Federal Court of Australia Burness (Trustee) v Harding [2021] FCA 1184 File number(s): VID 859 of 2019 Judgment of: KERR J Date of judgment: 1 October 2021 Catchwords: BANKRUPTCY AND INSOLVENCY – where a loan for the husband's business is secured against a property which is held in equal shares by the husband and wife – where the husband's business fails and he is declared bankrupt – where the property is sold to repay the loan for the husband's business – whether the wife can establish that the equity of exoneration applies such that she is entitled to be exonerated by the husband in respect of those borrowings Legislation: Bankruptcy Act 1966 (Cth) Cases cited: Parsons v McBain [2001] FCA 376 Day v Shaw [2014] EWHC 36 (Ch) Bankruptcy v Citibank Savings (1995) NSWLR 116 Farrugia; ex parte Farrugia v Official Receiver (1982) 43 ALR 700; [1982] FCA 55 Armstrong v Onyearu [2018] Ch 137 In Re Kiely (1857) Ir Ch Rep 394, 405 Paget v Paget [1898] 1 Ch 470. Fisher & Lightwood's Law of Mortgage (Aust. Ed., 1995) Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Number of paragraphs: 177 Date of hearing: 30 June 2021, 1-2 July 2021 Counsel for the Applicant: Mr Matters Solicitor for the Applicant: Sharrock Pitman Legal Counsel for the First Respondent: Mr Northrop Solicitor for the First Respondent: Scammell Black Mileo ORDERS VID 859 of 2019 BETWEEN: PAUL ANDREW BURNESS IN HIS CAPACITY OF TRUSTEE OF THE BANKRUPT ESTATE OF GARRY MAXWELL HARDING Applicant AND: KATHRYN LEE HARDING First Respondent REGISTRAR OF TITLES Second Respondent order made by: KERR J DATE OF ORDER: 1 October 2021 THE COURT DECLARES THAT: 1. Mrs Kathryn Lee Harding, by consenting to her husband, Mr Garry Maxwell Harding, being permitted to borrow funds secured by a mortgage over their jointly owned residential property for the purpose of him establishing and funding his business is entitled, in the facts found by the Court, to the benefit of the equity of exoneration and accordingly is entitled to be indemnified and exonerated by her husband in respect of those borrowings. THE COURT ORDERS THAT: 1. Within 5 days of the publication of these reasons, the First Respondent file and serve written submissions limited to 3 pages regarding any order as to costs of this proceeding. 2. Within 10 days of the publication of these reasons, the Applicant file and serve written submissions limited to 3 pages in response. 3. Within 14 days of the publication of these reasons, the First Respondent file and serve written submissions limited to 1 page in reply. 4. Unless application is made for an oral hearing within 14 days of the publication of these reasons, all issues arising in relation to costs be determined on the papers. 5. Liberty to apply within 14 days of the date of publication of these reasons for any contingent orders relating to the disposition of the funds currently held by the Applicant's lawyers in trust as may be sought. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT KERR J: INTRODUCTION 1 This is a case about a woman who, against her better judgment, allowed herself to be persuaded by her husband to assist him to finance a business which later failed. 2 They both came from a small town in Tasmania. They were childhood sweethearts. She went to university and became a teacher. The man began the same course but he left after the first year to become a forklift driver with a major transport company. They were married young. Soon after, they welcomed a baby girl into their lives. 3 This man worked hard. His aptitude was recognised by his employer. He worked his way through the ranks of the company to an executive position of considerable responsibility. To secure his promotion the family left Tasmania and went interstate to live in Melbourne. 4 She found employment quickly and continued to teach. They bought a house together, and settled into their new life. He, when his company was taken over by a larger transport conglomerate was granted shares and later used those shares to clear the mortgage they had over their home. She remembered vividly the excitement she felt. 5 However her husband was becoming dissatisfied with his work. He decided that he needed a change. He began planning, with two others, to start a business that would become his own, small, rival transport company. His wife was afraid that it wouldn't work out. Her parents had owned their own business, and she knew it was really, really hard. But she supported him, because that is what she had always done. 6 The unfortunate circumstance that colours this case is that her husband had no means of doing so without her consent. The money he would need to set up his business, and later to finance it, was that which was tied up in their jointly owned home. Despite his wife's apprehension and better judgment, when her husband asked her to sign the required documents in setting up his business, she agreed to permit him to use their house as security for its financing. Her evidence is that she signed not only the documents required for the loan but also all of the other documents which her husband had presented to her over the years, merely to support him as his wife as she had always done. She had otherwise had, and had taken, no part in the business. 7 When the business was struggling her income as a teacher was all that had supported the family. Notwithstanding the husband persuaded her to join him in borrowing more money from the bank to put into the business, again using the family home as security. 8 Sadly there was never a positive turnaround. The business failed. Her husband was made bankrupt. 9 Her husband belatedly transferred (or rather purported to transfer) his portion of ownership of the family home to her. But that transfer was void against his trustee in bankruptcy. As a result the family home was sold. The greater part of the proceeds of that sale have been applied to extinguish the husband and wife's jointly secured debt to the bank. The balance of the proceeds of sale have been retained by the trustee pending the outcome of this case. It is to whom those retained funds belong and to whom they are to be distributed that forms the subject of this proceeding. 10 It is common ground that but for the potential application of the doctrine of the equity of exoneration only half of the retained funds are the wife's. The husband's half share of the funds, on that understanding, form part of his bankrupt estate and will be available to the trustee to distribute to the husband's unsecured creditors. 11 However if the wife is entitled to the benefit of the equity of exoneration, her husband no longer has an interest in half of the retained funds, that interest having been entirely utilised in satisfaction of their jointly secured indebtedness to the bank. Thus the husband has no property in the retained funds and his wife will be entitled to the entire balance of what remains. 12 In Parsons v McBain [2001] FCA 376 (Parsons) a Full Court of this Court (Black CJ, Keifel and Finkelstein JJ) observed that the authorities that establish the equity of exoneration go back three centuries. Their Honours referred with approval to a summary of the principle as stated in Fisher & Lightwood's Law of Mortgage (Aust. Ed., 1995) at 30.7: It is a well established principle that a person who has mortgaged his property to secure the debt of another stands only in the position of a surety and is entitled to be exonerated by the principal debtor. In this position is a wife who has mortgaged her property to secure money raised for the benefit of her husband. There is a similar equity in favour of a husband… The parties differ as to whether one or more qualifications to that principle are engaged as would deny the wife's entitlement but neither disputes the continuing authority of that summary. 13 The wife contends in her application that in the circumstances that had applied as between herself and her husband when they had borrowed against the security of their home, she is entitled to rely on the equity of exoneration to protect the retained funds from the consequences of her husband's business misfortune. 14 The trustee opposes the wife's application. The trustee submits that in the facts of this case the equity of exoneration does not apply having regard to the business structures the wife and her husband jointly put in place when establishing the business and those as were later utilised by them in the course of subsequent events. The trustee submits the wife was not a mere facilitator of her husband's improvident decisions. She stood to actually or potentially benefit from the business which had been established through the loan they had jointly secured against the house. She had been involved from the outset as a director of a company established as the trustee of a family trust (in which she was included as a potential discretionary beneficiary) through which units in another trust (the vehicle through which the business was to be conducted) had been purchased. Such a high degree of involvement in the husband's venture denies her the benefit of the equity. 15 The trustee further submits that the evidence before the Court would be insufficient for the Court to be satisfied that the funds the husband and wife borrowed were all applied to the husband's business. That too was disentitling. 16 For the reasons that follow I am satisfied that those submissions are to be rejected and the wife is entitled to the declaration she seeks. BACKGROUND 17 The following background is uncontentious. It is drawn from the oral evidence given by both parties in this proceeding, with reference to documentary evidence where appropriate. 18 Gary Maxwell Harding (Mr Harding) and Kathryn Lee Harding (Mrs Harding) (the Hardings) grew up in a small community on the north-west coast of Tasmania. They became childhood sweethearts. After they finished school in the late 1970s, they both commenced studies in teaching at the University of Tasmania. Mr Harding studied for a year before leaving to work as a forklift driver for a transport logistics company, May Nicholas. Mrs Harding completed her studies. She graduated and became an early childhood and primary teacher. She commenced working as a teacher in around 1981. 19 The Hardings married in 1983. Their first child, Jessica, was born in 1985. During their time in Tasmania Mrs Harding continued to work as a teacher except for about 9 months after Jessica was born. Mr Harding progressed within May Nicholas through various roles in northern Tasmania including "a short stint in Hobart". He worked in administration, operations, and sales before being appointed Tasmanian manager. 20 At some point, not relevant to these proceedings, May Nicolas was acquired by Toll, a major national transport and logistics company. As an incident of that event Mr Harding became entitled to number of shares in that larger company. He continued in a similar role as an employee of Toll. However his progress in that national company increasingly required interstate travel. 21 By 1999, Mr Harding had been promoted to be general manager of the logistics division of Toll. His office was in Melbourne, but he remained living in Launceston with Mrs Harding. After 12 months of his commuting back and forth, the Hardings moved with Jessica to Melbourne. 22 Once in Melbourne, Mr and Mrs Harding purchased a townhouse "off the plans". On 3 November 1999 they became joint registered proprietors of 1B Glen Iris Road, Camberwell (the Camberwell Property). They financed their purchase by way of a home loan with ANZ Bank (loan 1). Mrs Harding found employment at a childcare centre as a kindergarten teacher. The following year she commenced work at Ivanhoe Grammar School, also as a kindergarten teacher. She has remained employed by Ivanhoe Grammar School (albeit with varied days per week) ever since. She is now the director of that school's early learning centre. 23 In the years ending 30 June 2002 and 30 June 2003, Mr Harding's tax returns reveal capital gains of $389,865 and $84,273 respectively. Mr Harding explained in oral evidence that those capital gains had arisen from the sale of shares he had in Toll. The money he got from sale of his shares in the year ending 30 June 2002 had allowed the couple to fully pay out loan 1. 24 In her oral evidence Mrs Harding described her feelings about having a home free of borrowings at that time: "I remember it was very exciting. It was a few days before my birthday. It was very exciting…". 25 Mr Harding continued in his position as general manager of the Toll logistics division in Melbourne but was becoming increasingly unhappy in that role. His oral evidence is that late 2002 or early 2003 he had a "major panic attack". By that time he had become general manager of Toll's group business development, which he explained was "at the same level but in a different role". He said that that particular division "was a basket case, essentially." His evidence was: I was starting to get worn down and started to think at that stage about a career change. I also had a realisation whilst I was being trained to be an operational director of Toll Group that it was beyond my means and beyond my desires, and that's when I first started to think about owning my own business or moving to another role. 26 Soon Mr Harding's mind was set. He decided the time had arrived to move on. He was determined to go into business for himself. He spoke with his wife about his plans. In oral evidence he recalled: Kath was very anti me resigning and moving. Kath was - felt that the salary level I was on and the conditions that I was on were supporting a very good lifestyle. She wanted me to stay. 27 Mrs Harding's evidence was that she had been taken by surprise: her husband continuing to work at Toll "was just a foregone conclusion". When he had indicated to her that he was contemplating setting up his own business, she said her response: …wasn't very good. Well, we were very comfortable. So, you know, owning his own business - I knew my parents had owned their own business, and I knew it was really, really hard. You know, you get paid last. Everyone else gets paid before you. And he was on a very good wage at Toll, and I just really didn't want him to do it. … I didn't agree with it, and I wasn't happy about it. But when your partner - I mean, we've been together a long time. Since we were 16. And it was just - yes. That made him happy. It was like, well, that's what I needed to do I suppose. 