between the parties about the status of stock presently existing at the Gateway Newsagency. I certify that the preceding ninety-six (96) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore. Associate: Dated: 15 April 1999 Counsel for the Applicant: B A Coles QC with C R C Newlinds Solicitor for the Applicant: Kemp Strang Counsel for the Respondent: L J Aitken Solicitor for the Respondent: Colbron & Associates Date of Hearing: 15, 16, 19 October & 11 December 1998 Written submissions concluded: 14 January 1999 Date of Judgment: 15 April 1999