FEDERAL COURT OF AUSTRALIA Cooper as Liquidator of Runtong Investment and Development Pty Ltd (In Liq) v CEG Direct Securities Pty Ltd [2024] FCA 6 File number(s): SAD 119 of 2019 Judgment of: O'SULLIVAN J Date of judgment: 12 January 2024 Catchwords: CORPORATIONS LAW – where now insolvent plaintiff company executed a mortgage over land in favour of the defendant to secure borrowings from the defendant by two other companies – where all three companies share two common directors – where each of the three companies also had other directors – where the two common directors had given personal guarantees guaranteeing the repayment of borrowings by the other two companies – whether by the grant of the mortgage the two common directors obtained a benefit by reducing their contingent liability under the terms of the personal guarantees – whether the transaction was an unreasonable director-related transaction within the meaning of s 588FDA of the Corporations Act 2001 (Cth) – whether the granting of the mortgage was made to a person on behalf of, or for the benefit of, a director – whether a reasonable person in the company's circumstances would not have entered into the transaction – held transaction an unreasonable director-related transaction – whether the defendant should pay the plaintiff an amount that fairly represents some or all of the benefits that the defendant has received because of the transaction – assessment of benefit under s 588FF(4) of the Act – orders made Legislation: Corporations Act 2001 (Cth), ss 9, 588FE, 588FF(1) & (4), 588FDA, 588FDA(1) Federal Court of Australia Act 1976, s 21 Cases cited: Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564 Australian Competition and Consumer Commission v Oscar Wylee Pty Ltd [2020] FCA 1340 Aviation 3030 Pty Ltd (in liq) v Lao, in the matter of Aviation 3030 Pty Ltd (in liq) [2022] FCA 458 Crowe-Maxwell v Frost [2016] NSWCA 46; 91 NSWLR 414 D Pty Ltd (in liq) v Calas (Trustee), in the matter of D Pty Ltd (in liq) [2016) FCA 1409 Golden Heritage Golf Pty Ltd (in liq) (recvrs and mngrs apptd) v Sun [2016] VSC 167; 113 ACSR 550 Great Investments v Warner [2016] FCAFC 85; (2016) 243 FCR 516 Parker Trading as on Grid off Grid Solar v Switchee Pty Ltd Trading as Australian Solar Quotes [2018] FCA 479 Pearce v Gulmohar Pty Ltd [2017] FCA 660 Re IW4U Pty Ltd (in liq) [2021] NSWSC 40; 150 ACSR 146 Slaven v Menegazzo [2009] ACTSC 94 Smith v Starke (No 2) [2015] FCA 1119; 109 ACSR 145 Vasudevan v Becon Constructions (Australia) Pty Ltd [2014] VSCA; (2014) 41 VR 445 Weaver v Harburn [2014] WASCA 227; 103 ACSR 416 Heydon JD, Leeming MJ, Turner PG, Meagher, Gummow and Lehane's Equity: Doctrines & Remedies (5th ed, Butterworths, 2014) Division: General Division Registry: South Australia National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 199 Date of hearing: 11 & 31 October 2022 Counsel for the Plaintiff: Mr G Bigmore KC with Mr A Narayan as junior Solicitor for the Plaintiff: Travancore Legal & Advisory Counsel for the Defendant: Mr A Lazarevich Solicitor for the Defendant: Ronayne Owens Lawyers ORDERS SAD 119 of 2019 BETWEEN: NICHOLAS DAVID COOPER AS LIQUIDATOR OF RUNTONG INVESTMENT AND DEVELOPMENT PTY LTD (IN LIQ) Plaintiff AND: CEG DIRECT SECURITIES PTY LTD Defendant order made by: O'SULLIVAN J DATE OF ORDER: 12 January 2024 THE COURT DECLARES: A. The grant of a mortgage from Runtong Investment and Development Pty Ltd (in liq) to CEG Direct Securities Pty Ltd (CEG Direct Mortgage) on 12 December 2014 subsequently registered as Mortgage No. 12692670 is an unreasonable director-related transaction within the meaning of section 588FDA of the Corporations Act 2001 (Cth). THE COURT ORDERS THAT: 1. Pursuant to ss 588FF(1)(c) and 588FF(4) of the Act, CEG Direct Securities Pty Ltd pay to Runtong Investment and Development Pty Ltd (in liq) the sum of ONE MILLION, NINE HUNDRED AND EIGHTY THREE THOUSAND, ONE HUNDRED DOLLARS AND FORTY CENTS ($1,983,100.40). 2. The Court will hear the parties on the question of interest and costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT O'SULLIVAN J: 1 The plaintiff is a registered liquidator and as from 18 June 2018, the liquidator of Runtong Investment and Development Pty Ltd ACN 158 828 641. Runtong was incorporated on 5 June 2012 pursuant to the Corporations Act 2001 (Cth). 2 On 2 March 2018 (relation back day), prior to being appointed to act as the Runtong's liquidator, the plaintiff and Dominic Charles Cantone had been appointed as joint and several administrators of Runtong. 3 The defendant, CEG Direct Securities Pty Ltd was registered on 12 May 2011 and was at all material times a company duly incorporated under the Act. 4 As at on or about 8 October 2012, Runtong was the registered proprietor and beneficial owner of that Land, being the whole of the land comprised and described in Certificate of Title Register Book Volume 6101 Folio 251 and situated at 114-122 Waymouth Street, Adelaide, South Australia. It granted a mortgage over the Land to the National Australia Bank Ltd (NAB Mortgage) in the sum of $1.54 million on or about that date. On 7 June 2012, the Land had previously been valued at $2.2 million by Colliers International. 5 On 12 December 2014, Runtong executed a mortgage in registerable form (Transaction) over the Land in favour of CEG (CEG Direct Mortgage) as part of a series of securities provided to CEG to secure borrowings by Australian Datong Investment & Development Pty Ltd ACN 144 751 520 and Futong Investment and Development Pty Ltd ACN 149 389 293. As at that date, the borrowings by Datong and Futong totalled slightly in excess of $15 million. 6 Between 24 December 2014 and 10 October 2017, CEG protected its interest in the Land by lodging a caveat over the Land. On 10 October 2017, CEG registered the CEG Direct Mortgage over the Land. 7 On 27 February 2018, CEG entered into possession of the Land as mortgagee in possession: Exhibit P1, p 1292 (report by the administrators to the second meeting of creditors of a company under administration held 12 April 2018) and on 27 July 2018 entered into a contract for the sale of the Land with Wingfold Holdings Pty Ltd. Upon settlement, CEG received the net amount of $12,143,300.47. 8 The plaintiff contends the Transaction is voidable as an unreasonable director-related transaction within the meaning of s 588FDA of the Act and seeks the following remedies: (1) A declaration that the Transaction is voidable as an unreasonable director-related transaction pursuant to ss 588FE and 588FDA of the Act; (2) A declaration pursuant to s 588FF(1)(h) of the Act that the CEG Direct Mortgage is void ab initio; (3) In the alternative to para (2) above, a declaration pursuant to s 588FF(1)(j) of the Act that the CEG Direct Mortgage is unenforceable ab initio; (4) An order pursuant to ss 588FF(1)(a) and 588FF(4) of the Act that CEG pay to Runtong the amount of $2,048,866.01; and (5) In the alternative to para (4) above, an order pursuant to ss 588FF(1)(c) and 588FF(4) of the Act that CEG pay to Runtong an amount that fairly represents the benefit CEG received from the Transaction. 9 The following issues arise: (1) Did Runtong effect a disposition of its property within the meaning of s 588FDA(1)(a) by granting the CEG Direct Mortgage on 12 December 2014?; (2) If so, was the granting of the CEG Direct Mortgage made to a person on behalf of, or for the benefit of, a director of Runtong within the meaning of s 588FDA(1)(b)?; (3) May it be expected that a reasonable person in Runtong's circumstances would not have entered into the Transaction having regard to the matters set out in s 588FDA(1)(c)?; and (4) Is the plaintiff entitled to the relief sought? Documents Read 10 The parties tendered a Court Book (Exhibit P1). Within that Court Book were affidavits which were read by the parties. 11 The plaintiff read: (1) The affidavit of Nicholas David Cooper sworn 12 April 2022 (first Cooper affidavit) save for paragraphs 33, 34, 43 and 44; and (2) The affidavit of Nicholas David Cooper sworn 12 April 2022 (second Cooper affidavit). 12 CEG read the Owens affidavit save for the words in [13] "from Datong group ('Loan 3')". 13 A Director of CEG, Mr Vincent Ventrice, who was involved in the dealings with Runtong, Futong and Datong had passed away by the time of the hearing. 14 In the circumstances of Mr Ventrice's passing, no evidence was led from anyone employed by CEG who was involved in the Transaction or other dealings between Datong, Futong and Runtong. 15 Neither Mr Cooper nor Mr Owens were required for cross-examination. 16 At the trial, the defendant called an expert witness, Ms Robyn Karam, whose expert report dated 29 July 2022 is found in Exhibit P1. No other witnesses were called by the parties. 17 Ms Karam is a Chartered Accountant and Forensic Accounting Specialist who was briefed to provide an expert report by CEG's solicitors and was cross-examined. 18 I deal with Ms Karam's evidence later in these reasons. Ultimately, I do not accept Ms Karam's opinion that it was reasonable for Runtong to enter into the CEG Direct Mortgage in the circumstances existing at the time of the Transaction. I note, however that Ms Karam gave her evidence in a straightforward manner and in the way expected of an independent expert. Agreed Facts 19 The parties filed a statement of agreed facts and issues. The following facts were agreed (the numbers correspond to the paragraph number of the agreed fact. I have not set out the paragraphs of this document in which the parties state their respective contentions): 1. The Plaintiff is a Registered Liquidator carrying on business in South Australia and elsewhere as a member of the firm Oracle Insolvency Services. 2. Runtong was registered on 5 June 2012 and was at all material times a company duly incorporated pursuant to the Act. 3. Datong was registered on 22 June 2010 and was at all material times a company duly incorporated under the Act. 4. Futong was registered on 17 February 2011 and was at all material times a company duly incorporated under the Act. 5. CEG was registered on 12 May 2011 and was at all material times a company duly incorporated under the Act. 6. On or about 8 October 2012, Runtong was registered as proprietor, and was the beneficial owner, of the Land. 7. Contemporaneously with its acquisition of the Land, Runtong granted registered mortgage No. 11829929 over the Land to National Australia Bank Ltd (NAB Mortgage). 8. The Land was valued by Colliers International for the NAB at $2.2m on 7 June 2012. 9. In and about September 2014, Datong and Futong had been engaged in the development of land owned by Futong (Futong land) at 271-281 Gouger Street, Adelaide and known as Aria on Gouger. 10. On 8 September 2014, Datong and CEG entered into a Loan Agreement (First Loan Agreement). 11. On 26 September 2014, Datong, Futong and CEG entered into a Loan Agreement (Second Loan Agreement). 12. On 26 September 2014 Jin Liang, Yong Liu, Ping Huang and Shaohua Liu (Four Guarantors) guaranteed the indebtedness from time to time of Datong to CEG and the indebtedness from time to time of Futong to CEG (Prior Guarantee). 13. As at 9 December 2014, the balances owing by Datong and Futong under the First Loan Agreement and the Second Loan Agreement totalled $9,110,715.07. 14. CEG's file records that it considered that, as at 9 December 2014: 14.1. the Land had a value of $3.5m; 14.2. the amount secured under the NAB Mortgage was $1.54m; 14.3. the property owned by Datong at 207-209 Pulteney Street, Adelaide (Datong land) had a value of $4.5m, subject to a $2.88m first mortgage to the NAB; and 14.4. the Futong land had a value of $35m, subject to a $18.3m mortgage to the NAB. 15. The Land has recently been independently valued at $2.2m as at 12 December 2014. 16. On 12 December 2014, Datong, Futong, CEG and the Four Guarantors under the Prior Guarantee entered into a document titled "Variation Agreement" by which a further advance under the Second Loan Agreement was contemplated (Third Loan Agreement). 17. Thereafter, approximately $6m was advanced by CEG to Datong and Futong under the Third Loan Agreement. 18. As recorded in the schedule to the Third Loan Agreement, the principal sum (including the contemplated $6m) payable by Datong and Futong to CEG as at 9 December 2014 was $15,110,715.07. 19. As at 12 December 2014: 19.1. Jin Liang; Yong Liu; Ping Huang; Shaohua Liu; and Chenhao Liang were directors of Runtong; 19.2. Jin Liang, Ping Huang and Shaohua Liu, were directors of Futong; and 19.3. Jin Liang, Yong Liu and Ping Huang were directors of Datong. 20. Accordingly, at 12 December 2014 Jin Liang and Ping Huang (Directors) were directors of Runtong, Futong and Datong. 21. … 22. On 12 December 2014, Runtong encumbered property belonging to Runtong, namely Runtong's interest in the Land, by executing the CEG Direct Mortgage. On 24 December 2014, CEG lodged a caveat over the Land to protect the CEG Direct Mortgage and on 10 October 2017, CEG registered the CEG Direct Mortgage over the Land as registered Mortgage No. 12692670. 