28 For Mr Harding, his wife's reluctant assent to his chosen path was a turning point. He began transitioning from Toll by taking aptitude tests and appointing a business broker, Mr Paul Prowse. He had "not too many boundaries on what even [he] was looking for, but [he] had it in his mind that the time [had] arrived to move". He developed a planning team with two colleagues "of a similar ilk" who were also looking to leave Toll. He had reasoned that their combined skill sets would allow them to succeed in business. Mr Harding had managerial experience, Mr Bruce Davis could guide operations, and Mr George Lerias, a qualified accountant, would bring finance expertise. 29 The Hardings obtained an investment loan at around this time (loan 2). No loan agreement was provided to the Court, but it appears to be uncontentious that this loan was in the sum of $180,507.27 and that it was repaid in full on 29 July 2003, resulting in the closure of the account. It is not suggested that this loan was related to Mr Harding's intention to start his own business. Mrs Harding's oral evidence in relation to this loan was that she recalled going to a financial advisor with her husband, "and the guy had sort of said to us that maybe we should borrow some - some money to buy some shares or - or something like that to do some investments". Whatever those circumstances they have no relevance to this proceeding. 30 By June or July 2003, Mr Harding had become involved in negotiations for the purchase of a transport and logistics business. That business was owned by Bears Distribution Pty. Ltd. and Bears Moving & Storage (Aust) Pty. Ltd. (the Bears business). There is little evidence as to why two corporate vehicles were required to run that business – or the division between them. Mr Harding described the negotiations to acquire the Bears business as quite a "laborious" process and he "walked away two or three times". He said one of his intended colleagues, Mr Lerius, who he was expecting to rely on for financial expertise in running the Bears business had changed his mind at the last moment and for a while it had looked like the deal wouldn't be able go ahead. However a former customer of Toll Mr Geoff Tosswill who had gone into practice as an accountant then agreed to become a "silent partner" with Mr Harding and Mr Davis. His having done so enabled the deal to acquire the Bears business to be concluded in July 2003. 31 The Australian Securities and Investment Commission (ASIC) records indicate that on 10 July 2003 Mr Lerias, Mr Harding and Mr Davis became registered as directors of both of the companies through which the Bears business had earlier been conducted. Whether that was the true positon with respect to Mr Lerias may be doubted (it appears uncontentious that he had already backed out) but in any event the registration of those companies was subsequently amended on 9 September 2003 with Mr Tosswill replacing Mr Lerias as a director. 32 On the same day as the Bears business was acquired, 10 July 2003, Jezabella Pty Ltd was registered as a company. Mr and Mrs Harding were identified as being its directors with Mr Harding as its company secretary. That company in turn was identified as the trustee of the Harding Family Trust, which was similarly established that day. The Harding Family Trust provided, inter alia, that Mr and Mrs Harding, their daughter Jessica, and Jezabella Pty Ltd would fall within a larger list of available discretionary beneficiaries. 33 The agreement as between Mr Harding, Mr Davis and Mr Tosswill appears to have been that each of the former would have a 40% interest in the Bears business with Mr Tosswill, having a 20% interest as their "silent partner". The mechanisms for that to be reflected in legal form were delegated to Mr Tosswill to prepare. 34 There is little or no oral evidence on the point but I infer from the documentary tenders (and I take it to be uncontentious) that Bears Moving and Storage (Aust) Pty Ltd had been incorporated to become the trustee of the LHD Unit trust. 35 I take it to be uncontentious that the LHD Unit Trust was established on Mr Tosswill's advice to serve as the overarching entity for the conduct of the Bears business. 36 I take it also to be uncontentious that it was not Mr Harding who then acquired units in the LHD Unit Trust. Rather 240,000 "Harding Units" were allocated to the Harding Family Trust for a consideration of $240,000. 37 There is limited evidence but I am prepared to infer both having regard to the timing of the circumstances and in light of a note later recorded in the (albeit unsigned) 2008 minutes of the Harding Family Trust (cited in full detail at [71] below), that that Mr and Mrs Harding jointly borrowed the greater part of the initial capital required for the acquisition of those units from the ANZ bank. 38 It is uncontentious that on 29 September 2003, the ANZ Bank offered Mr and Mrs Harding a credit facility in the sum of $150,000 (loan 3) to be secured against the Camberwell Property (CB 258). It is common ground that that those funds were drawn down on the same day. The account was in the name of both Mr and Mrs Harding. Their borrowings for the purchase of units in the LHD Unit Trust was referred to by counsel for Mrs Harding as "the first loan in relation to the business" in respect of which the wife's equity of exoneration is claimed to apply. 39 At the time the Bears business was acquired through that mechanism it was physically operating from premises at Swift Way in South Dandenong. In his oral evidence Mr Harding referred to those premises as having been too small for what the Bears business required. Its new owners had no intention of conducting their business from that location. They wanted more space. 40 I interpolate that it is uncontentious that in 2004 the Bears business subsequently purchased new premises at Kirkham Road in Dandenong. Having purchased that property the Bears business moved its operations to those premises. 41 Mr Harding's oral evidence is that finance from the National Australia Bank was obtained to fund the purchase of the Kirkham Road premises. There is scant evidence as to how that loan was secured. That which exists suggests that the National Australia Bank's security may have involved a personal guarantee from Mr Harding: his statement of affairs following his bankruptcy acknowledged his owing a substantial unsecured debt to that bank. However the exact provenance of that loan and its circumstances is a side wind in these proceedings: whatever the circumstances the obtaining of that loan had not involved Mrs Harding. 42 By contrast in what is directly relevant to these proceedings is that in October 2004, Mr and Mrs Harding jointly sought and obtained a loan from the Bank of Queensland in the sum of $432,000 (the BOQ Loan). That loan was secured against the Camberwell Property. The Hardings used $150,000 of those borrowings to pay out their indebtedness to the ANZ Bank in respect of loan 3. Mr and Mrs Harding both gave evidence that the balance of the funds obtained from the BOQ Loan then were ploughed into the Bears business. The Trustee disputes that the evidence is sufficient to establish that that was so. 43 From 2004 to 2007, the Bears business grew in scale but continued not to operate at a profit. Mr Harding's evidence was that that was because the amount of capital required to run the business had been "totally underestimated" by those who had founded it. 44 It is uncontentious that the business Bears Logistics (Aust) Pty Ltd was acquired in June 2007 and registered at the Kirkham Road address. According to the ASIC record Mr Davis, Mr Harding, and Mr Tosswill were appointed as directors on 4 June 2007. Mr Tosswill ceased as a director on 28 August 2008. As such the Bears business was from that time comprised of three corporate entities variously titled with the name "Bears". 45 Mr Harding's oral evidence was that he was aware that the three companies operated various trusts including the LHD Unit Trust and another trust called Wussiepies Unit Trust. He did not understand the intricacies but said that he understood, "essentially" that Bears Logistics (Aust) Pty Ltd managed the business, Bears Moving and Storage (Aust) Pty Ltd held the equipment, and Bears Distribution Pty. Ltd. owned the property. 46 It was in troubling circumstances that Mr Harding asked his wife to join with him in increasing their loan with the BOQ so that he could put more money into the undercapitalised Bears business. He gave evidence of recalling "very vividly" having discussions with his wife about what that might involve. He recalled "Kath was very anti…vehemently anti". Notwithstanding Mrs Harding, against her better judgement agreed to assist so his business could continue. 47 Thus in 2007, Mr and Mrs Harding's BOQ Loan limit was increased by $168,000 to $600,000. Both gave evidence that on their understanding those funds were required for and had been applied towards "the running of the business". That loan was approved on 16 October 2007. 48 In early 2008, the still undercapitalised Bears business, already under financial pressure, lost a significant contract. Mr Harding's uncontested evidence was that "close to 50 per cent of the business disappeared that afternoon". Despite efforts to keep the Bears business viable over the years that followed by May 2012 it failed. Receivers were appointed. 49 In approximately September 2012, Mr Harding transferred (or purported to transfer) his share in the Camberwell Property to Mrs Harding. The consideration for the transfer was recorded to be "natural love and affection". 50 On 4 March 2014, Mr Harding was declared bankrupt pursuant to a sequestration order made in the Federal Circuit Court of Australia (FCCA). This, it appears to be common ground, was associated with the failure of the Bears business. 51 On 24 June 2021, there was an application made to deregister Jezabella Pty Ltd. It was deregistered and remains deregistered. 52 On 13 August 2019, the Applicant, Paul Burness, as trustee of Mr Harding's Bankrupt estate (the Trustee), filed an application with this Court. The Trustee's application sought, inter alia, a declaration that the transfer of Mr Harding's share in the Camberwell Property to Mrs Harding was void against the Trustee pursuant to s 120 of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act), or alternatively orders that the Second Respondent, the Registrar of Titles, set aside the transfer under s 120 of the Bankruptcy Act. The Trustee also sought an order for the sale of the property in accordance with s 139ZR(6) or s 134(1)(a) of the Bankruptcy Act. 53 On 7 October 2019, Mrs Harding filed a cross-claim. She sought inter alia: D. A declaration that KLH [Kathryn Lee Harding] is entitled to be indemnified by GMH [Garry Maxwell Harding] and is exonerated from the BOQ [Bank of Queensland Limited] debt. 54 On 27 May 2020, the Court having been satisfied that the transfer in 2021 of Mr Harding's interest in the Camberwell Property to Mrs Harding was void as against the trustee it made a declaration in terms it was satisfied was proper to make and as the parties had consented to and ordered by consent as follows: THE COURT DECLARES BY CONSENT THAT: 1. The transfer to the First Respondent of Garry Maxwell Harding's share in the property at 1B Glen Iris Road, Camberwell, Victoria, described in Certificate of Title Volume 103659 Folio 030, is void against the trustees pursuant to s 120 of the Bankruptcy Act 1966 (Cth). THE COURT ORDERS BY CONSENT THAT: 1. The property at 1B Glen Iris Road, Camberwell, Victoria, described in Certificate of Title Volume 103659 Folio 030, be sold under s 134(1)(a) of the Bankruptcy Act 1966 (Cth). 2. The hearing of the First Respondent's claim D identified in her notice of the cross-claim be adjourned to a date after the sale of the property pursuant to Order 1. 3. Liberty to apply. 4. Costs reserved. THE COURT NOTES THAT: 1. The First Respondent no longer presses any ground in the cross-claim other than D. 55 On 30 January 2021, the Camberwell Property was sold by public auction for the sum of $1,082,000. The net proceeds at settlement were $1,057,016.70, prima facie leaving a $528,508.35 share for each of Mr Harding and Mrs Harding prior to the discharge of the BOQ Loan. The amount required to discharge the BOQ Loan was $619,895.55. Accordingly the amount required to discharge the loan was greater than Mr Harding's prima facie share of the net proceeds of sale. A payment in that sum was made to the BOQ to discharge Mr and Mrs Hardings' debt as was subject to the bank's security. The balance of $437,121.15 is presently held by the Trustee's lawyers on trust, pending either written agreement by the Trustee and Mrs Harding as to their disbursement, or order of the Court. 56 The sole outstanding issue for determination is whether or not the declaration sought by Mrs Harding referred to at [53] above should be made. The Trustee opposes that application. THE EVIDENCE The Trustee's Case Mr Burness 57 Mr Burness, the Trustee, gave only brief oral evidence. His evidence was that he had not yet called for formal proofs of debt in respect of Mr Harding's estate because there had been no money to distribute: "there has been no need as there has been no distribution in the estate". He said that the Australian Taxation Office was the petitioning creditor for Mr Harding's bankruptcy, with a debt of $130,000. In relation to the National Australia Bank debt of $812,862 recorded by Mr Harding on the statement of affairs (CB 309), Mr Burness said he hadn't had the need to rule on proof of debt, "or I don't think I've actually even received a proof of debt from the National Australia Bank at this juncture, but I haven't called for them either". Documents 58 Otherwise the Trustee's case was advanced on the basis of the inferences his counsel, Mr Matters, submitted the Court would be entitled to draw from the body of documentary materials in evidence before the Court. In that regard Mr Matters also drew the Court's attention to gaps in the documentary materials as he submitted suggested that there were a number of potentially significant missing documents which had not been discovered – the unexplained absence of which would entitle the Court to draw inferences adverse to the case Mrs Harding was required to prove. The Wife's Case Mrs Harding 59 Mrs Harding said that prior to Mr Harding going into business, she had told him that the house would never be included in financing the business and he would "have to do it some other way". She did not recall loan 3 having been taken out and it being secured against the family home but accepted that it had been. Before the BOQ Loan was obtained, she said she remembered that her husband had spoken to her about them changing all of their banking from ANZ Bank to the BOQ because that's where his funding for the business was to be obtained. She said she did not recall the amount that was being sought for the business. She just remembered signing various documents. She answered "no" when counsel for the Trustee, Mr Matters, asked her whether she understood that she would need to enter into a mortgage with the BOQ at that time. 60 Mrs Harding demonstrated a near complete lack of knowledge of the affairs of her husband's business during her cross-examination. She did not recall the process her husband had undertaken to find a business to purchase, recalling only his consulting a business broker. She remembered when he first told her about the Bears business "because [she] remember[ed] saying, 'what a ridiculous name'." She recalled that her understanding was that it was "moving furniture from either factories or stores like Harvey Norman and stuff like that", and that her husband had purchased that business. 61 Mrs Harding's evidence in chief was that she had never had anything to do with his running the Bears business: And after your husband went into the Bears business did you have any involvement in the business yourself?---No, none at all. 62 Her evidence was that her husband would bring documents home. She would just sign where the "sign here" tabs had been placed. Her evidence was to the effect that her willingness to sign those documents had been simply an aspect of her having been (reluctantly) prepared to stand behind her husband to support his business endeavours. 63 Mrs Harding explained that it wasn't until an application for the credit limit on the loan to be increased had been made in October 2007 that she "really realised" that their house was involved in the business. She said she remembered the moment distinctly because a man came to the Camberwell Property to value it so that the bank could tell them how much Mr Harding could borrow. Her evidence was that she thought Mr Harding explained to her that it wasn't her loan, and it wasn't anything to do with her house. Mr Harding had told her it was Bears' loan and it would be paid back. She did not receive any of the money. Her understanding was that all the money from that loan went into the business. She recalled saying to Mr Harding at the time that she would be having his share of the house as well, "or something to that effect". 64 Mrs Harding was cross-examined as to her role in Jezabella Pty Ltd. Mrs Harding acknowledged she was appointed as a director of that company on 10 July 2003 and that she had remained a director until 8 March 2008. However she denied having any real knowledge or understanding of what the company did. Were you aware that Jezabella Proprietary Limited was trustee of the Harding Family Trust for a period of time? Apologies, your Honour. I'm just located a particular document to take the witness to. So take the - take you to volume 3 - volume 2, rather. Volume 2 of the court book. And it's document 88A, being page 565. Have you got that document?---Yes, I have. Yes. You see that it says on the Harding Family Trust with a settler and a trustee listed and a trustee of Jezabella Proprietary Limited?---Yes. Yes. If you turn to page 591, do you see the - that's a listed schedule at the top of the page?---Yes. Yes. And you see that the date there is 10 July 2003?---Yes. Which is the same date that you were appointed as director of Jezabella with Garry?---Yes. You see that it sets for what the name of the trust is Harding Family Trust. The appointer is Garry Maxwell Harding. Do you see further down the page that it says the specified beneficiaries are you and Garry and children and so forth?---Yes. Did you, back in 2003, understand that Jezabella was the trustee of the Harding Family Trust?---No. All right. And so even though you were a director of Jezabella - well, did you know you were a director of Jezabella back in 2003 in July? Do you recall?---Yes. Yes. I do know that. There's - yes. These were things that were put by the accountant and - yes. I signed. Yes. What did you think your role, if anything, was to do as director of Jezabella?---Nothing. Nothing?---Nothing. Yes. Sign documents?---No. To be perfectly honesty (sic), no, I didn't even - even think that. I just - yes. So - and if the are documents signed in relation to Jezabella by yourself, you - - -?---Well, obviously I've signed them. But you're saying you don't recall whether you read any of them or - - -?---Well, I didn't read them as thoroughly as I should have, obviously. Hindsight is a great thing. Is that you - - -?---I mean, I - obviously - back then I signed a lot of things that maybe I shouldn't have, but hindsight is a great thing. Now I wouldn't have signed a thing - I wouldn't have put my name to a single thing. But at the time, basically, you know, this was Garry's business and I just did what, you know, a piece of paper, would come home, say sign here, and that - that's literally what I did. Was it your understanding that if the Bears businesses were profitable, that moneys would come back through the Bears businesses to the Harding Family Trust - - -?---No. - - - to be distributed to beneficiaries?---No. Do you know whether you ever received any distributions as a beneficiary under the Harding Family Trust?---I don't believe I did, no. When you say - so you say you don't believe you did, so you have a positive belief that you did not. Is that right?---That I did not - no. No. All right. And where did you form that belief? How did you - how did you form that belief? How did you come to that?---Well, because the business wasn't that successful going along. It was okay, but it - it certainly didn't - yes. That's it - if you weren't aware that - I asked you the question about whether or not moneys, if the business was profitable, would come back to the Harding Family Trust, and you said you didn't - that - that wasn't your understanding. You didn't understand that, correct?---Look, I - I don't know anything about Family Trust, to be perfectly honest. That's my - my honest opinion. I just don't know. 65 Mrs Harding was taken to minutes for meetings of Jezabella Pty Ltd on 30 June 2004, and 30 June 2006. The minutes show that Mr and Mrs Harding and their daughter Jessica were present at the first two meetings and the net income of the Harding Family Trust was distributed to Jessica in 2004 ($7,280) and 2006 ($7,560). Those minutes were signed by Mr Harding as chairperson for the meetings. Mrs Harding recalled both meetings occurring, and that Jessica "got some money out of the business" but did not recall what was discussed or whether she signed anything. 66 Mrs Harding was then cross-examined as to the statements of the company for the year ending 30 June 2005: So Jezzabella Proprietary Limited, financial statements for the year ending 30 June 2005?---Yes. If you turn over the page to page 605, do you see, about two-thirds of the way down the page, there's something titled Unpaid Trust Distributions?---Yes. Do you see there that there's listings for Jessica, Garry and yourself?---Yes. And do you see that both Garry and you have identical amounts for the years 2004 and 2005?---Yes. Do you know anything about why there's notations for unpaid trust distributions in those sums?---No, I have no idea. Okay?---I've never seen this. Do you recall ever receiving a distribution from the Harding Family Trust at any stage?---No. You don't recall one way or the other or - - -?---No, I - I never did. You never did?---No. Okay. And you know that because - - -?---I - I think I would know if I was given money that - that had come from the company. And certainly in respect of your tax returns, is it your - I mean, there's a large amount of - there's tax returns in the documentation here. Would you agree that there's nothing in the tax returns that says there was a trust distribution at any stage to you from Harding Family Trust?---That's right, yes. 67 Mrs Harding was also cross-examined about a document dated 1 February 2005. That document refers to Mrs Harding as being the lender and Mr Harding as the borrower. It refers to Mrs Harding having agreed to make available to Mr Harding a credit facility to a maximum of $630,000. She would charge interest on any moneys made available to Mr Harding pursuant to that agreement. Because this document assumes some significance in the submissions Mr Matters advanced on behalf of the Trustee I have annexed a copy of it to these reasons (Annexure A). 68 Mrs Harding accepted that she had told Mr Harding that she had wanted some protection for herself. However she was unshaken that she had no knowledge of that document and she denied receiving any income from any such arrangement. I interpolate that nothing appears on her tax returns relevant to such an agreement for that period to suggest the contrary. She explained, "back then I signed a lot of things that maybe I shouldn't have, but hindsight is a great thing…at the time…this was Garry's business and I just did what, you know, a piece of paper, would come home, say sign here, and that – that's literally what I did". Mr Harding 69 Mr Harding gave evidence as to the origins of the business structures through which the Bears business had been acquired: And did some - yes, go on --- ? --- And that essentially - Bruce and I at that point in time decided that we couldn't afford to go ahead, so we were going to pull the pin and then a silent partner, a third partner came in. What it did do was change the mix. So rather than one third, 33 per cent between three, the break up became 40 per cent Bruce, 40 per cent myself and 20 per cent Geoff Tosswill as a silent partner. And how did you know - how did you know Mr Tosswill? --- Geoff had been a former customer of Tolls, but had gone into practice on his own. As a what? --- As an accountant. All right. And prior to this, had he been providing accounting services to you? -- No. All right. And in July - there's evidence that in July of 2003, you became - you and Mr Davis became directors of two companies, with the Bears name. As far as the arrangements for the structure of the deal is concerned, can you identify how those arrangements were made or who made those arrangements? --- The structure of the company was all decided by Geoff Tosswill. Yes? --- And that was his expertise. All right. And from your recollection, were there trust involved, as well? --- Yes, they were. It was --- And what trusts were involved? --- There - the family trust, the same time Geoff established family trusts for Kath and myself on our personal, and then also set up the structure of the company at the same time. We were totally guided by him. 70 Compared to his wife, Mr Harding had more knowledge of the affairs of the business. However, it became clear during his oral evidence that he relied heavily on his business partner, Mr Tosswill, who was the author of some of the critical documents to manage the financial affairs of the business whilst he turned his mind to other issues. It also became apparent that there were documents missing that might have provided much needed clarity. Mr Harding explained that when the receivers came to the office of the Bears business and he was escorted from the property, various records, documents and papers were in his office and he has not seen them since that time. 71 Starting with loan 3, Mr Harding explained that it was "part and parcel" of arrangements made based on advice they had received to arrange "any equity that [they] could" prior to buying the business because "once [he] resigned from Toll [he] did not have an income". There was limited documentary evidence regarding loan 3 save for what I have referred to at [37] and [38] of these reasons, and what was recorded in minutes for a meeting of the Harding Family Trust conducted on 30 June 2008. Mr Harding had no recollection of this meeting, or two other meetings on 30 June 2004 and 30 June 2006. He could "only assume" that Mr Tosswill or his office would have prepared the minutes. The minutes for the 2008 meeting were unsigned, and only Mr Harding was recorded as being present. They recorded the following: BANK OF QUEENSLAND LOAN: JEZABELLA PTY LTD, in its capacity as trustee of THE HARDING FAMILY TRUST, (The Settlement of Anne Maree Tosswill) ACKNOWLEDGES that the loan taken by Garry & Kathryn Harding initially with the ANZ Bank and refinanced with Bank of Queensland (account 20075431) were funds drawn entirely for the purposes of providing capital to this entity for the purposes for investment in the business structure known as Bears Group. All these entities include Garry Harding as director and this entity assumes responsibility for servicing of this loan and repayment of the loan 72 Turning to the BOQ Loan, Mr Harding did not recall the specific circumstances in which he and Mrs Harding signed the documents for that loan. He recalled, however, that she was "very nervous right from the beginning [and] didn't want the house involved in anything to do with Bears". Mr Harding said that at the time the business was not operating at a profit and all the money earned by the business was being poured back into it. 73 Mr Harding vividly recalled having discussions with Mrs Harding about the increase in the credit limit of the BOQ Loan in 2007 and she was "vehemently anti". He said he couldn't remember the wording but could remember her attitude, "I think it was along the lines of she didn't sign up for that", and "how has it gone from here to that amount?" He felt as though the only reason she agreed to the increase was good faith in him. 74 Mr Harding was taken to a series of tax returns for the period 2007 to 2010. His evidence was that he was "not acutely aware" of his or his wife's taxable incomes at that time, but that Ms Harding's income was the only real source of income for those years: "All I knew [was] that [Mrs Harding] was paying more of the home bills that I had always traditionally paid. And I was drowning in the business." I interpolate that Mr Matters did not suggest in submissions that Mrs Harding's tax returns revealed her to have received any income from distributions relating to the Bears business. 