23. Also on 12 December 2014, Runtong gave a General Security Agreement and (together with Chenhao Liang) the Runtong Guarantee identified in paragraphs 14(b)(iii) and (iv) of the Amended Defence. 24. … 25. … 26. … 27. … 28. … 29. ... 30. … 31. In the period between 27 October 2015 and 28 July 2017, Runtong undertook a development of the Land. That development was known as U2 on Waymouth (U2 development) and in consequence of the same, CEG advanced money to Runtong, principally by making various payments to Built Environs Pty Ltd, the building firm retained on the project, in the amount of $10,160,200.07 (Runtong Advances), as follows: DATE AMOUNT 27 October 2015 $40,000.00 28 October 2015 $2,460,000.00 22 February 2017 $814,000.00 3 March 2017 $1,074,090.60 1 May 2017 $1,010,626.10 1 June 2017 $1,509,398.00 28 June 2017 $1,066,219.70 28 July 2017 $2,185,865.67 TOTAL $10,160,200.07 32. … 33. ... 34. … 35. On the relation back day, the Plaintiff and Dominic Charles Cantone were appointed as joint and several administrators of Runtong. 36. On 18 June 2018 Runtong's creditors resolved to wind up Runtong and appointed the Plaintiff to act as Runtong's liquidator. 37. On 27 July 2018, CEG, as mortgagee in possession of the Land under the CEG Direct Mortgage, entered into a contract for the sale of the Land for the sum of $14,000,000 plus GST (Contract) to Wingfold Holdings Pty Ltd ACN 627 650 748 as purchaser. 38. On or about 19 October 2018, completion on the sale and purchase of the Land under the Contract occurred and the Plaintiff contends that the Defendant received the net sum of $12,209,066.08, calculated as follows: Contract Price (inclusive of GST) $15,400,000.00 Less: GST ($1,400,000.00) Add: adjustments for rates, taxes and disbursements ($56,783.19) Less: amount paid to State Commissioner of Taxation ($127,469.38) Less: amounts paid on account of rates and SA water ($72,331.93) Less: amount paid to Camatta Lempens ($1,980.00) Less: amount paid to National Australia Bank pursuant to the NAB Mortgage ($1,645,935.80) TOTAL: $12,209,066.08 39. CEG received the net amount of $12,143,300.47. The difference of $65,765.61 is referrable to a deduction taken out of settlement proceeds and paid to CEG's solicitors Ronayne Owens Lawyers. 40. For convenience in the conduct of the proceeding, the parties agree that CEG realised about $12m from the exercise of its power of sale under the CEG Mortgage in or about October 2018. 41. … 42. The CEG Direct Mortgage was entered into during the 4 years ending on the relation back day and the mortgagee's sale under that instrument occurred after the date of the appointment of the administrators. 43. ... 44. … 45. … 46. … 47. … 48. … 49. … 50. CEG's solicitor Mr Luke Kenneth Owens was appointed controller of Futong's property on 28 August 2017 and on 24 January 2018, Futong was wound up in insolvency on the application of the Deputy Commissioner of Taxation in Federal Court Action No. SAD 296 of 2017. 51. Datong was deregistered on 10 November 2019. 20 Although not an agreed fact, there is no issue that Futong was de-registered as a company on 2 May 2021. LEGISLATION 21 Section 588FDA of the Act provides relevantly: 588FDA Unreasonable director‑related transactions (1) A transaction of a company is an unreasonable director‑related transaction of the company if, and only if: (a) the transaction is: (i) a payment made by the company; or (ii) a conveyance, transfer or other disposition by the company of property of the company; or (iii) the issue of securities by the company; or (iv) the incurring by the company of an obligation to make such a payment, disposition or issue; and (b) the payment, disposition or issue is, or is to be, made to: (i) a director of the company; or (ii) a close associate of a director of the company; or (iii) a person on behalf of, or for the benefit of, a person mentioned in subparagraph (i) or (ii); and (c) it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to: (i) the benefits (if any) to the company of entering into the transaction; and (ii) the detriment to the company of entering into the transaction; and (iii) the respective benefits to other parties to the transaction of entering into it; and (iv) any other relevant matter. The obligation referred to in subparagraph (a)(iv) may be a contingent obligation. Note: Subparagraph (a)(iv)—This would include, for example, granting options over shares in the company. (2) To avoid doubt, if: (a) the transaction is a payment, disposition or issue; and (b) the transaction is entered into for the purpose of meeting an obligation the company has incurred; the test in paragraph (1)(c) applies to the transaction taking into account the circumstances as they exist at the time when the transaction is entered into (rather than as they existed at the time when the obligation was incurred). (3) … 22 Unreasonable director-related transactions may be voidable subject to their proximity to the relation-back day. Section 588FE provides relevantly: 588FE Voidable transactions (1) If a company is being wound up: … (b) a transaction of the company may be voidable because of subsection (6A) if the transaction was entered into on or after the commencement of the Corporations Amendment (Repayment of Directors' Bonuses) Act 2003; … (6A) The transaction is voidable if: (a) it is an unreasonable director‑related transaction of the company; and (b) it was entered into, or an act was done for the purposes of giving effect to it: (i) during the 4 years ending on the relation‑back day; or (ii) after that day but on or before the day when the winding up began. 23 There is no issue that the Transaction was entered into after the commencement of the Corporations Amendment (Repayment of Directors' Bonuses) Act 2003 (Cth). 24 Provided it is satisfied that a transaction made by a company is voidable, the Court may make a number of orders. Section 588FF provides relevantly: 588FF Courts may make orders about voidable transactions (1) Where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders: (a) an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction; (b) an order directing a person to transfer to the company property that the company has transferred under the transaction; (c) an order requiring a person to pay to the company an amount that, in the court's opinion, fairly represents some or all of the benefits that the person has received because of the transaction; (d) an order requiring a person to transfer to the company property that, in the court's opinion, fairly represents the application of either or both of the following: (i) money that the company has paid under the transaction; (ii) proceeds of property that the company has transferred under the transaction; (e) an order releasing or discharging, wholly or partly, a debt incurred, or a security or guarantee given, by the company under or in connection with the transaction; (f) …; (g) …; (h) an order declaring an agreement constituting, forming part of, or relating to, the transaction, or specified provisions of such an agreement, to have been void at and after the time when the agreement was made, or at and after a specified later time; (i) an order varying such an agreement as specified in the order and, if the Court thinks fit, declaring the agreement to have had effect, as so varied, at and after the time when the agreement was made, or at and after a specified later time; (j) an order declaring such an agreement, or specified provisions of such an agreement, to be unenforceable. (2) Nothing in subsection (1) limits the generality of anything else in it. (3) An application under subsection (1) may only be made: (a) during the period beginning on the relation‑back day and ending: (i) 3 years after the relation‑back day; or (ii) 12 months after the first appointment of a liquidator in relation to the winding up of the company; whichever is the later; or (b) within such longer period as the Court orders on an application under this paragraph made by the liquidator during the paragraph (a) period. (4) If the transaction is a voidable transaction solely because it is an unreasonable director‑related transaction, the court may make orders under subsection (1) only for the purpose of recovering for the benefit of the creditors of the company the difference between: (a) the total value of the benefits provided by the company under the transaction; and (b) the value (if any) that it may be expected that a reasonable person in the company's circumstances would have provided having regard to the matters referred to in paragraph 588FDA(1)(c). LEGAL PRINCIPLES 25 In Aviation 3030 Pty Ltd (in liq) v Lao, in the matter of Aviation 3030 Pty Ltd (in liq) [2022] FCA 458, Anastassiou J set out a number of legal principles in relation to s 588FDA at [286]-[320], [358]-[360] and [407] as follows: 25.1 There are three conditions which are necessary to establish an unreasonable director related transaction. They are the matters listed in s 588FDA(1)(a)-(c): at [298]-[320]; 25.2 Insolvency is not a necessary requirement of s 588FDA. Accordingly, the defence in s 588FG(2) of having no reasonable grounds to suspect insolvency has no relevance to whether a transaction is an unreasonable director-related transaction, citing with apparent approval McClure P in Weaver v Harburn [2014] WASCA 227; 103 ACSR 416 at [65]: at [290], [291]; 25.3 Since the focus on s 588FDA is the reasonableness of the company's conduct, it is not necessary for a liquidator to first prove any impropriety or breach of directors' duties: Smith v Starke (No 2) [2015] FCA 1119; 109 ACSR 145 at [104] (Gleeson J); Weaver at [78]-[79]; 25.4 The test in s 588FDA(1)(c) is an objective one, which requires "an answer to the question what a reasonable person in the company's circumstances may be expected not to do": Re IW4U Pty Ltd (in liq) [2021] NSWSC 40; 150 ACSR 146 at 162 [82], citing Crowe-Maxwell v Frost [2016] NSWCA 46; 91 NSWLR 414, at [71] (Beazley P) and Weaver at [91]. This test "substantially adopts" the language used to identify an 'uncommercial transaction' in s 588FB of the Corporations Act, and for that reason, case law regarding s 588FB may provide useful guidance and analogy in cases involving s 588FDA: D Pty Ltd (in liq) v Calas (Trustee), in the matter of D Pty Ltd (in liq) [2016) FCA 1409 at [58]: at [308]. 25.5 Section 9 of the Corporations Act relevantly defines 'benefit' in this context as being "any benefit, whether by way of payment of cash or otherwise". Consistent with this, the Plaintiffs say case law suggests that 'benefit' is to be interpreted broadly: at [309]. 25.6 The term 'detriment' is not defined in the Corporations Act, but it is generally accepted that, in this context, the word "refers to 'commercial detriment' but is not limited to a detriment that can necessarily be measured in money terms": Shot One Pty Ltd (in liq) v Day [2017] VSC 741 at [211] (Sloss J): at [310]. 25.7 [T]he matters in para (c)(i)–(iii) of s 588FDA(1) are mandatory relevant matters in the evaluative assessment of what is objectively unreasonable. The "any other relevant matter" requirement in para (c)(iv) recognises that relevance depends on the facts and circumstances of the particular case; Weaver at [92] (McLure P): at [311]. 25.8 The test in s 588FDA(1)(c) is to be applied to the transaction "taking into account the circumstances as they exist at the time when the transaction is entered into": Re IW4U at [79]. The enquiry requires the Court to consider "all relevant matters": Frost at [70] (Beazley P), with each case being considered in accordance with its peculiar facts, circumstances and context": Golden Heritage Golf Pty Ltd (in liq) (recs and mgrs apptd) v Sun [2016] VSC 167; 113 ACSR 550 at [73] (Sifris J): at [312]. 25.9 "Normal commercial practice" is a relevant, but not determinative, consideration when considering what a reasonable person in the company's circumstances would do: Frost at [70]. Other considerations include the company's status "and what flows from that; its controllers, shareholders, business and other activities; and the facts and circumstances of, and surrounding, the transaction": Weaver at [91]. This may (but need not) include the company's financial condition at the time of the transaction in question: Weaver at [65]. A relevant consideration is whether a benefit received by a party from the company is "of such commercial magnitude that it is not explainable by normal commercial considerations": Slaven v Menegazzo [2009] ACTSC 94 at [46] (Mansfield J): at [313]. 