75 However as is material to submissions later pressed on behalf of the Trustee Mr Harding's evidence in cross examination was as follows: Mr Harding, yesterday during your evidence-in-chief, you gave evidence that there were at least two discussions with your wife about advancing moneys to the business; correct? --- Correct. Yes. And I think - I'm - you had said, I think, on both occasions, she was anti that prospect? --- Correct. And on one, you had said that she, in fact, vehemently disagreed? --- The last one, yes. Yes. And that at least on one of the occasions, you vividly recall the discussion? --- Yes. Are you able to give any details about what was discussed, other than the conclusion that your wife vehemently disagreed? What was the actual discussion? How did I go in relation to --- ? --- I can't remember the wording, but I can certainly remember the attitude, and my wife - I think it was along the lines of she didn't sign up for that. Okay? --- And from the initial alone to what it grew to against the house, and I can't recollect the exact words, but it was along the lines of, "How has it gone from here to that amount?" Yes. And so far as - sorry. Insofar as she did end up signing up, effectively, how did that conversation progress, though, if she starts off as anti and vehemently disagreeing with advances to the business, how does it end up from the conversation that she does end up agreeing to sign up for further advances? --- I think it was simply good faith in me is the only reason that she did it, and I also - that we were in that far with Bears that it was too - too - too late to turn back, if you understand what I mean. But certainly she was anti - well, as I said yesterday, she was anti me leaving work. She was anti - became anti-Bears because that was what I moved to, but she vehement against the house ever being involved. Yes? --- So for it to end up at the size that it did, I think she only signed it out of faith to me, to be frank. All right. But the - not suggesting - she wasn't forced to sign the document? --- No, absolutely not. Kath is a woman who makes up her own mind. Yes. Okay. If I can take you to document 261 - sorry, it's not document 261. It's page 261 in volume 1, and it's document 33. Now, you see that document from Bank of Queensland about successful application for further overdraft? --- Yes. Can you remind me again, what was that money used for? How much was used for what out of the 432? --- Of the 432, 150 of that was to pay out the ANZ Yes? --- because we had the same facility with the ANZ. The balance was used - was used as a pool for just ongoing business expenses. Yes? --- And that, as I stated yesterday - that was a whole range of costs in the running of the business, not one specific instance of a block payment here or there. Yes. So there's about $280,000 in rough terms --- ? --- Yes. --- that you say was used for business. When you say the business, out of that 280,000, how much went to Bears Moving, Bears Distribution or Bears Logistics? The majority of expense was to Bears Moving, I understand, in --- When you say you understand, how do you understand? --- Well, the operations of the business - I don't know where that money went, Simon, per se. Yes? --- As in every dollar, no, I don't, but the expenses of the business, as in Bears Moving and Storage, which is where all the - sorry, Logistics was where the business was operated from bore the brunt of the expenses. And you can't say whether any of that 280,000 went to the Harding family trust initially and then --- ? --- It did not. --- to the Bears business? --- I don't know how the money got through to us but all I understand is that it was for the use of the business and that's where it was used. When you say you understand that, that's from what Geoff told you; correct? Geoff Tosswill? --- The flow of the money --- Yes? --- through our trusts, yes. Because you didn't really have any idea how the moneys were flowing through these corporate structures at all. That's what your evidence is; correct? --- Correct. So as to whether any money made it through to any particular of the Bears businesses or the Bears companies, you're not able to say at all? --- No, I cannot. Is that the same for the other advances, the - so the --- ? --- That's correct. 76 Mr Harding was unshaken that no money from the business had gone to Mrs Harding. His evidence was that notwithstanding her notional position as a director of Mrs Harding had no involvement in the Bears business and didn't know anything about its financials. Credit of the Witnesses 77 I am satisfied that the Trustee, Mr Burness, and each of Mr Harding, and Mrs Harding are to be accepted as witnesses of the truth. 78 Nothing was put in issue regarding Mr Burness' credit. 79 By contrast, there was initial sparring regarding the credit of Mr and Mrs Harding. Much of that sparring focussed on their evidence that neither had any real understanding of the legal structures standing behind the Bears business. Mr Harding was also questioned regarding some gaps in the documentary record. 80 I am satisfied that the gaps in the documentary evidence as in any event appear to be minor are of small significance in relation to Mr Harding's credit given his uncontested assertion that he had been marched out of the Bears business premises after it had failed, leaving its records behind and that he discovered everything he could later provide. In respect of Mrs Harding, such of Mr Matters' cross-examination as was directed at the absence of certain of her tax records was withdrawn after it was conceded that those documents had been discovered but had not been required for inclusion in the Court Book. 81 Of course demeanour is a frail basis for assessing credit but I am satisfied that each made appropriate concessions and each answered questions honestly and to the best of their knowledge. 82 In any event Mr Matters did not pursue his cross-examination to put any suggestion of dishonesty on either of Mr or Mrs Harding's part. 83 By the conclusion of the evidence, Mr Matters expressly accepted that credit was no longer in issue. He specifically confirmed in closing that he did not suggest that the Court should treat Mr Harding as a dishonest witness, although adding "insofar as there's just a broad assertion about matters, his [Mr Harding's] recollection at best is not accurate on points of significance". That submission was not contentious, as Mr Northrop made a similar point in closing that "Mr and Mrs Harding were honest witnesses who gave their recollections of events honestly. In my submission, that's not to say they were always accurate…" 84 I also interpose that, although raised in passing during the hearing as a possibility, in his closing Mr Matters did not submit that any adverse inference as to Mrs Harding's truthfulness should be drawn by reason of her failure to have called Mr Tosswill. It will be recalled that Mrs Harding's evidence was to the effect that the structure of the business arrangements associated with the acquisition of the Bears business had been implemented on her part by her simply signing the documents Mr Tosswill had drafted for that purpose and that her husband had provided her with. Had such a submission been pressed I would have rejected it on the basis that the absence of Mr Tosswill was not a basis for rejecting Mrs Harding's credit (which otherwise was not challenged on that proposition) and more broadly for the reasons that counsel for Mrs Harding advanced at the time it was raised as a potential issue: vis Mr Tosswill "wasn't involved in the events that were critical to the establishment of the equity of exoneration, which are the dealings between the husband and wife". 85 For my part I am satisfied that notwithstanding what might be considered her earlier ill-advised detachment I should accept the truthfulness of Mrs Harding's oral evidence to the effect that, once she had reluctantly accepted that her husband was determined to go into the Bears business, she had seen it as her responsibility to support him and that she had done so without giving any significant attention to the consequential paperwork her husband had presented her with for her to sign. I am comfortably satisfied that that evidence was truthful. In my view Mrs Harding was an impressive witness, who in all critical regards remained unshaken in her account. MRS HARDING'S SUBMISSIONS 86 Given the substantive proceedings initiated by the Trustee have been resolved, and the only outstanding issue for determination is the cross-claim of Mrs Harding, it is useful to begin by setting out her case as she puts it. 87 Mrs Harding submits that her case is advanced in circumstances where the Camberwell Property was co-owned by her and her husband but was subject to a mortgage to the Bank of Queensland which secured a credit facility, which she says was used solely by her husband for the purpose of his business and of which she did not benefit. Her case is that these circumstances fall "very squarely within the doctrine of the equity [of] exoneration", and: 8. If the equity applies then the whole of the husband's interest in the property must be applied towards the Bank of Queensland debt with the result [that the Trustee] is not entitled to recover any further amount from [Mrs Harding]. 88 In her written outline of submissions under the heading "Equity of exoneration", she submits further: 9. As the applicant concedes, the equity of exoneration is a firmly established equitable doctrine. It is the subject of decisions to which reference will be made at trial, such as Farrugia v Official Receiver in Bankruptcy (1982) 43 ALR 700. In a passage frequently referred to in later decisions, Deane J stated the principle at p.702 in the following terms: Where the property of a married woman is mortgaged or charged in order to raise money for the benefit of her husband, it is presumed, in the absence of evidence showing an intention to the contrary, that, as between her husband and herself, she meant to charge her property merely as a surety. In such a case, she is, as between her husband and herself, in the position of surety and entitled both to be indemnified by the husband and to throw the debt primarily on his estate to the exoneration of her own (see, generally, 22 Halsbury's Laws of England (4th ed) paras 1071-6; Fisher & Lightwood's Law of Mortgage (8th ed) p 445; Huntingdon v Huntingdon (1702) 2 Bro Parl Cas 1; 1 ER 753; Peirs v Peirs (1750) 1 Ves Sen 521; 27 ER 1180; Pocock v Lee (1707) 2 Vern 604; 23 ER 995; Hall v Hall [1911] 1 Ch 487). 10. The facts and circumstances of the present case engage these principles. (a) The property was purchased by Mr and Mrs Harding in 1999 using funds borrowed from the ANZ Bank (Loan 1). (b) Loan 1 was repaid in 2002. (c) Later in 2002, another loan was taken out with ANZ (Loan 2) to purchase shares as an investment. (d) Loan 2 was repaid in July 2003. (e) In September 2003 another loan was taken from the ANZ (Loan 3) which was used by Mr Harding to obtain an interest in a transport and logistics business that traded under the name Bears. (f) In 2004 Mr Harding arranged for a loan from the Bank of Queensland by way of a credit facility (Loan 4) that was used in part to pay out Loan 3 and in part for the purposes of the purchase of premises at Kirkham Road, Dandenong, from which the Bears business was conducted. (g) The credit limit of Loan 4 was increased in 2007 to provide further funds for the Bears business. (h) Upon the sale of the property in 2021, the amount paid to Bank of Queensland to discharge its mortgage was $619,895.55. 11. The payment to the Bank of Queensland represents more than half of the proceeds of the sale of the property. 12. The first respondent's entitlement to be exonerated means that all of the bankrupt's interest in the property was applied in payment of the secured debt. 'There is no surplus recoverable by the applicant as trustee of the bankrupt's estate. (citations omitted) 89 In summary, Mrs Harding's case is that she agreed to mortgage her home for the benefit of her husband and his business, and not for her own benefit. She says that this circumstance is consistent with cases where the equity has been held to apply and thus she is entitled to the balance of the sale proceeds of the Camberwell Property. 90 Counsel for Mrs Harding, Mr Northrop, submitted that there was no evidence that the BOQ Loan was not used for the purpose of the Bears business. He dismissed the submissions by counsel for the Trustee, Mr Matters, that the Harding Family Trust, the Omega Super Fund, and a number of facility agreements, were evidence that Mrs Harding benefited from the BOQ Loan such that she is not entitled to rely on the equity. Mr Northrop did, however, acknowledge that there were documents absent from the documentary evidence provided to the Court, and explained: a lot of the documents that relate to [the unit trust] were kept on the premises of Bears, and in May of 2012 receivers and managers were appointed to the affairs of Bears, and Mr Harding will describe to your Honour how he was just escorted off the premises, and the documents that were on the premises when he was taken away are documents that have been lost. 91 The Omega Superannuation Fund was a personal family superannuation fund, of which the Hardings were both trustees. It was closed with Mr Harding's bankruptcy and the funds were transferred into the standard superfund that Mrs Harding has with her employer. Dismissing the relevance of the Omega Super Fund to the existence of the equity, Mr Northrop submitted that the equity of exoneration "arose at the time of the original transactions, first of all, in 2003, then 2004 and finally in 2007, and that is the time that the equity needs to be considered." He submitted that the Omega Super Fund arose much later, so cannot affect the equity. 92 In relation to the Harding Family Trust, Mr Northrop submitted: "that is [a] complete red herring." He said "anything to do with the family trust is not a benefit of the kind that would defeat the equity of exoneration", and at its highest, the trust was "some kind of indirect benefit that might be obtained at a later time. This trust was not running the business". Minutes provided to the Court for meetings on 30 June 2004 and 30 June 2006 show that the net income of the Harding Family Trust was distributed solely to the Hardings daughter Jessica in those financial years: see above at [65]. 93 In relation to an unpaid distribution that had been recorded on a trust balance sheet, of which the Trustee submitted indicated a benefit received by Mrs Harding, Mr Northrop disputed its correctness, saying "there's a very good chance the balance sheet is wrong". He took the Court to the 2004/2005 financial year balance sheet which recorded the unpaid trust distributions. He submitted that the unpaid distribution would be recorded on Mrs Harding's tax returns if it did exist, and it was not so recorded for that financial year (or any subsequent years). Mr Northrop then took the court to the 2006 trust balance sheet and explained that the unpaid distributions had disappeared and had been replaced with a loan to Mr Harding which corresponds to the total of the unpaid trust distributions recorded in the 2005 balance sheet. Mr Northrop submitted that the real nature of the transaction in the 2004/2005 sheet was therefore a loan to Mr Harding. He concluded this line of argument, submitting: MR NORTHROP: But there is- so there is - that balance sheet that is there, your Honour, is contradicted by other documents that are in the court book, but, in my submission, one needs to be guided by what actually happened rather than what might be written down on a balance sheet, and we do know for a fact that there were no distributions paid or recorded in the tax returns of Mrs Harding. And there's no recording in any tax returns of the trust of distributions, and Mrs Harding herself gave evidence that she got nothing. … MR NORTHROP: In my submission, the court should not pay - should pay more regard to the facts rather than what might appear on one year's balance sheet, in my submission. They're also - the documents that are in also show that there were no interest payments to Mrs Harding. They would need to be reported in tax returns, and the tax returns do show that she kept working throughout the period we're considering, and that she kept working in her own profession. Mr Harding gave evidence that he was unaware of her private affairs because she kept her own accounts. So the evidence is that she, during this period, was continuing to work, continuing to manage her own affairs, and the only contact with the Bears business was through the first loan, from the ANZ, and then Bank of Queensland, and then when the credit limit was increased on the Bank of Queensland. So in my submission, to try and construct the defence to the equity or to say the equity is defeated by virtue of some fleeting contact with the family trust, in my submission, is not supported by authority. 94 There was discussion between Mr Northrop and the Court during his closing submissions about a series of facility agreements, which Mr Northrop submitted had been referred to by Mr Matters in a way that tended to confuse things. Mr Northrop submitted that those documents were peripheral to the issues before the Court and instead pointed to a document at CB284 that he submitted reflected reality. That was the agreement that led to the (purported) transfer of Mr Harding's interest in the Camberwell Property to Mrs Harding. Notwithstanding the transfer had later been conceded to be void, Mr Northrop submitted that what was set out in that document was essentially correct: MR NORTHROP:…Recital A: The parties are married and are joint proprietors. Recital B: The value of the property is approximately 840 and there's a mortgage of 600,000 to the Bank of Queensland. Recital C: The mortgage secures the indebtedness of the Bank of Queensland arising from the following advances: 432 in October '04 and 168 in October '07. D: The advances were used to finance the operation of companies known as Bear Logistics and Bear Moving & Storage and were not used for Kathryn's benefit. In our submission, that is accurate, as well. And [E]: At no time - at all times, Garry Harding was a director and shareholder of the two companies until they were placed into receivership in May this year. So this is a document that was prepared after May 2012, and in 2012 - in my submission, that is a document that does reflect reality of what was happening. It goes back as far as 2012. The operative part of the agreement then goes on to say: The parties hereby acknowledge that the funds advanced as listed constituted a debt owed by Garry to Kathryn, and, as such, Garry, in consideration for Kathryn forgiving the debt, Garry will transfer the property from their joint names. 95 Mr Northrop clarified: Now, in my submission, to characterise the dealings between them as creating a debt - creditor and debtor relationship is not correct, and your Honour, certainly the transaction that was contemplated in that document was --- HIS HONOUR: Well, if it's correct that she had a charge over that. MR NORTHROP: Yes, yes. Not a debt. So that is the only part of that document which departs from the properly correct legal analysis of the situation. HIS HONOUR: But you say the facts that are asserted there are consistent with those that are proven in this case. MR NORTHROP: Yes, your Honour. Absolutely. And that - it captures the epitome of the case and it captures the requirements of the - for the doctrine of exoneration to apply. THE TRUSTEE'S SUBMISSIONS 96 Much of what is contained in the Trustee's written submissions relates to matters that did not remain for determination by the Court, so I will not set those out. Those passages relevant to the application of the equity of exoneration were as follows: 32. Finally , Even if the doctrine of exoneration did apply and the charge created is not postponed to the Applicant's charge under section 139ZR, the doctrine only applies to the extent that the mortgage moneys advanced by BOQ were used solely for the benefit of the bankrupt (Farrugia). Insofar as the First Respondent is unable to prove the specific application of any part of the BOQ loan funds, then those funds are to be apportioned such that the doctrine only applies to the balance of the funds. CONCLUSION 33. Accordingly…the Applicant is entitled to an order that the First Respondent pay to the Applicant, from the moneys held in the Applicant's lawyers trust account, the sum of $240,052.12 (valuation as at 12 September 2018 ($1,100,000.00) less half of the mortgage ($480,104.45), divided by 2). 97 In his written reply submissions, the Trustee said further: 7. …The Applicant's only involvement in the process [of selling the Camberwell Property] was to lodge a caveat on 20 January 2021 and withdraw same at settlement on 30 April 2021. … 9. …the caveat lodged by the Applicant was removed on the basis that the residue proceeds were paid into the Applicant's lawyers trust account, pending written agreement of both parties or order of the Court, so the Applicant is still entitled to trace its entitlement to a half-share in the property into the residue, subject to any adjustment pursuant to the doctrine of exoneration (the applicability of which is disputed by the Applicant)… 98 In his oral submissions, counsel for the Trustee, Mr Matters, referred to the following passage in Parsons and submitted that it sets out what there needs to be for the equity to exist: 20 The equity of exoneration is an incident of the relationship between surety and principal debtor. It usually arises where a person has mortgaged his property to secure the debt of another, whether or not that other has covenanted to pay the debt. However, it will also arise in a case where, although not an actual suretyship, the relationship is treated as one of suretyship. This is Lord Selbourne's third class of suretyship mentioned in Duncan, Fox & Co v North and South Wales Bank (1880) 6 App Cas 1 at 10. For the doctrine to apply in this class, the following facts will usually exist. First, a person must charge his property. Where the person is the beneficial owner of the property it will be sufficient if the charge is by his trustee. Secondly, the charge must be for the purpose of raising money to pay the debts of another person or to otherwise benefit that other person. Thirdly, the money so borrowed must be applied for that purpose. See generally Re Berry (a Bankrupt) [1978] 2 NZLR 373. 99 Relying on that three part test, Mr Matters submitted that there was insufficient evidence as regards the purpose of obtaining the BOQ Loan, and whether the money was applied for the purpose for which it was obtained. The evidence needed to be at a greater level of specificity for the equity of exoneration to arise, and Mrs Harding has an evidentiary burden to show that the moneys were applied for the benefit of the business. 100 Mr Matters acknowledged that the evidence of the Hardings was that the moneys were applied for the purpose of the business, however, he noted that Mr Harding believed that it hadn't been applied for any other purpose on the basis that he trusted his business partner and accountant Mr Tosswill. Mr Matters submitted that establishing that the moneys were applied for the purpose of the business required more than "just saying that it's so without anything further", and: They [the Hardings] had no knowledge other than their reliance on a third party that those moneys were paid to any of the varying three organisations that form the Bears businesses. All that's said is that it was paid to the Bears businesses. 101 Mr Matters thus disputed that the third limb of the test in Parsons could be satisfied in circumstances where the parties could not be sure that the moneys were applied for the purpose of the business at all, and therefore the Court must conclude that the equity does not arise. 102 Mr Matters submitted in the alternative that if the Court finds that the funds were applied in total or part to the business, the equity "won't arise to the extent that [Mrs Harding] took any benefit in relation to those loan (sic) of moneys". He submitted that the benefit received by Ms Harding as a director and beneficiary of the Harding Family Trust, which received its income from the Bears business, was sufficient to displace the equity. He submitted that the intention of the Harding Family Trust was to "enjoy the fruits" of the bears business, and: Now, the Harding Family Trust is a Trust of which not only was Ms Harding involved more or less - perhaps less depending on her evidence. But nonetheless was a director of, beneficiary of and ultimately…whether or not she received a distribution we would say is irrelevant to whether or not she's benefitting from these loans going through a family trust of which she is a beneficiary of which she's a director and of which people can artificially choose to provide distributions or not. 103 In support of this proposition, Mr Matters referred the Court to Day v Shaw [2014] EWHC 36 (Ch) (Day v Shaw) and Official Trustee in Bankruptcy v Citibank Savings (1995) NSWLR 116 (Citibank Savings), and said that the proposition to be drawn from those authorities: …is that if moneys are applied to the benefit of a company of which someone is a shareholder for instance, it can't be said that - because legally the company receives the benefit of the money, the person who's a shareholder of the company doesn't receive a benefit in the sense or in the context of seeking contribution or exoneration. Mr Matters submitted that the relationship between a company and shareholder and a trust and beneficiary were analogous such that relying on these authorities the Court can find that the beneficiary of a trust receives a benefit just by the fact of them being the beneficiary of that trust, regardless of any distributions having been made. He also considered it relevant that Mrs Harding was also a director and controller of the trustee of the Harding Family Trust, Jezabella Pty Ltd, and had the capacity to direct distributions to occur of which she would be a beneficiary. 104 Mr Matters submitted that although both Mr and Mrs Harding had given evidence that to their understanding no distribution had been paid to Mrs Harding by the Harding Family Trust and her tax returns were consistent with that being the case, there had been significant sums, noted as unpaid distributions to Mrs Harding, recorded in the balance sheets for the Harding Family Trust for the year ending 2005, for which there appeared to be no adequate explanation. Mr Matters conceded that it was doubtful that the trust would have ever been capable of paying Mrs Harding what those entries recorded as her entitlements. However he submitted that the Court should regard the unpaid distributions so recorded as representing a benefit to Mrs Harding that displaced the equity she relied upon. The Harding Family Trust had not been a mere a passive conduit of money. Mrs Harding had received a "benefit from those moneys coming in and being on loan and coming back. And if the business hadn't gone so badly, a lot more benefit, no doubt, and beneficiaries may or may not have received money." Mr Matters further submitted that "we would not necessarily accept that there were no distributions. We don't have a complete financial record and there's some glaringly missing". 105 Mr Matters submitted that the Court would be correct to distinguish this case from cases such as Farrugia; ex parte Farrugia v Official Receiver (1982) 43 ALR 700; [1982] FCA 55 (Farrugia), which was an example of a party having been held entitled to rely on the equity after having established clearly that they had not been involved in the business they had helped fund. He submitted: …the unpaid distribution, we say that's a benefit at the time that it's noted. It's a benefit to Ms Harding at the time it's noted in the sense that it's a debt that she can enforce. Now, whether she knows about that or not, I would say, is not to the point. This - stepping back and looking at big picture, ultimately, looking at this doctrine of exoneration, the ultimate submission we - it's a fair - it would be a fairly - or it would be a pendulum swing, to some degree, if, unlike, say, Farrugia, where that's a wife who gets told, effectively, "It's for the business. None of your business," where a wife who was a director of the family trust and then later director in her own right of family trust and seems to be continuing to do that today, who appreciates there are some obligations of directors but, nonetheless, on the evidence - it doesn't really come close to carrying those out - can then benefit from an equitable doctrine to say, "I was involved in these. Notionally, there's a benefit there for me in an undistributed payment. For instance, I didn't know about that either, even though I have got a debt, and it would be for my benefit". 106 Mr Matters also submitted that if the Court accepted that Mrs Harding had advanced moneys to her husband as a loan bearing interest as the document referred to at Annexure A of these reasons suggested she had, she would have been in the position of receiving a commercial rate of interest back from the business. That supported the inference that she was more than a "passive housewife who received indirect benefit" from the Bears business. 