25.10 Where there is limited evidence of the nature or purpose of a transaction, but "the surrounding circumstances show it to be a departure from normal commercial practice and to raise inferences as to a lack of benefit to the company, detriment caused to the company, or benefit accruing to other parties", then "absent some commercial explanation", courts may infer that the transaction is an unreasonable director-related transaction: Frost at [89]. In such circumstances, a defendant may be said to bear an evidentiary onus of raising some commercial explanation for the transaction: Frost at [90]: at [314]. 26 In Vasudevan v Becon Constructions (Australia) Pty Ltd [2014] VSCA; (2014) 41 VR 445, [28], Nettle JA (as his Honour then was) held that: …it is apparent from the terms of s 588FDA, and also from the Explanatory Memorandum, that the very point of the section was and is to catch director related transactions of kinds not otherwise liable to avoidance as unfair preferences, uncommercial transactions or unfair loans. In effect, that is the converse of a Parliamentary intention to confine the operation of s 588FDA to transactions of the kind which result in the director in question receiving an equitable interest or equity in relation to the disponed property. Contrary to counsel's submission, s 588FG(2) in effect confirms that is so by providing in substance that a court is not to avoid a voidable transaction to which the defences apply unless the transaction is an unfair loan or an unreasonable director-related transaction. The point was also made in para 3.15 of the Explanatory Memorandum, as follows: "The insolvency of the company at the time of an unreasonable director-related transaction is not a relevant consideration under the proposed amendments. Accordingly, section 588FG(2) is amended to remove unreasonable director-related transactions (along with unfair loans under section 588FD currently listed) from the scope of the exemption provided under that subsection in relation to knowledge of the company's solvency at the time the transaction was entered into". 27 On the meaning of "for the benefit of" in s 588FDA(1)(b)(iii), in Vasudevan at [15], [23] and [26] Nettle JA considered that phrase meant "both direct and indirect benefits", that "the natural and ordinary meaning of a requirement that something be for 'for the benefit of' a person is that it be 'for the advantage, profit or good' of the person" and that the focus of the subsection was to capture any "benefit which legally or financially advantages the director in question". 28 Anastassiou J in Aviation 3030: at [305] and [306] adopted Nettle JA's interpretation of "for the benefit of" and his Honour's construction of the phrase "for the benefit of" s 588(1)(b) was expressly approved by Rangiah J in Pearce v Gulmohar Pty Ltd [2017] FCA 660 at [380]-[381]. 29 The operation of s 588FDA has also been previously discussed within this Court by Gleeson J (when her Honour was a member of the Court) in Smith at [104] and following. THE PARTIES' CONTENTIONS 30 The plaintiff contends, and I accept, that there are three conditions of which the Court will need to be satisfied in order for the plaintiff to obtain relief under s 588FF of the Act: (1) First, the granting of the CEG Direct Mortgage was a disposition by Runtong to the defendant of a security interest in the land: s 588FDA(1)(a); (2) Second, the granting of the CEG Direct Mortgage was made to CEG for the benefit of the Directors: s 588FDA(1)(b); and (3) Viewed objectively, having regard to the matters in s 588FDA(1)(c) it may be expected that a reasonable person in Runtong's circumstances would not have entered into the Transaction. Plaintiff's contentions 31 The plaintiff's contentions may be summarised as follows: (1) Under the Prior Guarantee, the Directors were contingently liable to CEG in respect of the $15,110,715.07 owed by Datong and Futong as debtors; (2) Although given at the same time, neither the General Security Agreement nor the Runtong Guarantee effected a disposition by Runtong of its Land or any interest therein; (3) By the grant of the CEG Direct Mortgage on 12 December 2014 Runtong effected a disposition of property by way of granting an interest in the Lands within the meaning of s 588FDA(1)(a)(ii); (4) For the purposes of s 588FDA(1)(b)(iii) of the Act, the granting of the CEG Direct Mortgage to CEG on 12 December 2014 created a contingency that benefited the Directors inasmuch as their liability as debtors under the Prior Guarantee ($15,110,715.07) would be reduced by whatever sum was eventually received by CEG as a result of the sale of the Land by CEG as mortgagee in possession; (5) It may be expected that a reasonable person in Runtong's circumstances would not have granted the CEG Direct Mortgage to CEG on 12 December 2014: s 588FDA(1)(c); (6) The Runtong Advances totalled approximately $10 million; (7) No contractual or other obligation existed that compelled Runtong to pay interest on the Runtong Advances; (8) In those circumstances, the relief available to the plaintiff is the difference between the total value of the benefits received by CEG from the sale of the Land (approximately $12 million) and the value it may be expected a reasonable person in Runtong's circumstances would have provided to CEG (approximately $10 million); (9) For the purposes of s 588FF(4)(a) of the Act, and in light of the agreed amount arising from the mortgagee sale of $12 million, the total value of benefits provided to CEG from Runtong under the CEG Direct Mortgage was $12 million; (10) For the purposes of s 588FF(4)(b), and having regard to matters referred to in section 588FDA(1)(c) of the Act, it may be expected that a reasonable person in Runtong's circumstances would have been indebted to CEG for $10 million; (11) Runtong's granting of the CEG Direct Mortgage to CEG was: (a) An unreasonable director-related transaction, pursuant to s 588FDA of the Act, and; (b) A voidable transaction pursuant to s 588FE(6A) of the Act. (12) Under these circumstances, the relief available to the plaintiff is approximately $2 million; and (13) Pursuant to ss 588FF(1)(a) and 588FF(4) of the Act, the plaintiff is entitled to an order that CEG pay Runtong an amount of $2 million for the benefit of Runtong's creditors, together with costs and interest. Defendant's contentions 32 The defendant's contentions may be summarised as follows: (1) Each of the three propositions put by the plaintiff above at [30(1)-(3)] are incorrect. As a result the plaintiff's case fails at the first stage of inquiry as it does not make out the s 588FDA(1)(a) and (b) requirements; (2) The value of the First Loan Agreement made between Datong as Borrower and CEG as Lender on 8-9 September 2014 was $2 million; (3) The value of the Second Loan Agreement made between Datong and Futong as Borrowers and CEG as Lender on 26 September 2014 was $5 million, which was then varied in October 2014 by additional advances totalling $4 million; (4) Immediately prior to the execution of the CEG Direct Mortgage, the amount owed under the Second Loan Agreement was $9,110,715.07; (5) Pursuant to the Third Loan Agreement (Variation Agreement) entered into on 12 December 2014, the sum which had been advanced under the Second Loan Agreement was increased by $6 million which was conditional upon Runtong: (a) Granting a second mortgage over the Land to CEG; and (b) Providing a General Security Agreement and a Guarantee and Indemnity. (6) After the $6 million was advanced, the principal sum increased to $15,110,715.07; (7) The Prior Guarantee covered each of the advances under: (a) The First Loan Agreement; (b) The Second Loan Agreement; (c) The Third Loan Agreement; and (d) Any further advances together with interest and costs of default. (8) The CEG Direct Mortgage, the General Security Agreement and the Runtong Guarantee also secured all amounts owed by Datong and Futong under the Third Loan Agreement together with any further advances; (9) For the purposes of s 588FDA(1)(b)(iii) of the Act, Runtong's grant of the CEG Direct Mortgage to CEG did not confer a benefit upon the Directors; (10) Runtong's grant of the CEG Direct Mortgage to CEG increased the Directors' contingent liability by $6 million (plus further contingencies for interest and costs of default), which was the amount advanced under the Third Loan Agreement. The total amount owing under the Third Loan agreement was secured in part by the CEG Direct Mortgage being an amount greater than the value of the Land ($2.2 million); (11) For the purposes of s 588FDA(1)(c) of the Act, it may be expected that a reasonable person in Runtong's circumstances would have granted CEG the CEG Direct Mortgage; (12) Runtong was liable to pay interest and costs of default on the Runtong Advances; (13) The Runtong Advances were not a separate standalone facility for Runtong but instead were a part of the loans made to Datong and Futong which were guaranteed by Runtong; (14) Contrary to the plaintiff's contention, Runtong's grant of the CEG Direct Mortgage to CEG was not: (a) An unreasonable director-related transaction under s 588FDA of the Act, nor (b) A voidable transaction under s 588FE(6A) of the Act; (15) Runtong's grant of the CEG Direct Mortgage to CEG was a transaction between CEG (as mortgagee) and Runtong and not a "director-related transaction" made on behalf of, or for the benefit of, a director of Runtong; (16) The Directors were liable to CEG under various guarantees prior to the CEG Direct Mortgage with that liability being contingent and encompassing further advances; (17) The Directors remained liable to CEG subsequent to the granting of the CEG Direct Mortgage. Further funds were advanced by CEG on the basis of the CEG Direct Mortgage security; (18) Runtong's grant of the CEG Direct Mortgage was not unreasonable given the taking of cross-securities is a common feature of the commercial world; (19) There was no such "quantum of benefit to the Directors" and therefore no relief is available to the plaintiff; (20) The plaintiff's proposition that "the total value of the benefits provided" (approximately $12 million) exceeded "the value that it may be expected that a reasonable person … would have provided" (approximately $10 million) ignored Runtong's liability for interest and costs under the CEG Direct Mortgage and associated loan and guarantee documents; (21) It was unrealistic to expect a lender in CEG's position to advance approximately $10 million, where there is already a prior ranking security (NAB mortgage) and secured by a second mortgage on terms that do provide any liability for interest or costs of default; and (22) The plaintiff is not entitled to an order pursuant to ss 588FF(1)(a) or (c) and 588FF(4) of the Act that CEG pay Runtong an amount of $2 million for the benefit of Runtong's creditors together with costs and interest. CONSIDERATION 33 There is no issue that the CEG Direct Mortgage was entered into during the four years ending on the Relation Back Day and the mortgagee's sale under that instrument occurred after the date of the appointment of the Administrators. 34 So too, there is no issue that as at 9 December 2014: (1) The Land was independently valued at $2.2 million; (2) The directors of the Runtong, Datong and Futong were as follows: (a) Jin Liang, Ping Huang Yong Liu, Shaohua Liu and Chenhao Liang were directors of Runtong; (b) Jin Liang, Ping Huang and Yong Liu were directors of Datong; and (c) Jin Liang, Ping Huang and Shaohua Liu were directors of Futong. (3) Jin Liang and Ping Huang were simultaneously directors of Runtong, Datong and Futong; (4) Datong, Futong as borrowers and the Four Guarantors entered into the Third Loan Agreement; (Variation Agreement) which varied the Second Loan Agreement with CEG and by which approximately $6 million was advanced to Datong and Futong by CEG; (5) The Schedule within the Third Loan Agreement recorded the Principal Sum owed by Datong and Futong to CEG, as at 9 December 2014, as $15,110,715.07, which included the contemplated advance of $6 million to be paid on 12 December 2014; and (6) On 12 December 2014, Runtong also granted to CEG as the secured party: (a) The General Security Agreement (together with Chenhao Liang); and (b) The guarantee and indemnity (Runtong Guarantee). First issue - Section 588FDA(1)(a) 35 The first issue is whether Runtong effected a disposition of its property within the meaning of s 588FDA(1)(a) by granting the CEG Direct Mortgage on 12 December 2014. 36 The requirements in s 588FDA(1)(a) include: (1) A transaction of a company is an unreasonable director-related transaction of the company if, and only if: (a) The transaction is: (i) … (ii) A conveyance, transfer or other disposition by the company of property of the company; or (i) …; or (ii) the incurring by the company of an obligation to make such a payment, disposition or issue; 37 The plaintiff contends, and there is no issue between the parties, that by granting the CEG Direct Mortgage on 12 December 2014, Runtong effected a disposition of its property for the purposes of s 588FDA(1)(a)(ii) of the Act. I accept this contention. 