107 Mr Matters further submitted that documentary evidence clearly established that the Omega Super Fund, a self-managed superannuation fund operated jointly by Mr and Mrs Harding, had also loaned moneys to the Bears business. That should be taken into account when looking at the circumstances as a whole to determine whether the equity of exoneration did not arise, having regard to the degree of active involvement on Mrs Harding part in the Bears business. CONSIDERATION 108 I turn first to the principles of law to be applied. 109 In Parsons a Full Court (Black CJ, Kiefel and Finkelstein J) of this Court rejected that claims to be exonerated in equity were confined to the context of husband and wife. Their Honours' expressed the law to be as follows: 20 The equity of exoneration is an incident of the relationship between surety and principal debtor. It usually arises where a person has mortgaged his property to secure the debt of another, whether or not that other has covenanted to pay the debt. However, it will also arise in a case where, although not an actual suretyship, the relationship is treated as one of suretyship. This is Lord Selbourne's third class of suretyship mentioned in Duncan, Fox, & Co v North and South Wales Bank (1880) 6 App Cas 1, 10. For the doctrine to apply in this class, the following facts will usually exist. First, a person must charge his property. Where the person is the beneficial owner of the property it will be sufficient if the charge is by his trustee. Second, the charge must be for the purpose of raising money to pay the debts of another person or to otherwise benefit that other person. Third, the money so borrowed must be applied for that purpose. See generally Re Berry (a bankrupt) [1978] 2 NZLR 373. 21 An equity of exoneration operates in the nature of "a charge upon the estate of the principal debtor by way of indemnity for the purpose of enforcing against that estate the right which [the beneficiary] has, as between [the beneficiary] and the principal debtor, to have that estate resorted to first for the payment of the debt": Gee v Liddell [1913] 2 Ch D 62 at 72. Thus, where co-owners mortgage their property so that money can be borrowed for the benefit of one mortgagor, the other has an interest in the property of the co-mortgagor whose property is to be regarded as primarily liable to pay the debt. 22 The trial judge denied to each appellant the right of exoneration because she had received "a tangible benefit" from the 1992 mortgage. The benefit, which might more accurately be described as an expected benefit, was that, by putting money into the partnership business, the business might survive and, as put by counsel for the trustee, that would bring "home money to put food on the table and clothe the children". 23 If a surety receives a benefit from the loan, the equity of exoneration may be defeated. So, if the borrowed funds are applied to discharge the surety's debts, the surety could not claim exoneration, at least in respect of the benefit received. But the benefit must be from the loan itself. The question suggested by the Lord Chancellor of Ireland is: "Who got the money?": see In re Kiely (1857) Ir Ch Rep 394, 405. In Paget v Paget [1898] 1 Ch 470 both the husband and the wife "got the money" and this prevented the wife claiming exoneration. 24 The "tangible benefit" referred to by the trial judge will not defeat the equity. It is too remote. In any event, the exoneration to which a surety is entitled could hardly be defeated by a benefit which is incapable of valuation, and even if it were so capable, the value is unlikely to bear any relationship to the amount received by the principal debtor. (emphasis added) 110 More recently in Armstrong v Onyearu [2018] Ch 137 (Armstrong) Richards LJ reasoned as follows: 43 The position in English law following In re Pittortou [1985] 1 WLR 58 can be summarised as follows. First, where jointly-owned property is charged to secure the indebtedness of one of the joint owners, there is an evidential presumption that the parties intended that, as between themselves, the liability should fall on the debtor's share of the property. Second, the circumstances of the case may be such that this presumed intention does not arise at all. Lindley MR gave some examples in Paget v Paget [1898] 1 Ch 470 and the facts of that case, where the borrowing was incurred by the husband to repay debts incurred to fund the couple's joint lifestyle and where the conclusion on the evidence was that the wife had for her own good reasons deliberately made provision for her husband's debts, provided another example. These are cases where the debts to be paid, although in law the debts of one co-owner (A), are in substance the debts of the other co-owner (B) or of A and B jointly. Third, the presumed intention arising under the first proposition above, which follows from the nature of the transaction and the position generally of a surety, may be rebutted by evidence of a different intention. Fourth, in the absence of evidence of an actual contrary intention, evidence that the debt is incurred for the direct benefit of B will rebut the presumed intention. Fifth, while it used to be the case that household expenses were ordinarily the responsibility of the husband, the same is no longer the case, as shown by In re Pittortou where the burden of borrowings by one joint owner to fund the ordinary living expenses of both co-owners is assumed to be shared equally between them. Sixth, the equity applies to borrowings by one co-owner to fund his or her business, even though the other co-owner may derive some indirect benefit from the business, by way of contributions to joint living expenses from the business owner's income. Seventh, the intention of the parties is to be determined as at the time the charge is given, although subsequent events may be considered for the light they shed on what the intention was: this was agreed between counsel before us, rightly so in the light of what this court said in Paget v Paget [1898] 1 Ch 470, 473. Eighth, the particular facts of each case need careful consideration to determine whether the equity applies. (emphasis added) 111 Richards LJ reached the above conclusions after his Lordship had undertaken a comprehensive review not only of English but also of the law of other common law jurisdictions. In that regard his Lordship observed that: …none of these overseas authorities calls into question the approach that has been adopted over a long period up to the present day by the English courts, and indeed the decision in Parsons v McBain [2001] FCA 376 is a recent affirmation of it. 112 I agree. Moreover the obverse is also correct. I am satisfied that nothing stated by Richards LJ in Armstrong in conclusions reached only after his Lordship's comprehensive review of the law is inconsistent with the earlier reasoning of the Full Court in Parsons as is binding on me as a single judge of this Court in respect of the principles underpinning the equity of exoneration. In applying the relevant law to the particular facts of the present case I therefore proceed on the basis that the reasoning in each, and in particular in respect of the passages I have given emphasis to, is sound and should be followed. Mrs Harding's actual subjective intention 113 The first inquiry to be undertaken must focus on what Mrs Harding's intentions were at the various times, against her better judgment, she entered into the bank loans that were secured against the equity of the home she and Mr Harding jointly owned. In undertaking that task I am not to exclude any light subsequent events might shed on what her intention had been. 114 However in those regards I do not take it to be in issue that Mrs Harding's sole subjective motivation when she had agreed on three occasions to join with her husband to pledge the credit of their joint home to secure funds was to facilitate, against her own better judgement, her husband's plan to leave his employment with Toll and go into his own business and to later fund it when it was struggling. That was her evidence and she was not cross-examined to suggest her testimony in that regard was untruthful. 115 Mr Matters' submissions took no issue with that fundamental point but rather focussed upon whether in the objective circumstances that came to pass, by her conduct in becoming a director of Jezabella Pty Ltd, Mrs Harding nonetheless had placed herself in the position of becoming herself a participant in her husband's business to a disqualifying degree. 116 However for completeness I should acknowledge that Mrs Harding's evidence was that she had no present memory of what her thinking at been at the time she and her husband had entered into loan 3. However, for the reasons that follow I am satisfied that her subjective motivation at that time was exactly the same as that which she gave evidence of in respect of their later borrowings. 117 Loan 3 was the loan she and her husband obtained on 29 September 2003 from the ANZ Bank in the sum of $150,000. I explain at [33]–[36] why I am prepared to infer that those monies were applied towards purchasing the "Harding Units" in the LHD Unit Trust. The LHD Unit Trust was the vehicle Mr Tosswill, on behalf of Mr Harding, Mr Davis and himself as a silent partner, had established to become the controlling entity for the operations of the Bears business. The Harding Units were allocated to the Harding Family Trust for the consideration of $240,000. 118 I am satisfied that from the prospect of it first having been in contemplation Mrs Harding had not wanted her husband to quit his well-paid job to set up his own business. By reason of her own parents' hard experiences she had been acutely aware of the risks that would involve. Mrs Harding had been excited when the shares Mr Harding had got from Toll had allowed them to clear the mortgage on their home. She did not want to disturb that position. Such light as subsequent events throws on her earlier state of mind is entirely consistent with Mrs Harding only having been willing to allow their home to be used as security for loan 3 because she accepted that was necessary if she was to assist her husband, Mr Harding, to leave a job he had begun to resent and help him to set up and fund the Bears business. 119 Applying $150,000 of the funds that Mr and Mrs Harding later obtained from the BOQ did not involve her or them repaying a debt attributable to some different purpose. Loan 3 had been applied to the purposes of establishing the Bears business. For that reason, assuming the later secured borrowings from the BOQ are otherwise properly the subject of the equity of exoneration no part of those borrowings is to be excluded because $150,000 of the first of those borrowings had gone to pay out Mr and Mrs Harding's earlier joint indebtedness to the ANZ. Is Mrs Harding's status as a director of Jezabella Pty Ltd relevantly disqualifying? 120 It will be recalled that Mrs Harding gave emphatic evidence to the effect that she had played no part whatsoever in the management of the Bears business. It had been her husband's business and she had wanted, and had had no part of it. In so far as Mrs Harding's evidence is to be understood as an assertion on her part that she never did anything beyond signing all of the documents that had been put before her by her husband the truth of that was not challenged by Mr Matters. In any event I have accepted Mrs Harding's credit. I am comfortably satisfied that her role did not extend, as a matter of practice and fact, beyond that circumstance. There is undisputed evidence that Mrs Harding had instead continued to work as an infant teacher and there is nothing in the materials before the Court to suggest that she ever sought (other than by way of unsuccessfully discouraging her husband from pursuing the course he had determined upon) to influence her husband's business decisions. There is no evidence that she took any independent action as a director of Jezabella Pty Ltd (or in any other regard) as would have involved her in the management of the Bears business. 121 However it is uncontentious that amongst the documents Mrs Harding did sign without giving any or any significant regard to their content included, inter-alia, those that involved her accepting appointment as a director of Jezabella Pty Ltd. It is common ground that Mrs Harding thereafter continued alongside her husband to be a director of Jezabella Pty Ltd until the Bears business failed. 122 It will be recalled that Jezabella Pty Ltd was the trustee of the Harding Family Trust which in turn owned and controlled 240,000 Units in the LHD Unit Trust: that being the vehicle Mr Tosswill, on behalf of Mr Harding, Mr Davis and himself as a silent partner, had established to serve as the controlling entity for the operations of the Bears business. Thus from the inception of the Bears business Mrs Harding had been, as a matter of law, entitled to exercise the rights of a director of Jezabella Pty Ltd. 123 If it were open to the Court to speculate it might be speculated that the rationale behind Mr Tosswill recommending to his partners the business structures he did for the operation of the Bears business was that those structures had potential tax advantages in respect of the hoped for profits of that business. However there is a complete absence of any admissible evidence regarding why they were set up in the way that they were. In so far as an explanation was proffered by Mr Harding it was simply that he had done everything his silent partner accountant Mr Tosswill had recommended because he trusted him. 124 Notwithstanding that I have accepted Mrs Harding's evidence that as a matter of fact she played no part, and never sought any part, in the management of the Bears business I also accept that as a director of Jezabella Pty Ltd she may have had at least notionally some capacity potentially to exercise influence, albeit indirectly, over the conduct of the Bears business. However assessed objectively in the light of all of the evidence I give little credence to the reality of that proposition. Mrs Harding had no unilateral power to make decisions with respect to the conduct of Jezabella Pty Ltd in its capacity as trustee of the Harding Family Trust because her husband was similarly a director of that company. Absent Mr Harding's agreement, Mrs Harding at best might have exercised a blocking power: but it would have been a limited blocking power. It would have been confined to the direct decision making of Jezabella Pty Ltd. Such a capacity would not have extended to give Mrs Harding any power to block a decision the controllers of the Bears business might wish to make. That is because, the number of units that the Harding Family Trust of which Jezabella Pty Ltd was trustee had been allocated in the LHD Unit Trust (the controlling entity of the Bears business) did not confer on the former the power to dictate the conduct of that business: the Harding Family Trust held only a 40% stake. 125 Contrary to the submissions advanced on behalf of the Trustee by Mr Matters, I decline to accept that simply by reason of her becoming a director of Jezabella Pty Ltd Mrs Harding must be understood to have with joined her husband in conducting the Bears business so as to disqualify her from claiming an entitlement to be exonerated from her husbands' unsecured debts. 126 Moreover the critical issue is not how the Bears business was structured but rather how Mr and Mrs Harding conducted themselves vis a vis each other as might or might not engage with the principles of the equity of exoneration in respect of the funds they jointly borrowed to fund it. 127 As was noted by Richards LJ in Armstrong, "couples arrange their financial and family affairs in an infinite variety of ways. There is no standard template…" 128 I take that observation to be guidance that in giving consideration to the business dealings between a husband and wife form is not to be permitted to trump substance. That the substantial fairness of things in the events they occurred is the appropriate lens for the examination of such questions is reinforced when regard is had to the Full Court's citation with approval in Parsons of the observation made by the Lord Chancellor of Ireland in In Re Kiely (1857) Ir Ch Rep 394, 405: that the critical question is "Who got the money?" Moreover, as was noted in Parsons at [23]: "…the benefit must be from the loan itself". 129 All of the evidence in this proceeding relevant to the circumstances applying as between Mr and Mrs Harding is that Mr Harding "got the money". He got the money he and his wife jointly borrowed, first from the ANZ and later from the BOQ to put into a business venture he had been determined to set up and in respect of which he had prevailed upon his wife to assist him to fund. 130 That Mrs Harding, at her husband's request, also signed documents making her a director of Jezabella Pty Ltd does not, absent any indicia that involved her in any of Mr Harding's unfortunate business decision making, alter that position. It would elevate form over substance to suggest that as between Mr and Mrs Harding her passive acceptance of that status somehow elevated Mrs Harding's status from that of a reluctant wife to that of a joint participant in establishing and managing the Bears business. As a matter of substance as between husband and wife, the Bears business was intended to be, was, and remained at all times her husband's business. 131 I am satisfied that Mrs Harding received no benefit from the loans themselves. I reject the Trustee's submission that Mrs Harding received a benefit because by her becoming a director of Jezabella Pty Ltd it is to be concluded that she applied the money to fund an enterprise she jointly conducted with her husband. Did Mrs Harding obtain a benefit from the loans as would exclude relying on the equity of exoneration? As might arise generally assuming the Bears business was, contrary to the fact, successful 132 The sixth of the general principles stated by Richards LJ at [43] in Armstrong is that the equity applies to borrowings by one co-owner to fund his or her business, even though the other co-owner may derive some indirect benefit from the business, by way of contributions to joint living expenses from the business owner's income. 133 The reasoning of the Full Court in Parsons had been to the identical effect. In Parsons the Full Court allowed an appeal in a matter in which the primary judge had reasoned that: "by putting money into the partnership business, the business might survive and, as put by counsel for the trustee, that would 'bring home money to put food on the table and clothe the children'" – and therefore the appellant had secured a tangible benefit. The Full Court reasoned that hope that a business would trade profitably might more accurately be described as an "expected benefit" and held that what had been referred to as a "tangible benefit" by the trial judge "will not defeat the equity". It was too remote. 134 To the extent that the submission is pressed I reject that any natural hope Mrs Harding must have held, notwithstanding her fears, that her husband's business might succeed and the family thereby benefit by that prospect is not a disqualifying factor. By reason of her disputed receipt of an unpaid distribution 135 I reject that I am entitled to find that Mrs Harding actually received what are recorded as unpaid distributions to her in balance sheets of the Harding Family Trust as at 30 June 2005. The relevant document is in the (unsigned) Financial Statements of Jezabella Pty Ltd for the financial year ending 30 June 2005. However in the balance sheets of the Harding Family Trust as at 30 June 2006 there is nothing of that kind. Instead there is a "Loan" recorded as having been made to the Trust by Mr Harding in the previous year which is the same amount as the sum of the supposed earlier unpaid distributions. 136 In her evidence Mrs Harding denied having been the beneficiary of any distribution, paid or unpaid, from the Harding Family Trust. Her evidence was consistent with, and I am satisfied, corroborated by, the absence of any reference to such a benefit having been conferred upon her in her tax returns for the relevant period. Mr Matters did not press the contention that there was "fraud" in Mrs Harding's tax returns. I am satisfied on the balance of probabilities that Mrs Harding's tax returns which record her income only from her employment as a teacher and some consulting work upon which nothing turns, are the accurate record of her income during the relevant period. 137 I am satisfied that, on the balance of probabilities, the entries in the Harding Family Trust's balance sheet as at 30 June 2005 did not accurately reflect the reality. I am satisfied that an error in those accounts was appropriately rectified (at a time when the correction had no connection to these proceedings so as be thought implausible for that reason) in the next years accounts. As rectified they appear to reflect the underlying reality that the funds Mrs Harding had permitted Mr Harding to obtain by pledging of the security of their home had been lent by him to the Harding Family Trust before they had been applied through the other mechanisms that Mr Tosswill had put in place to the purposes of the Bears business. 138 Given the conclusion I have expressed above I need say nothing further but even if I am wrong in that regard then consistently with the reasoning of the Full Court in Parsons I would be inclined to the view that any unpaid distribution was properly to be characterised as no more than an "expected benefit". In the circumstances of a struggling business needing more capital and with insufficient income to put the Harding Family Trust in a position to make such a distribution the reality is that the supposed benefit was of negligible value. While not necessary to decide I would have been inclined to the view that in that circumstance any notional benefit was too insignificant and remote to displace the equity. By reason of a subsequent facility agreement between Mr and Mrs Harding 139 I have earlier noted at [67] that Mrs Harding was cross-examined about an agreement she had entered into with her husband bearing the date 1 February 2005. 140 Mrs Harding's evidence was that she had no recall of any such document let alone such an agreement but she acknowledged that she must have signed it as she had with all of the documents which had been presented to her for signing by her husband that related to the Bears business. The document she accepted she had signed refers to Mrs Harding as being the lender and Mr Harding as being the borrower. The document records Mrs Harding agreeing to permit Mr Harding to access a credit facility she was prepared to extend to him up to a maximum of $630,000. It records that Mr Harding had agreed to pay a commercial rate of interest (the lower of 11% or the standard unsecured overdraft rate as charged by the National Australia Bank) on those borrowings. 141 However two things are immediately clear. First to the degree it is relevant to these proceedings the agreed "facility" was entered into only after Mrs Harding had already joined with her husband in having borrowed from the ANZ bank and later from the BOQ the original funds ($432,000) they had obtained in October 2004 as had been secured against their home. 142 In terms it has no retrospective application to those earlier borrowings: the agreement is expressed to commence in February 2005. It records that as at its date "the facility balance is nil". Thus it cannot bear upon Mrs Harding's entitlement to the equity of exoneration (assuming she is otherwise entitled) in respect of those earlier borrowings. 143 Second it refers to a credit facility "with the funds to be procured via bank financing on the property [their home] up to a maximum of $630,000." 144 In that respect it appears the agreement proposes borrowings unrelated to the facility the Harding's already had established with the BOQ – which may explain the odd reference in the agreement to interest being charged at a rate related to that set from time to time by the NAB. There are many other curiosities, not the least being the reference statements being required to be maintained by Mrs Harding and sent monthly to the "borrower and co borrower". There is no identification of who the mystery co borrower might be. 145 If it were open to the Court to speculate the explanation might be that the gross under-capitalisation of the Bears business then still being apparent to those who had been operating it, that Mr Harding had placed before his wife an agreement which Mr Tosswill had prepared (Mr Harding's evidence being that he had trusted Mr Tosswill to prepare all of the business documentation) which she had signed that those operating the Bears business hoped would provide a solution. There is evidence which I am entitled to accept that as between Mr Harding, Mr Davis and Mr Tosswill, only Mr Harding had any potential to secure any additional capital for the Bears business – and that which he might access was locked up in the home he and his wife jointly owned. 146 However whether or not that speculation might explain the provenance of the agreement (I accept there is no evidence sufficient to elevate that possibility to an available inference) there is nothing in the evidence to suggest it was ever acted upon or given effect to. There appears to have been no arrangements secured by Mrs Harding with a bank as would have permitted her to provide her husband and his 'co borrower' with a credit facility up to a maximum of $630,000 on top of the $432,000 that was already secured against Mr and Mrs Harding's joint home. 147 That may well be because the underlying notion was both unrealistic and optimistic to a preposterous degree. It will be recalled that on 30 January 2021, the Camberwell Property was sold by public auction for the sum of $1,082,000. The idea that some 15 years earlier, prior to the recent national inflation in the prices of housing as is a matter of common knowledge of which I am entitled to take judicial notice of, there would have been sufficient equity in that property for Mrs Harding to have been able to secure such funding by way of a facility "to be provided by a standard Australian home lending institution as a standard home loan without mortgage finance" as the agreement provides is, to put the position bluntly, objectively implausible. 148 I am prepared to infer that that agreement, if not earlier repudiated by the parties as might explain why there is nothing in the evidence at in the financial statements before the Court to suggest the agreement was given effect to, was incapable of performance. The evidence given in this proceeding is consistent with the conclusion that Mr Harding having had no capacity at all to "service [the] property loan" as he was required to under cl 7 of the agreement. The evidence in this proceeding is that at that time and thereafter he had had no money coming in from the Bears business – or anywhere else, as would have permitted him to service those repayments. The evidence is that Mrs Harding had had to meet all of the family outgoings from her earnings as a teacher. The evidence is that she maintained her employment as a teacher and kept the family's personal affairs afloat whilst Mr Harding "basically [wasn't] drawing an income". That had included, for example, paying the management and insurance fees in relation to shares that Mr Harding had in TSF Property Sandalwood Project which also later failed. 149 In oral submissions Mr Matters accepted that if the agreement had not actually been given effect to "then what I'm talking about falls away". That is my conclusion. 150 For completeness I record that in reaching the conclusion above the Court has not overlooked what on its face appears to be admissions made by Mr Harding in cross-examination that the Bears business did obtain funds that had been drawn down against the 2005 facility. However I reject that I can proceed on that basis. 151 Mr Harding's cross-examination as is relevant to that issue begins at page 89 of the transcript. As the cross examination proceeded it appeared to the Court that the witness and his examiner might be at cross-purposes. In the hope that the examination might be brought into focus the Court permitted a short adjournment. However after the resumption it became clear that Mr Harding's evidence that the supposed 2005 facility had been drawn down on to make funds available to the Bears' business almost certainly related not to that facility but instead to the earlier borrowings he and Mrs Harding had secured earlier in October 2004 from the Bank of Queensland. 152 The passages that support that conclusion which appear at page 96 of the transcript are as follows: Thank you. I think we've got to the point where I was asking whether or not you were aware of any – any moneys were actually advanced by Ms Harding to you under this agreement for the – well, for any purpose. This agreement on 2005, it allows for moneys to be advanced to you by Ms Harding?