38 The plaintiff also contends, and there is no issue between the parties, that by granting the CEG Direct Mortgage on 12 December 2014, Runtong was incurring an obligation to make a disposition of its property for the purposes of s 588FDA(1)(a)(iv). I accept this contention. 39 I note that in any event the granting of the CEG Direct Mortgage comes within the definition of "transaction" in s 9 of the Act. 40 The plaintiff contends that neither the General Security Agreement nor the Runtong Guarantee by themselves effected a disposition by Runtong of the Land or any interest therein. I accept this contention. Second issue - Section 588FDA(1)(b) 41 The second issue is whether the granting of the CEG Direct Mortgage was made to a person on behalf of, or for the benefit of, a director of Runtong within the meaning of s 588FDA(1)(b). 42 Section 588FDA(1)(b) provides relevantly: (b) the payment, disposition or issue is, or is to be, made to: (i) a director of the company; or (ii) …; or (iii) a person on behalf of, or for the benefit of, a person mentioned in subparagraph (i) … 43 There is no suggestion that Runtong disposed of any of its property directly to a director. The plaintiff contends that the grant of the CEG Direct Mortgage to CEG on 12 December 2014 comprised, for the purposes of s 588FDA(1)(b)(iii) of the Act, a disposition to CEG which was to the benefit of the Directors in that the contingent liability of the Directors under the Prior Guarantee would be reduced by whatever net sum CEG received from realising its security over the Land. 44 The issue is whether by receiving security in the form of the CEG direct mortgage, CEG received a disposition of Runtong's property which was for the benefit of the Directors. The suite of documents 45 In order to consider this issue, it is necessary to examine the suite of documents. The First Loan Agreement 46 The first loan agreement is Annexure LKO-2 to the Owens affidavit, contained within Exhibit P1. 47 The First Loan Agreement: (1) Is dated 8 September 2014; (2) Is between CEG as lender and Datong as borrower; (3) Provides for an advance of $2,008,323.82 at an interest rate of 4.00% per month but while the borrower is not in default, 2.00% per month; (4) Is for a term of two months; (5) Defines "Transaction Documents" as "This Agreement, The Securities"; and (6) Lists as security: (a) A second mortgage over the Datong land; (b) A General Security Agreement a guarantee and indemnity granted by Datong; and (c) A Guarantee and Indemnity provided by each of the Four Directors. Guarantee and indemnity 48 A Guarantee and Indemnity is a part of Annexure LKO-2 and is also dated 8 September 2014. It provides in part: (1) "Beneficiary" is defined as CEG; (2) "Guarantor" is defined as the Four Guarantors; (3) "Debtor" means Datong and Futong; (4) "Guaranteed moneys" means: (a) All present or future indebtedness of the Debtor to the Beneficiary either alone or in conjunction with any other person on any account whatever under the Transaction Documents; (b) Any loss or Claim suffered by the Beneficiary arising out of or in connection with a breach by the Debtor of any Obligation of the Debtor under the Transaction Documents; (c) Any interest awarded against the Debtor or payable by the Debtor in respect of any such Claim; and (d) The Debt, as defined in the Loan Agreement." (5) "Loan Agreement" is defined as meaning "the agreement between the Beneficiary and the Debtor providing for advances of the Principal Sum entered into contemporaneously (more or less) with this Agreement"; and (6) "Transaction Documents" is defined as having the same meaning as ascribed to it in the Loan Agreement. 49 The operative part of the Guarantee and Indemnity is in cl 2.1 which provides the "Guarantor" (being the Four Guarantors): "… unconditionally guarantees to the Beneficiary: (a) the due and punctual payment by the Debtor of the Guaranteed Moneys; and (b) the due and punctual performance by the Debtor of the Debtor's Obligations". The Second Loan Agreement 50 The Second Loan agreement is Annexure LKO-4 to the Owens affidavit, contained within Exhibit P1. 51 The Second Loan Agreement is: (1) Dated 26 September 2014; (2) Between CEG as lender and Datong and Futong as borrowers; (3) Provides for an advance of $5 million at an interest rate of 4.6% per month but while the borrower is not in default, 2.3% per month; (4) Is for a term of six months; (5) Lists as security: (a) A second mortgage over the Datong land; (b) A second mortgage over the Futong land; (c) A General Security Agreement granted by granted by Datong; and (d) A Guarantee and Indemnity provided by each of the Four Guarantors. (6) In the Schedule defines: (a) "Debt" as including: (i) "The Principal sum; (ii) All or any interest payable under clause 4; (iii) Any Further Moneys; (iv) Moneys expressed to be part of the Debt by this Agreement; (v) Moneys owing to the Lender (with or without another person) by the Borrower (with or without another person) under a covenant to of this Agreement; (vi) All moneys owing by the Borrower from time to time contingently or otherwise either above or with any other person pursuant to the Securities (or any one or more of them) and/or any Transaction Document; (vii) And includes any part of the Debt;" (7) "Facility" as "the financial accommodation provided by the Lender to the Borrower, including the Principal Sum and any Further Moneys;" (8) "Further Moneys" as "... all moneys: (a) At any time owing to the Lender or payable by the Borrower to the Lender either alone or on joint or partnership account under the provisions of any agreement, including (without limitation) this Agreement; (b) Which the Borrower or a Related Body Corporate to the Borrower either alone or jointly with any other person or whether directly or indirectly or contingently or otherwise or presently or in the future has or may become liable to pay to the Lender or any Related Body Corporate to the Lender on or upon any account, document, negotiable or other instrument or by reason of any other matter or thing or by reason of any transaction in or by which the Lender has or may become in any manner a creditor of the Borrower; (c) At any time owing or payable to the Lender by the Borrower either alone or on joint or partnership account or on any other account whether as principal debtor surety or otherwise or in any other manner; (d) Which the Lender shall pay or become liable to pay to for or on account of or at the request of the Borrower and either alone or jointly with any other person and either by direct advances or by reason of the Lender accepting or paying or discounting any order, draft, cheque, promissory note, bill of exchange or other engagement or by entering into any bond, indemnity or guarantee or otherwise incurring liabilities for or on behalf of the Borrower; (e) Which the Borrower may become liable to pay to the Lender by reason of the Lender issuing, endorsing, accepting, confirming or entering into any letter of credit, confirmed order, letter of confirmation or other like instrument or transaction; (f) Which the Lender shall be at liberty to debit and charge to the Borrower either alone or jointly with any other person under the terms, covenants, conditions and provisions contained in this Agreement or another agreement; (g) Payable or to become payable for discounts, stamp duty, postage, commission registration fees and other like charges in respect of this Agreement or another agreement; (h) Paid or advanced or which the Lender shall become in any way liable to pay or advance to for or at the request of or on the credit or at the request of or for the accommodation or otherwise on the account of the Borrower either alone or jointly with any other person or to for or on account of any other person upon the order or request or under the authority of the Borrower; (i) Paid or payable on account of the costs, charges, expenses and outlays, all on a solicitor and own client basis: (i) … (ii) … (iii) … (iv) Involved with the exercise or enforcement or attempted exercise or enforcement of Rights of the Lender or in consequence of default in payment of the Debt or the breach of any covenant, condition or stipulation contained in this Agreement or a Security including without limitation costs, charges and expenses which may be incurred by the Lender in respect of any application whether successful or not made by the Lender or the Borrower for relief under any moratorium which has already been proclaimed or which may be proclaimed; (j) Advanced or paid at any time by the Lender to or for the use or accommodation of or on behalf of or at the request of the Borrower either alone or jointly with any other person or otherwise owing or payable by the Borrower either alone or jointly with any other person to the Lender on any account or for any reason or in any manner whatsoever; (k) … (l) Elsewhere in this Agreement defined as being included in the Further Moneys; and (m) At any time owing or payable in relation to the cost to the Lender of any external consultants who provide services to the Lender during the course of any conduct the Lender deems necessary to undertake to procure the Debt to be repaid or to remedy an Event of Default. …" (9) "Transaction Documents" as including the Second Loan Agreement and each security. A further Guarantee and Indemnity 52 A further Guarantee and Indemnity is part of Annexure LKO-4 to the Owens affidavit. As with the Second Loan Agreement, it is dated 26 September 2014. It appears to be an updated version of the Guarantee and Indemnity dated 8 September 2014. It provides in part: (1) "Beneficiary" is defined as CEG; (2) "Guarantor" is defined as each of the Four Guarantors; (3) "Debtor" means Datong and Futong; (4) "'Guaranteed moneys' means: (a) All present or future indebtedness of the Debtor to the Beneficiary either alone or in conjunction with any other person on any account whatever under the Transaction Documents; (b) Any loss or Claim suffered by the Beneficiary arising out of or in connection with a breach by the Debtor of any Obligation of the Debtor under the Transaction Documents; (c) Any interest awarded against the Debtor or payable by the Debtor in respect of any such Claim; and (d) The Debt, as defined in the Loan Agreement." (5) "'Loan Agreement' means the agreement between the Beneficiary and the Debtor providing for advances of the Principal Sum entered into contemporaneously (more or less) with this Agreement;" and (6) "'Transaction Documents' is defined as having the same meaning as ascribed to it in the Loan Agreement." 53 The operative part of the Guarantee is in cl 2.1 which provides the "Guarantor" (being the Four Guarantors): …unconditionally guarantees to the Beneficiary: (a) the due and punctual payment by the Debtor of the Guaranteed Moneys; and (b) the due and punctual performance by the Debtor of the Debtor's Obligations. Variations to the Second Loan Agreement 54 Between 27 October 2014 and 9 December 2014, CEG advanced further moneys totalling $4 million to Datong and Futong under variations to the Second Loan Agreement. Each advance of further money was recorded in an agreement. The Third Loan Agreement (Variation Agreement) 55 On or about 1 December 2014, a further application for funds was made by Datong and Futong. For the first time Runtong is named as an applicant on the relevant loan application request although Runtong is not named as a Borrower in the Third Loan Agreement. 56 Annexure LKO-8 to the Owens Affidavit comprises the loan documents and supporting documents for the then proposed Third Loan Agreement. Within that exhibit is a "Loan Request" form which identifies the request as being for a $6 million line of credit. The loan term is for a period of 18 months at an interest rate of 2.30% per month. In addition, there appears to be a payment to the funder of 2.3% per month. The security proposed is a registered second mortgage over the Datong land, the Futong land, and the Land, as well as General Security Agreements by Datong, Futong and Runtong. 57 Also within Annexure LKO-8 is a document titled "Loan Summary", dated 9 December 2014. The purpose of the loan is described as "to cover prelim marketing, Display suite, GST Aria & General cash flow. $4 m - 17/12/ 201 (sic 2014), $2 m - 5/1/2015" and a handwritten note which has an entry "Datong Funds to commence U2 $60m". 58 The Third Loan Agreement, is comprised by a document titled "Variation Agreement": Annexure LKO-9 to the Owens affidavit. It: (1) Is dated 12 December 2014; (2) Is for a term of six months with the debt to be repaid in full on or before 14 May 2015; (3) Is between CEG as Lender, Datong and Futong as Borrowers and the Four Guarantors as Guarantor; (4) Records in the recitals that by the Second Loan Agreement, CEG advanced $5 million to Datong and Futong, that further advances have been made under the Second Loan Agreement and that CEG has agreed to make an additional advance; (5) Provides in cl 3.1 that the Second Loan Agreement is varied by substituting the Commercial Details in that Agreement with those in the Schedule to the Third Loan Agreement; (6) Records in cl 3.2 that the Second Loan Agreement has an outstanding Principal Sum in the amount of $9,110,715.07; (7) Provides in cl 3.3 that Datong and Futong agreed to grant additional securities being: (a) A Second mortgage over the Land; (b) A General Security Agreement granted by Runtong; (c) A Guarantee & Indemnity granted by Chenhao Liang and Runtong; and (8) Records in cl 3.4 that subject to the granting of the additional Securities in Clause 3.3, CEG agrees to make an additional advance of $6 million to Datong and Futong on the date of the Agreement (12 December 2014). 59 I pause to note that how Datong and Futong could covenant with CEG for Runtong to grant the CEG Direct Mortgage as security for their borrowings in circumstances where apart from the Directors there were other directors of Runtong has not been explained. Nonetheless, it is significant that upon execution of the Third Loan Agreement each of the five individuals who gave a personal guarantee and indemnity between them comprised the directors of all three companies. The CEG Direct Mortgage 60 The CEG Direct Mortgage was one of the securities proffered by Datong and Futong in the Third Loan Agreement. 61 The terms of the CEG Direct Mortgage record, in part: Annexure NDC 9 to the first Cooper affidavit contained within Exhibit P1 under the heading "Consideration Terms of Repayment": The Mortgagor being registered as the proprietor of the estate and interest in the land above described subject to the encumbrances and other interests set out above in consideration of credit loan advances provided by the Mortgagee to the Mortgagor and/or any other person at the request of the Mortgagor and for the purpose of better securing the payment of the secured money MORTGAGES to the Mortgagee the estate and interest in the land above described and the Mortgagor AGREES with the Mortgagee to be bound by this Mortgage and also the provisions contained in Memorandum of Standard Terms and Conditions of Mortgage filed in the Lands Titles Office as No. 8367687 (which provisions form part of this Mortgage but if there is any inconsistency with this Mortgage the terms of this Mortgage will prevail). The Mortgagor acknowledges that a copy of the Memorandum of Standard Terms and Conditions of Mortgage have been received and read prior to signing this Mortgage. (emphasis supplied) 62 I note that, the emphasised words in the passage set out above are not correct. The Third Loan Agreement contains no provision advancing money or "credit loan advances" to Runtong. 63 The Schedule to the CEG Direct Mortgage referred to in the Memorandum of Standard Terms and Conditions between Runtong and CEG provides: SCHEDULE Borrower means Australian Datong Investment & Development Pty Ltd ACN 144 751 520 and Futong Investment & Development Pty Ltd ACN 149 389 293 Lender means CEG Direct Securities Pty Ltd ABN 97150878587 Owner means Runtong Investment and Development Pty Ltd ACN 158 828 641 Principal Sum means $15,110,715.07 Property means the whole of the land in Certificate of Title Volume 6101 Folio 251 and also known as 114-122 Waymouth Street, Adelaide SA 5000 THE AGREEMENT You (the mortgagor) agree with us (the mortgagee) as follows: 1. The Memorandum of Standard Terms and Conditions of Mortgage filed in the Lands Titles Office as No. 8367687 (the Memorandum) is incorporated in this mortgage. You acknowledge that you received, read and understood Memorandum before signing this mortgage. A reference to "this mortgage" in the cover sheet, this schedule, the Memorandum or in any annexure to this mortgage is a reference to the mortgage constituted by the cover sheet, this schedule, the Memorandum and each of those annexures. 2. You acknowledge that this mortgage is collateral to the following agreement: (a) Loan agreement in respect of a loan advance of $5,000,000.00 between Australian Datong Investment & Development Pty Ltd ACN 144 751 520 and Futong Investment & Development Pty Ltd ACN 149 389 293 and the Mortgagee on or about the date of this mortgage and any variation of that loan agreement. 3. You acknowledge giving this mortgage and incurring obligations and giving rights under it for valuable consideration received from us. 4. You acknowledge that, as at the date of this mortgage, we have agreed to lend $15,110,715.07 to you or at your request. This amount, together with any further advances and other amounts more fully described in the Memorandum, is called the Mortgage Moneys. 5. You acknowledge indebtedness to us for the Mortgage Moneys and agree to pay to us the Mortgage Moneys, together with interest and all other money due to us at the times agreed with us, or failing agreement on demand. You agree that the covenants set out in the Loan Agreement(s) in respect of the Mortgage Moneys, are deemed to be covenants included in this mortgage. If the wordings in the Memorandum are inconsistent with this Schedule, the terms of this Schedule prevail. For the consideration expressed herein and for the better securing to the Mortgagee the payment of the monies hereby secured the MORTGAGOR MORTGAGES TO THE MORTGAGEE the estate and interest herein specified in the land above described, subject to the encumbrances and other interests set out above and to be held by the mortgagee in the mode specified herein and COVENANTS WITH THE MORTGAGEE in accordance with the terms and conditions expressed in memorandum No. 8367687 subject to such exclusions and amendments specified herein. (bold provided, italics in original) 64 Once again, insofar as the mortgage terms refer to an acknowledgement that CEG has agreed to lend $15,110,715.07 to Runtong at its request, that is not reflected in the Third Loan Agreement nor for that matter any documented Loan Agreement. 65 CEG contends that the Prior Guarantee, the CEG Direct Mortgage, the General Security Agreement and the Runtong Guarantee secured all amounts owing by Datong and Futong under the Second Loan Agreement, as varied by the Third Loan Agreement such that the CEG Direct Mortgage was not a standalone facility but was all part of one facility created earlier. On that basis, the sum secured by the CEG Direct Mortgage included interest and costs together with any further advances. 66 Putting aside for the moment the issue of interest and costs, CEG contends that although the facility was granted to Datong and Futong, the Runtong advances provided under that facility were for the benefit of Runtong. I do not accept that contention. Whereas ultimately the Runtong Advances were provided for Runtong's benefit, at the relevant time, which was the time the CEG Direct Mortgage was granted, there is no evidence of any benefit to Runtong. 67 CEG contends that the grant of the CEG Direct Mortgage was not a "director related transaction", but a transaction between CEG as Mortgagee and Runtong such that s 588FDA is not engaged. It contends that for relevant purposes the issue is whether the Mortgage is granted to a Director or on behalf of or for the benefit of a Director and that the CEG Direct Mortgage does not meet that description. 68 CEG contends further that the Directors were liable contingently to CEG under various guarantees provided by them prior to the CEG Direct Mortgage, and that the contingent liability extended to further advances. It contends that the Directors remained liable after the granting of the CEG Direct Mortgage and that since further funds were advanced on the strength of the CEG Direct Mortgage security, as recorded in the Third Loan Agreement, the contingent liability of the Directors thereby increased such that there was no benefit to the Directors. 69 I do not accept these contentions. 70 First, notwithstanding Runtong is not named as a Borrower, the Land is included as "additional security" for the advance of a further $6 million to Datong and Futong under the Third Loan Agreement which exposes Runtong to a potential liability for a sum slightly greater than $15 million. 71 Second, in so doing, the Directors (together with those who were not directors of Runtong but of Datong and Futong) who had provided personal guarantees, reduced their contingent liability by the value of the Land. 72 Third, it is clear that although CEG took security over the Land and in that sense upon selling the Land as mortgagee in possession, it benefited from that security, nonetheless given the Directors were personally liable under the Guarantee and Indemnity, any reduction in their personal liability occasioned by realisation of any security, as a matter of logic, has to be to their benefit in the sense that it occasioned an indirect benefit and advantaged the Directors financially: Vasudevan at [15], [16], [19] [23] and [26] (Nettle JA); Aviation 3030: at [305] and [306] (Anastassiou J); Pearce: at [380]-[381] (Rangiah J). 73 The fact that CEG benefited from the CEG Direct Mortgage does not mean that the directors did not also benefit. Accordingly, CEG's contention that the granting of the CEG Direct Mortgage did not confer a benefit to CEG for the benefit of the Directors within the meaning of s 588FDA(1)(b)(iii) of the Act cannot be accepted. Third issue - Section 588FDA(1)(c) 74 The third issue is whether it may be expected that a reasonable person in Runtong's circumstances would not have entered into the Transaction having regard to the matters set out in s 588FDA(1)(c). 75 Section 588FDA(1)(c) provides relevantly: (c) it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to: (i) the benefits (if any) to the company of entering into the transaction; and (ii) the detriment to the company of entering into the transaction; and (iii) the respective benefits to other parties to the transaction of entering into it; and (iv) any other relevant matter. 76 Broadly speaking, it is in relation to this issue that CEG relied upon Ms Karam's evidence. Ms Karam's evidence 77 Ms Karam is an Accountant who prepared a Report dated 29 July 2022. The Report was received as a part of Exhibit P1. 78 Ms Karam's curriculum vitae records that she is a Director of Cor Cordis, a forensic accounting firm with over 15 years' experience in forensic advisory, corporate reconstruction and insolvency related services. She is a registered liquidator and in working in the insolvency field she has previously been engaged either by financiers or borrowers to undertake pre-lender reviews, independent business reviews, occasionally monitoring covenant compliance, and investigative accountant reports. She has been required to prepare solvency reports which often requires consideration of group as well as related entity debt structures, consideration of cross-collateralised security, deeds of cross-guarantee and how those loans work together. 79 Ms Karam's evidence was directed, in part, to what she described as a common practice of lenders taking cross-securities, from related entities, the reasonableness of granting the CEG Direct Mortgage in the circumstances of this matter and whether the granting of the CEG Direct Mortgage and subsequent advances concurred with acceptable lending practice. 80 In summary, Ms Karam's opinion is that: (1) It is common practice for lenders to take "cross-securities" from related entities (often referred to as cross-collateral). It is not possible to prepare an exhaustive list of the sort of circumstances in which a lender takes cross-securities from related entities, but it would be rare for a lender not to take cross-securities from related entities in circumstances where the lender considered the security proffered by the related entity borrower inadequate to secure the proposed loan; (2) It was reasonable for the Company to enter into the CEG Direct Mortgage, in the circumstances as they existed at the time of the execution of the CEG Direct Mortgage, taking into account the adequacy of existing securities, requests for further advances and contemplation of further advances; and (3) CEG acted in respect of the CEG Direct Mortgage and subsequent advances in accordance with reasonably accepted lending practices for a similar lender, taking into account that the security over the Land was second ranking security. 81 Ms Karam was cross-examined. Report - Section 5 82 In the first part of her Report (Section 5, Part 1), Ms Karam dealt with cross-securities and related entities, expressing the opinion that it is common practice for a lender to take cross-securities from related entities. 83 In cross-examination, Ms Karam confirmed she was not instructed that Datong, Futong and Runtong were related entities but the searches she conducted revealed some commonality of directors between the three companies and some commonality of shareholders between the three companies. 