---If you're asking if any money went into my personal bank account, no. No, no, I'm not asking that. Were they loaned to you, though, for the purposes set out here. Set out in the loan - - -?---For the purpose of the business, yes. For the business purposes?---Yes, they were. So how much money do you say was loaned under this facility agreement by your – by your wife?---Up to the value of the house. Up to the value; it was the 432 less the 150. So we had access. Right?---I don't understand what you're asking. All right. Well, just so we're clear, because it's an – perhaps, an important point. You understand this agreement purports to be just a loan agreement, nothing to it. There's a borrower and there's a lender?---I understand that. Yes. Your wife is named as the lender; you're named as the borrower. The purpose of the loan is to use the funds that are borrowed for business purposes?---Correct. And the Bears business. It allows for – well, it provides that the lender is going to allow for a credit facility and that is to be provided through a home loan, correct, on 1B Glen Iris Road. And there was a loan - - -?---Yes. - - - that was secured by mortgage in relation – and do you say that moneys that were obtained from the mortgage on the house were loaned pursuant to this agreement from Kathryn to you for the purpose of the business?---That's correct. And how much money do you say was loaned pursuant to this agreement?---We used 40 the whole lot. Right. So you're saying it's 432,000?---After – less the 150 that was paid out for the other. Because we ultimately had to then increase. 153 I am satisfied that the dollar amounts Mr Harding describes in his cross-examination had nothing to do with the supposed 2005 facility: those were the amounts he and his wife had earlier borrowed from the Bank of Queensland. In those regards they match up exactly—including that the first $150,000 he recalled having obtained by reason of the 2005 agreement had been used to pay out an earlier loan. 154 In closing Mr Matters did refer to Mr Harding's evidence that all of the funds had been provided under the 2005 facility but in that regard he accepted that he "came back to the figure of the 432,000". Mr Matters did not submit that I should be satisfied on the basis of Mr Harding's cross-examination that that sum was additional to or distinct from the borrowings he and his wife had earlier secured from the Bank of Queensland. I am satisfied that, viewed objectively, Mr Harding's recall of the Bears' business having been provided with funds in that amount after he had drawn down on the 2005 facility was a product of the witnesses' confusion. That which Mr Harding gave evidence of as the fact that the 2005 facility had been the source of those funds cannot be relied on in the face of the objective documentation and the relevant chronology. 155 I am satisfied that such of Mr Harding's evidence as might be understood to amount to an admission that the 2005 agreement was the source of funding for the Bears business comes within the nature of his testimony as Mr Matters delicately described as not indicative of dishonesty but "not accurate on points of significance". I reject that his recall was accurate in regard to the supposed 2005 facility and I reject that, so understood, his recall of events stands in the way of the Court finding that no that financial drawings were advanced to him by Mrs Harding by him in reliance on that supposed facility. 156 Mr Matters relied on the facility agreement also as an additional element in support of the Trustee's contention that Mrs Harding had been involved in her husband's business to a disqualifying extent. Given the conclusion I have reached above I also reject that analysis. By reason of Mrs Harding having consented to lendings from the Omega Super fund to the Bears business 157 The documents in this proceeding reveal that in addition to the money Mrs Harding allowed Mr Harding to access to set up and continue the Bears business, he accessed some additional funds from the family's self-managed superannuation fund, Omega Super. Although the evidence is scant I am prepared to infer that Mrs Harding's consent was required for that to have been done and that she gave that consent. Mr Matters submits that Mrs Harding having permitted the super fund to invest in the Bears business supports the Trustee's contention that she had been involved in her husband's business to a disqualifying extent. But I reject that proposition. In my view Mrs Harding did not in any meaningful way thereby invest in the Bears business. She again, unwisely, had allowed her husband Mr Harding to prevail on her, on this occasion so as to permit him to raid their superannuation for the purposes of the Bears business when it had continued to struggle. 158 That use of their joint superannuation funds was entirely in her husband's interests. The money is lost. Funds which were supposed to look after both Mr and Mrs Harding in their old age, were lent to the husband's business that ultimately crashed. It was both an unwise and independent transaction. While I am prepared to infer (the evidence being entirely scant) that Mrs Harding's consent was obtained by reason of her belief that it was her duty to support her husband I reject that that her permitting additional lending to support the Bears business justify a conclusion that Mrs Harding was involved in her husband's business at all or to a disqualifying degree. 159 After the Bears business failed, the reduced balance of the Omega Super fund was transferred to an externally managed industry fund: Yes. Okay. And do you recall what happened to this fund? I mean, is it still going, the Omega fund?---No, it's closed. It was closed. Yes?---It was shut down with the - - - And you - - -?---With the sale of Kirkham Road and with my bankruptcy, we've shut this all down and we transferred the funds into just a standard superannuation fund. My wife's – my wife's – was still running her school fund - - - Yes?--- - - - super fund and we transferred it into there - - - Okay?--- - - - and closed it. By reason of want of proof of the funds having been applied to the purposes of Mr Harding's business 160 The Trustee submits that the equity is to be denied in the present case because Mrs Harding has failed to establish the third of the factual circumstances that the Full Court in Parsons identified as those which usually must exist for the equity to be an incident of relationship between [implied] security and principal debtor. The relevant passage in Parsons (as is also noted above at [98] of these reasons) is at [20]: The equity of exoneration is an incident of the relationship between surety and principal debtor. It usually arises where a person has mortgaged his property to secure the debt of another, whether or not that other has covenanted to pay the debt. However, it will also arise in a case where, although not an actual suretyship, the relationship is treated as one of suretyship. This is Lord Selbourne's third class of suretyship mentioned in Duncan, Fox, & Co v North and South Wales Bank (1880) 6 App Cas 1, 10. For the doctrine to apply in this class, the following facts will usually exist. First, a person must charge his property. Where the person is the beneficial owner of the property it will be sufficient if the charge is by his trustee. Second, the charge must be for the purpose of raising money to pay the debts of another person or to otherwise benefit that other person. Third, the money so borrowed must be applied for that purpose. See generally Re Berry (a bankrupt) [1978] 2 NZLR 373. 161 In my opinion it is a misreading of that passage to conclude that a wife must lose the benefit of the equity of exoneration unless she can prove that her husband has used every dollar of the funds she has consented to him having access to for the purpose of his business for that purpose. 162 To use a crude example if a husband obtains funds for his business, and unknown to his wife, then misuses some part to keep a mistress, it would be absurd to suggest that the wife's equity of exoneration has been lost. 163 Instead I understand Parsons simply to confirm the well settled proposition that the wife's understanding must be that the funds are to be applied to her husband's business purposes and not for a purpose benefitting the wife such as was the case in Paget v Paget [1898] 1 Ch 470. 164 However, assuming I may be wrong for the reasons that follow I would nonetheless conclude on the balance of probabilities that the evidence in this case entitles the Court to conclude that all of the funds Mr Harding prevailed upon his wife to make available to him were in fact applied to the Bears business; and none to his wife's purposes. 165 It is uncontentious that from the outset the Bears business was seriously undercapitalised. Mr Matters does not challenge that Mr Harding had applied all of the funds that came into his hands for the purposes of the Bears business. 166 Mr Harding's evidence, as relied on by Mr Matters, was only as follows: And you can't say whether any of that 280,000 went to the Harding family trust initially and then --- ? --- It did not. --- to the Bears business? --- I don't know how the money got through to us but all I understand is that it was for the use of the business and that's where it was used. When you say you understand that, that's from what Geoff told you; correct? Geoff Tosswill? --- The flow of the money --- Yes? --- through our trusts, yes. Because you didn't really have any idea how the moneys were flowing through these corporate structures at all. That's what your evidence is; correct? --- Correct. So as to whether any money made it through to any particular of the Bears businesses or the Bears companies, you're not able to say at all? --- No, I cannot. Is that the same for the other advances, the - so the --- ? --- That's correct. 167 Mr Harding was not challenged on his evidence that none of that money had gone to the benefit of the Harding Family Trust. Mr Harding's understanding that he had been given access to the whole of the funds for the purposes of the Bears business was not put in issue. It was not suggested that there was any substantive discrepancy. 168 Mr Matter's submission is simply that because Mr Harding had relied on Mr Tosswill to facilitate those transfers he could not be certain to the last dollar that all of those funds had reached him. I am satisfied that Mr Harding's evidence was no more than an honest acknowledgment on his part that he had depended on the honesty of Mr Tosswill in those regards who was managing the paperwork of the business in those regards. It was not an acknowledgment that any part of those funds had in fact been diverted. 169 But even had the evidence been as would satisfy the Court that some part of the funds had been diverted without the knowledge of Mr Harding I reject that would be relevantly disqualifying in respect of Mrs Harding's equity. Once the funds were in Mr Tosswill's hands they were available for the use of Mrs Harding's husband's business – Mr Tosswill being Mr Harding's silent partner and a 20% Unit holder in the controlling trust which operated the Bears business. If, assuming a proposition for which no evidence at all exists, it is speculated that Mr Tosswill may have misapplied some part (so small as Mr Harding had not identified) of those funds for his own purposes then nonetheless that would not change their character as having been made available by Mrs Harding for the purposes of her husband's business. 170 It is to be recalled that in Parsons the Full Court refers to the three factual conditions as those which usually are required to be established. That statement is not contrary to the observations of Richards LJ in Armstrong that the Court must consider the particular facts of each case to determine whether the equity applies. 171 I reject as entirely inconsistent with the theory and evolution of the doctrine of the equity of exoneration that the equity will be lost if the wife (or husband) does not involve herself in the detail of her partner's business to monitor the precise application of those funds. It is the wife's disinterest in her partner's business affairs accompanied by a willingness to fund his interests out of loyalty that gives rise to the equity. 172 I am satisfied that Mrs Harding merely supported her husband's business endeavours despite her having sought to counsel him not to take that course. Mr Harding's evidence complemented Mrs Harding's that her intention was always to merely support him in his chosen business endeavour. I have rejected that the Bears business was a joint endeavour on their part or that it later became so. CONCLUSION 173 Mrs Harding has established that she merely supported her husband's business endeavours and that she did so notwithstanding her having sought to persuade him not to take that course. Mr Harding's evidence complemented that of Mrs Harding's that her intention had been merely support him in his business endeavours. I have rejected that the Bears business was a joint endeavour on their part or that it later became so. 174 Whilst her husband struggled, Mrs Harding had supported her family. She continued to generate an income as a teacher when her husband had no earnings. She kept the household afloat. I have rejected that Mrs Harding benefited directly or indirectly from any of the relevant borrowings in a way that might displace the equity she has sought to rely upon. 175 I am satisfied that Mrs Harding establishes that she is entitled to the benefit of the equity of exoneration. I am satisfied that Mr Harding is liable to indemnify his wife in respect of the relevant borrowings. I will make a declaration to the effect Mrs Harding seeks. 176 The Court does not anticipate that contingent orders for the release of funds presently held by the Trustee will be required but if that is mistaken I will grant the parties liberty to apply within 14 days of the publication of these reasons. 177 The parties requested the opportunity to make submissions on costs after these reasons for judgment had been published. I will provide the parties with the opportunity to make submissions in writing, with liberty to apply for an oral hearing within 14 days of the publication of these reasons if they see fit. I certify that the preceding one hundred and seventy-seven (177) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Kerr. Associate: Dated: 1 October 2021 Annexure A