84 Although questioned as to whether Ms Karam considered the three companies were related, she clarified that she was referring to the three companies as being "related entities" in the Corporations Act sense and not "related corporations". She considered the companies were "related entities" because they had two common directors and common shareholders at the relevant time so as to come within the definition of "related entity" in s 9 of the Act. 85 Whilst the searches Ms Karam conducted across the three companies revealed that some of the shares were beneficially owned, others were not beneficially owned. In the latter case, she was unable to obtain any information as to who it was that those individuals held the shares. So too, there was no indication of a holding company for any of the three companies and Ms Karam found it difficult to identify how any holding company sat within any group structure, accepting that she was unable to point to a holding company for any of the three companies. Report - Section 6 86 In the second part of her report (Section 6, Part 2), Ms Karam dealt with the reasonableness of the Transaction in granting the CEG Direct Mortgage in the circumstances as they existed at the time of the execution of the CEG Direct Mortgage. In forming her opinion, Ms Karam addresses that question in three parts: (1) The first is the relationship between Runtong, Datong and Futong as related entities and as part of a "property development group"; (2) The second is the circumstances as they existed at the time of the execution of the CEG Direct Mortgage, including the adequacy of the existing securities, requests for further advances and contemplation of further advances; and (3) The third is whether it was reasonable for Runtong to enter into the CEG Direct Mortgage in the circumstances as they existed at that time, ie 12 December 2014. The relationship between Datong, Futong and Runtong 87 As to the first of the three parts and the relationship between, Datong, Futong and Runtong as related entities and as part of a "property development group", Ms Karam refers to the "Datong Group". 88 Ms Karam engaged in a circular reasoning process by considering that corporate groups are related entities in the sense that because they were related entities then by extrapolation they are members of a corporate group. Ms Karam confirmed she was not instructed that there was such a group but that information came from a number of documents which had been subpoenaed by CEG from the National Australia Bank which referred to an overseas parent company in China, in particular a document titled "Property Client Valuation-Development" under the group name, "Australian Datong Group" dated July 2016 (July 2016 document) (Exhibit P1, p 1075). Ms Karam confirmed that a lot of the information she has recorded in her Report has the July 2016 document as its source and it forms the basis of a significant part of the Report. 89 Ms Karam accepted that the July 2016 document is dated some 18 months after the CEG Direct Mortgage was granted, however she observed that the July 2016 document referred to the scenario that took place with Aria on Gouger, being the Futong land. She observed that the National Australia Bank had dealings with what they referred to as the "Datong Group". 90 Ms Karam was unable to conclude from the information available how each of six entities she identified at [6.5] of her Report, which included Datong, Futong and Runtong, interacted with other related entities and formed part of the "Datong Group". As noted, she was also unable to identify either a holding company or an overseas parent company. 91 Nonetheless, by reference to the July 2016 document which refers to Datong (China) and Datong (Australia), Ms Karam formed the view that it appeared that Runtong, Datong and Futong are related entities and "… in some way form part of a larger property development group with an overseas parent" notwithstanding she was unable to identify that parent. 92 Whereas Ms Karam had not been able to ascertain the precise nature of the "Datong Group" operations or corporate structure, it appeared to her that the U2 development proceeded with Runtong as owner of the Land and Datong the appointed developer of the Land. Ms Karam considered a similar structure was utilised in respect of the Aria development on the Futong land before setting out a diagram which documented her understanding of the relationship between the three companies (Exhibit P1, p 1219). I am prepared to accept that the diagram Ms Karam prepared identifies the assets of Runtong, Datong and Futong respectively and the mortgages of each of the three companies to the National Australia Bank and to CEG but that is the extent of it. In so far as Ms Karam identifies Datong as the developer of both the Futong land and the Land, that is an inference which she has drawn which I am also prepared to draw from the documentation. The detailed diagram she refers to in Appendix 1 to her Report provides more information as to the corporate details but goes no further. 93 However, insofar as Ms Karam concludes that Datong, Futong and Runtong were a part of a group known as the "Datong Group", with respect, that is no more than speculation on her part. 94 The fact that the National Australia Bank referred to the "Australian Datong Group" carries no or very little weight. The mere label applied by staff of the National Australia Bank may be nothing more than convenience. Further, whereas it may be the case that the "Datong Group" has carried out numerous property developments overseas, that does not translate into Futong and Runtong being part of a "property development group" involving the Australian company, Datong. 95 None of the directors of Datong, Futong and Runtong gave evidence. To that extent, I am being asked to infer that the relationship between the three companies as related entities is such that they form part of a "property development group". I am not prepared to draw the inference that the three companies, simply by reason of having common directors, nonetheless formed part of a "property development group", with no identifiable holding company and/or overseas parent. Distilled to its basic facts, CEG's case is that because both Runtong and Futong used Datong as a developer and there were some common directors, somehow these companies formed part of a "property development group". The paucity of the evidence presented as to any relationship between the three companies, whatever that may have been, including happenstance, in circumstances where there were a number of other directors who were not directors of Runtong and a number of different shareholders both beneficial and otherwise, does not allow such an inference to be drawn. 96 It is for these reasons that although Runtong comes within the definition of a "related entity" in s 9 of the Act, I do not accept that Runtong formed part of a "property development group" with Datong and/or Futong. The circumstances as they existed at the time of the execution of the CEG Direct Mortgage, including the adequacy of the existing securities, requests for further advances and contemplation of further advances 97 As to the second of the three parts, Ms Karam also relied on the July 2016 document to provide factual background as at July 2016. To the extent Ms Karam considered the position as at 12 December 2014, she believed the facts extracted in the July 2016 document held true; that is the facts stated in a National Australia Bank document in July 2016 provide a basis to extrapolate backwards a factual position in 2014. I do not accept that is a legitimate approach to have taken. 98 Ms Karam accepted that construction of the U2 development did not commence until on or around October 2015 which was the month in which the first payments were made to Built Environs. It is also an agreed fact. However, the July 2016 document records on page 6 that at that stage no contract had been signed with Built Environs and Datong, who is identified in the July 2016 document as "Developer" is recorded as being in "… detailed and advanced negotiations with the preferred contractor, Built Environs; however execution is pending confirmation of financial arrangements." It is also noted that the contract was unexecuted and not in final form. 99 Although construction may well have started in October 2015, it was clearly at a very early stage in July 2016. 100 Ms Karam accepted the proposition put to her in cross-examination that based on the National Australia Bank documents, the directors of Datong or Futong or Runtong were investigating the market for pre-sales for the U2 development as at September 2014. I am prepared to infer that some early work had been done in terms of feasibility as at 12 December 2014. 101 Ms Karam accepted that as at December 2014, no money had been lent directly to Runtong by CEG and that eventually, just over $10 million was advanced by CEG either directly to Runtong or to Built Environs for the U2 development. 102 Ms Karam also accepted the CEG Direct Mortgage secured a loan to Datong and Futong and that when Runtong gave the CEG Direct Mortgage, it was not primarily liable for any of the approximately $15 million advanced to that part but by giving, at least, the CEG direct mortgage, it created a contingent liability in the event other parties could not meet those debts. 103 Ms Karam agreed that if there was no loan document that named Runtong as a primary debtor or borrower, at least under its seal, for the $10 million paid to Built Environs, she was prepared to accept as a fact that Runtong was not a primary debtor or borrower. However, in re-examination, by reference to a Variation Agreement dated 28 October 2015 (Annexure LKO-14) in which recital F records that the Borrower, being Datong and Futong and the Guarantor, being the Four Guarantors together with Chenhao Liang and Runtong, have requested that CEG make an additional advance of $2.5 million under the Loan Agreement dated 26 September 2014, Ms Karam considered that liability still sits with the Borrowers and Guarantor. 104 That may be so, but the fact remains there is no loan document that names Runtong as a primary debtor or borrower. To the extent that by reason of documents entered into some months after the granting of the CEG direct Mortgage, Runtong continues to be exposed to a contingent liability for the liabilities of other parties incurred prior to 12 December 2014 does not impact on Runtong's circumstances as they existed as at 12 December 2014. 105 Ms Karam gave two examples in which cross-securities may be given, however both the examples rely upon Runtong being part of a corporate group. 106 It is a central assumption made by Ms Karam in forming her opinion as to the reasonableness of the Transaction in granting the CEG Direct Mortgage, she considered the relationship between Datong, Futong and Runtong as related entities and part of a "property development group". It is on the basis of that assumption that Ms Karam considered the circumstances as they existed at the time of the execution of the CEG Direct Mortgage including the adequacy of existing securities, requests for further advances and contemplation of further advances and whether it was reasonable for Runtong to enter into the CEG Direct Mortgage in the circumstances as they existed on 12 December 2014. 107 Whereas by reason of common directors it may be that Runtong was a related entity within the meaning of the Act to both Datong and Futong, the evidence falls far short of establishing that Runtong, Datong and/are Futong are part of a "property development group". To that extent, it follows that Ms Karam's opinion is based on an assumption which I have not accepted. Whether it was reasonable for Runtong to enter into the CEG Direct Mortgage in the circumstances as they existed at the time of the execution of the CEG Direct Mortgage, ie 12 December 2014 108 The third part of Ms Karam's consideration of the reasonableness of the Transaction considers whether it was reasonable for Runtong to enter into the CEG Direct Mortgage in the circumstances as they existed as at 12 December 2014. 109 Ultimately, Ms Karam concluded that as she did not hold the financial records of Runtong as of 12 December 2014 nor any internal memos recording Runtong's decision to grant the CEG direct mortgage, she was unable to comment on the totality of Runtong's circumstances at the time of the transaction and it did not form part of her analysis. 110 Nonetheless, as I have noted above, Ms Karam's opinion is that it was reasonable for Runtong to enter into the CEG Direct Mortgage, in the circumstances as they existed at the time of the execution of the CEG Direct Mortgage, taking into account the adequacy of existing securities, requests for further advances and contemplation of further advances. 111 With respect to Ms Karam, I have not accepted the central assumption upon which Ms Karam founds her opinion. Accordingly, I do not accept that opinion. Report - Section 7 112 The third part of Ms Karam's report is contained in Section 7 where Ms Karam considered accepted lending practices. 113 Ms Karam concludes that CEG advancing the Runtong advances appeared to be a reasonable lending practice. 114 Whether or not that is the case is not the issue. Section 588FDA(1)(c) refers to an expectation that a reasonable person in the company's circumstances "… would not have entered into the transaction" having regard to the various matters set out in that subsection. Notwithstanding one of the matters to which regard is to be had when considering s 588FDA(1)(c) is the "respective benefits to other parties to the transaction of entering into it" the fact that in Ms Karam's opinion CEG's provision of advances to Runtong was a reasonable lending practice, viewed from its perspective, is not the question to be determined. 115 It is for the reasons set out above that I do not accept Ms Karam's opinion evidence. Runtong's circumstances 116 There is no evidence that Runtong had requested the advance of any money at the time the CEG Direct Mortgage was granted and Runtong was not a primary debtor or borrower named in any Loan Agreement prior to 12 December 2014 or for that matter at any time thereafter. 117 Further, the Third Loan Agreement (Annexure LKO-9 to the Owens affidavit), also dated 12 December 2014, is as between Datong and Futong as borrowers and CEG as lender. The Four Guarantors named as parties to the Third Loan Agreement are Jin Liang, Yong Liu, Ping Huang and Shaohui Liu although Chenhao Liang and Runtong were identified as Guarantors. 118 Viewed as at 12 December 2014, I find that the circumstances existing at the time Runtong effected a disposition of the Land by the grant of the CEG Direct Mortgage were: (1) Jin Liang and Ping Huang were directors of Runtong, Futong and Datong. Other directors of Runtong were Yong Liu, Chenhao Liang, and Shaohua Liu; (2) Jin Liang, Yong Liu and Shaohua Liu were shareholders in Runtong with each holding their shares beneficially. They were also shareholders in Futong and Datong but did not hold their shares beneficially; (3) Although both Futong and Runtong are "related entities" within the meaning of s 9 of the Corporations Act and even assuming both Futong and Runtong used the services of Datong as developer for the land owned by each of Futong and Runtong respectively, there was no relationship between the three companies whether as part of a "property development group" or otherwise; (4) The Land was subject to a caveat number 11829928 registered by the Corporation of the City of Adelaide (Council). In the JLL valuation dated 14 February 2017 (Exhibit P1, p 836 at 854-855; Exhibit LKO-18) the details of the caveat are set out in the following terms: A caveat by the Corporation of the City of Adelaide (ACC) protects its interest as purchaser pursuant to a repurchase contract condition which as put in place as part of the acquisition of the land by the current owner from ACC in 2012. In the event that the owner of the Subject land does not commence construction of the proposed development of the land within 18 months of settlement and complete the development within 36 months of commencing the development, the repurchase of the land by ACC is instigated at the lesser of market value of the land (as: determined (by a valuer) or the original purchase price ($2,200,000 GST Exclusive). The purchase of the land settled on 8 October 2012 such that the development was required to have commenced by April 2014. The caveat protected the Council's equitable estate and interest in the Land under the contract for the sale and purchase of the Land. (5) There is no suggestion that Runtong was being pressured by the Council to commence construction of the U2 development. Had that been the case one might have expected Loan Documentation identifying Runtong as a primary borrower to have been created prior to or at shortly after April 2014; (6) Runtong had no apparent need to borrow money at the time and there was nothing that amounted to an imperative for Runtong to grant the CEG Direct Mortgage. Section 588FDA(1)(c) - Consideration 119 Anastassiou J observed in Aviation 3030: at [308]-[314] that the test in section 588FDA(1)(c) is: (i) To be applied to the transaction "taking into account the circumstances that exist at the time of the transaction is entered into" which requires the Court to consider "all relevant matters "with each case to be "… considered in accordance with its peculiar facts, circumstances and context". Consideration of the circumstances of the company also requires consideration of "the state of knowledge of those who are the directing mind of the company, such as its controlling director or directors." (citations omitted); (ii) The reference in s 588FDA(1)(c)(iv) to "any other relevant matter" recognises that relevance depends on the facts and circumstances of the particular case. (citations omitted); (iii) "Normal commercial practice" is a relevant (but not determinative) consideration when considering what a reasonable person in the company's circumstances would do. The company's status "and what flows from that; its controllers, shareholders, business and other activities; and the facts and circumstances of, and surrounding, the transaction" are also relevant considerations which may also include (but need not) the company's financial condition at the relevant time. (citations omitted); and (iv) At [314], "Where there is limited evidence of the nature or purpose of a transaction, but "the surrounding circumstances show it to be a departure from normal commercial practice and to raise inferences as to a lack of benefit to the company, detriment caused to the company, or benefit accruing to other parties", then "absent some commercial explanation", courts may infer that the transaction is an unreasonable director-related transaction: Frost at [89]. In such circumstances, a defendant may be said to bear an evidentiary onus of raising some commercial explanation for the transaction: Frost at [90]. Sections 588FDA(1)(c)(i) and (ii) 120 These subsections refer to the benefits (if any) and detriment to the company of entering into the transaction. 121 Although the plaintiff only identifies the CEG Direct Mortgage as the impugned transaction, for the purposes of s 588FDA, the authorities make it clear that, the "The 'company's circumstances' encompass all relevant matters, starting with its status as a company and what flows from that; its controllers, shareholders, business and other activities and the facts and circumstances of, and surrounding, the transaction": Weaver at [91] McClure P; Golden Heritage Golf Pty Ltd (in liq) (recvrs and mngrs apptd) v Sun [2016] VSC 167; 113 ACSR 550 at [73] (Sifris J). 122 The focus in s 588FDA is not on the conduct of the Directors or the other directors of Runtong, but the reasonableness of Runtong's conduct, objectively assessed, in entering into the transaction: Weaver at [79] (McClure P); Smith at [104] (Gleeson J). 123 Notwithstanding the focus of the plaintiff's case is on the CEG Direct Mortgage, the facts and circumstances surrounding that Transaction include the granting by Runtong on 12 December 2014 of the General Security Agreement and the Runtong Guarantee. Further, under the terms of the CEG Direct Mortgage, the covenants contained within the Third Loan Agreement in respect of the Mortgage Moneys, (defined in the CEG Direct Mortgage as $15,110,715.07) are incorporated as part of the CEG Direct Mortgage. 124 Accordingly, any consideration of whether it may be expected that a reasonable person in Runtong' circumstances would not have entered into the Transaction cannot be considered by reference to the CEG Direct Mortgage alone. Benefit 125 Viewed in context against the facts and circumstances of and surrounding the transaction, such as I have been able to ascertain them, the issue arising on s 588FDA(1)(c)(i) is what was the benefit to Runtong in granting the CEG Direct Mortgage. 126 The evidence in this matter is incomplete and lacking a number of important respects. 127 There is no direct evidence of any imperative for Runtong to grant the CEG Direct Mortgage and CEG asks the Court to draw a number of inferences from the material before it. 128 Although a lack of evidence from CEG itself is explicable by Mr Ventrice's death, no evidence was called from either of the Directors or any other of Runtong's directors. As I understand it, those individuals are no longer in Australia but there is no evidence as to any attempt by CEG to have any of Runtong's directors give evidence either in person or otherwise. I am not asked to make a Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 inference and I do not do so but the drawing of inferences is not a process by which the absence of, or deficiencies, in evidence is filled. 129 One such inference the Court is asked to draw is that the U2 development on the Land was in contemplation at various times. CEG points to an extract from its file (Annexure LKO-8 to the Owens affidavit, Exhibit P-1, p 626) in which there is an undated handwritten entry "Datong Funds to commence U2 $60 m". That is the only reference to that development in the handwritten note. CEG submits that the U2 development must therefore have been the subject of some discussion. That may be so, but nothing can be taken from that handwritten note. In particular, no inference can be drawn as to Runtong's need for funding as at 12 December 2014. 130 CEG also refers to p 627 of Exhibit P-1 which is a document contained within the CEG file titled "Loan Request" for a $6 million Line of Credit which, as I understand it, led to the Third Loan Agreement. 131 The Loan Request refers to a "Loan Purpose" as construction funding over an 18 month period and identifies the Land as one of the securities. The proposed exit strategy was overseas funding from China and the sale of assets. It notes that the Loan Request is associated with two prior loans totalling at that stage $9,110,715.07. 132 Other than the reference to overseas funding from China there is no evidence that funding occurred, was to occur, or was the subject of confirmed funding. To the extent I am asked to infer that there was sufficient background funding to justify Runtong entering into the Transaction, I am not prepared to do so. 133 At pp 624-625 of Exhibit P-1 is a further document from the CEG file titled "Loan Summary". It records that the purpose of the loan as being "To cover prelim marketing, Display suite, GST Aria & General cashflow. $4 m-17/12/201 (sic 2014), $2 m-5/1/2015." 134 Although there is a reference to "GST, Aria" and a reference to "display suite" in the Loan Summary, I am asked to infer that because of the subject line in what appears to be a CEG internal email sent on 11 July 2019 forwards an email dated 12 December 2014 from Ping Huang to "Jim" attaching a "licence agreement regarding U2 disply" that one of the reasons Runtong gave security was that a display suite was to be constructed for the purpose of selling the apartments to be constructed on the U2 development (Annexure LKO 8). 135 I am not prepared to draw that inference. First, the document is incomplete. Second, it is unexecuted. Third, the land the subject of the "Licence Agreement" is different land that is owned by Runtong. 136 The purpose behind the advance of $6 million has not been explained. I am asked to infer that a $6 million line of credit was obtained for the purposes of the U2 development, however the evidence falls far short of me being able to draw such an inference and I decline to do so. 137 There is no evidence to suggest it was to Runtong's benefit to encumber the Land by granting the CEG Direct Mortgage whether for cash flow purposes or otherwise. Further, there was no suggestion any money was actually advanced to Runtong until October 2015. 138 Overall, the evidence does not reveal any adequate commercial explanation for the Transaction, nor does it reveal any benefit to Runtong as at 12 December 2014. 139 Taking into account the circumstances as they existed at the time when the CEG Direct Mortgage was granted, I find that it may be expected that a reasonable person in Runtong's circumstances would not consider there was any benefit to Runtong in the grant of the CEG Direct Mortgage. Detriment 140 Runtong already had an existing relationship with the National Australia Bank. In granting the CEG Direct Mortgage, Runtong agreed to be bound by the covenants in the Third Loan Agreement including the Runtong guarantee and the General Security Agreement. 141 The terms of the CEG Direct Mortgage are such that Runtong provided security for other parties' borrowings from a mezzanine lender at an effective monthly interest charged on the initial $2.5 million "loan settlement" and subsequent redraws from time to time at up to 2.3% per month on the total principal advanced from time to time: First Cooper affidavit [22], Annexure NDC-13. 142 Further, the Third Loan Agreement (Annexure LKO-9) was for a term of six months, with the debt of $15,110,715.07 to be repaid in full on or before 14 May 2015. 143 In making the observation that CEG is a mezzanine lender charging a significant rate of interest, no criticism is levied at CEG. CEG entered into agreements to advance funds to Datong and Futong. The focus is not on the role of CEG but on Runtong entering into the Transaction. 144 In the Owens affidavit, Mr Owens deposes to further advances: Owens affidavit [18]-[22]. Although there was no evidence of any intention by Datong or Futong to obtain further advances, the loan documentation for each of those advances varies the commercial details which appeared in the First Loan Agreement, which in turn was varied by the commercial details in the Second Loan Agreement and the Third Loan Agreement. The point is that by entering into the CEG Direct Mortgage, Runtong was exposed to a potential liability limited only by the extent of further advances to Datong and Futong, and in any event as at 12 December 2014 a sum identified in the terms of the mortgage in excess of $15 million. 145 In the circumstances, the detriment to the company is obvious and substantial. Exposing what appears to be Runtong's only asset to sale by CEG in the event loans obtained by other parties were not repaid in accordance with the terms of their loan agreements and with the potential of still further advances to Datong and Futong, is fraught. 146 Taking into account the circumstances as they existed at the time when the CEG Direct Mortgage was granted, I find that it may be expected that a reasonable person in Runtong's circumstances would not have entered into the Transaction in view of the detriment to Runtong in exposing it to a contingent liability as a consequence of loans entered into by other parties as primary debtors and in relation to prior developments in which Runtong had no interest for a sum in excess of $15 million. Section 588FDA(1)(c)(iii) 147 The only parties to the CEG Direct Mortgage were Runtong and CEG. At the relevant time, CEG obtained a benefit by reason of additional security. In view of the fact that CEG was the only party with the Transaction who benefited from it, I find that it may be expected that a reasonable person in Runtong's circumstances would not have entered into the Transaction. Section 588FDA(1)(c)(iv) 148 Other relevant matters are all the facts and circumstances of, and surrounding, the Transaction: Weaver at [91] (McClure P). 149 The plaintiff concedes that the $10.16 million advanced against the U2 development should be set off against the $12.107 million received by CEG and therefore to the benefit of the directors. It does on the basis that the Runtong Advances totalling $10.16 million was a relevant matter for the purposes of this subsection. It makes the concession on the basis that if Runtong's net equity in the Land had not been reduced by the Transaction, it might have been difficult to contend that Runtong acted unreasonably in granting the CEG Direct Mortgage at the relevant time. 150 I have some difficulty with that concession. If a transaction is entered into for the purposes of meeting an obligation the company has incurred, which I have found was the case, section 588FDA(2) makes it clear the test in s 588FDA(1)(c) is to be applied to the transaction taking into account the circumstances as they exist at the time when the transaction is entered into. The disposition of the Land by Runtong by the grant of the CEG Direct Mortgage was for the purpose of securing Datong and Futong's borrowings in the event of default. Accordingly, the fact of subsequent Runtong Advances, by definition, is not relevant to the question of whether the Transaction is an unreasonable director-related transaction. Having said that, the possibility of subsequent advances to Datong and Futong is a relevant factor. 151 On the basis that other relevant matters are all the facts and circumstances of, and surrounding, the Transaction as I have found them, I find that it may be expected that a reasonable person in Runtong's circumstances would not have entered into the Transaction. Conclusion 152 Each of the requirements set out in s 588FDA(1)(c) need to be satisfied for a transaction of a company to be an unreasonable director-related transaction. 153 I am satisfied the plaintiff has met the requirements of s 588FDA(1)(a), (b) and (c). 154 In all the circumstances, I find that the Transaction by which Runtong granted the CEG Direct Mortgage on 12 December 2014, was an unreasonable director-related transaction. 155 It follows that I am satisfied the Transaction is a voidable transaction: s 588FE(6A). Fourth issue - Is the plaintiff entitled to the relief sought? 156 The plaintiff seeks the following relief: (1) A declaration that the Transaction is voidable as an unreasonable director-related transaction pursuant to ss 588FE and 588FDA of the Act; (2) A declaration pursuant to s 588FF(1)(h) of the Act that the CEG Direct Mortgage is void ab initio; (3) In the alternative to para (2) above, a declaration pursuant to s 588FF(1)(j) of the Act that the CEG Direct Mortgage was unenforceable ab initio; (4) An order pursuant to ss 588FF(1)(a) and 588FF(4) of the Act that CEG pay to Runtong the amount of $2,048,866.01; (5) In the alternative to para (4) above, an order pursuant to ss 588FF(1)(c) and 588FF(4) of the Act that CEG pay to Runtong an amount that fairly represents the benefit CEG received from the Transaction. Declarations 157 The plaintiff seeks a number of declarations. The Court has a wide discretionary power under s 21 of the Federal Court of Australia Act 1976 to make declarations: Parker Trading as on Grid off Grid Solar v Switchee Pty Ltd Trading as Australian Solar Quotes [2018] FCA 479, [92] (Gleeson J); Australian Competition and Consumer Commission v Oscar Wylee Pty Ltd [2020] FCA 1340, [85] (Katzmann J). 158 Given the power to grant a declaration is a discretionary remedy, a declaration should not be made if it will produce no foreseeable consequences for the parties: Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564, 582 (Mason CJ, Dawson, Toohey and Gaudron JJ) or if no good purpose would be served by granting it: Heydon JD, Leeming MJ, Turner PG, Meagher, Gummow and Lehane's Equity: Doctrines & Remedies (5th ed, Butterworths, 2014) [19-300]. 159 I am prepared to make a declaration that the Transaction is an unreasonable director-related transaction within the meaning of s 588FDA(1) because it records the Court's disapproval of Runtong entering into the Transaction and acts as a deterrent to others. 160 As to the remaining declarations sought, no good purpose is served by making declarations that the CEG Direct Mortgage is voidable, or void, or in the alternative unenforceable ab initio by reason of it being an unreasonable director-related transaction. Such declarations serve no useful purpose in circumstances where CEG has already sold the Land as mortgagee in possession. 161 Further, for the purposes of s 588FF(1) to engage the section, all that is required is for the Court to be satisfied that a transaction of the company is voidable because of s 588FE. I have already found that I am satisfied that is the case. Section 588FF 162 Section s 588FF(1) is conditioned by s 588FF(4) in the sense that if a transaction is a voidable transaction solely because it is an unreasonable director-related transaction, the court may make orders under s 588FF(1) only for the purpose of recovering for the benefit of the creditors of the company the difference between the matters set out in s 588FF(4)(a) and (b). Accordingly, I commence by considering whether the plaintiff is entitled to the relief it seeks in (4) and/or (5) above, namely an order pursuant to ss 588FF(1)(a) or (c) and 588FF(4) of the Act that CEG pay to Runtong the amount of $2,048,866.01. 163 Section 588FF(4) provides that the court may make orders under s 588FF(1) only for the purpose of recovering for the benefit of the creditors of the company the difference between: (1) The total value of the benefits provided by the company under the transaction; and (2) The value (if any) that it may be expected that a reasonable person in the company's circumstances would have provided having regard to the matters referred to in paragraph s 588FDA(1)(c). 164 The section contains a number of preconditions. The first is that the transaction in question is voidable solely because it is an unreasonable director-related transaction. This matter proceeded on the basis of the sole ground advanced by the plaintiff that the Transaction is an unreasonable director-related transaction and accordingly I find it is solely an unreasonable director-related transaction within the meaning of the section. 165 The second precondition is that an order may only be made under s 588FF(1) for the purpose of recovering an amount calculated in accordance with s 588FF(4) for the benefit of the creditors of the company 166 A report to creditors prepared by the plaintiff as Joint and Several Administrator of Runtong for the purposes of the Second Meeting of Creditors of Runtong (under Administration) held 12 April 2018: Exhibit P1, p 1291 at p 1295 noted unsecured non-priority creditors in the event of a Deed being entered into as in excess of $3.5 million and at p 1320 noted proofs of debt lodged at that stage totalling $5,672,968. There is no issue that there are a number of outstanding creditors. 167 For the purpose of calculating the difference in value in s 588FF(4), the section sets two benchmarks in (a) and (b). The benchmark in (b) refers to the matters in s 588FDA(1)(c). 168 There is no equivalent of s 588FDA(2) in s 588FF such that I consider that for the purposes of the s 588FF(4)(a) and (b), the question of the total benefits provided by the company under the transaction and the value (if any) that it may be expected in a reasonable person in the company's circumstances would have provided having regard to the matters referred to in paragraph s 588FDA(1)(c) is not to be assessed only as at the time the transaction was entered into. 169 That is because the exercise in s 588FF(4)(a) is directed at recovering for the benefit of the creditors of the company the difference between the total value of the benefits provided by the company under the transaction. The reference to "total value" contemplates that the value of the benefits provided by the company under the transaction may have varied over time from that which was the case at the time the transaction was entered into. 170 So too for the purposes of s 588FF(4)(b), the value that may be expected a reasonable person in the company's circumstances would have provided having regard to the matters referred to in paragraph s 588FDA(1)(c) may also have varied in the intervening period between the time the transaction was entered into and/or the obligation incurred and the time at which the obligation was complied with. 171 In Vasudevan: at [30], Nettle JA considered that s 588FF(4) conferred a broad discretion on the court to do what is just and equitable in the particular circumstances of each case and so thereby to avoid the possibility of capricious and unfair consequences for innocent third parties. His Honour's view, with which I agree, is reinforced by the construction of s 588FF(4) set out above that there is no temporal restriction in s 588FF(4). That is to say, the value (if any) that may be expected that a reasonable person in the company's circumstances would have provided in regard to the matters referred to in s 588FDA(1)(c) takes into account any change in value of the benefit and any change in position by another party to the transaction. 172 As I have noted, the evidence in this matter is imprecise and unsatisfactory in a number of important respects. There are a number of potential approaches to the assessment of the benefit that may be recovered for the creditors of the company, however they involve little more than speculation. Questions such as whether Runtong would or could have proceeded with a first-tier lender such as the National Australia Bank in preference to a mezzanine lender and the terms of any loans are impossible to determine. Embarking upon any such exercise involves reconstruction in a vacuum, is inherently unsatisfactory and highly likely to visit unfairness. 173 Further, it was not until February 2017 that Runtong provided to CEG a valuation report of the U2 development prepared by JLL (LKO-18). That valuation records that at that stage, the Land was vacant with no improvements. That is contrary to the agreed fact that construction had started in 2015. Faced with that apparent contradiction, I infer that any construction that had been carried out on the Land was minimal. 174 Nonetheless, value of the Land increased during the intervening period. That increase in value may be attributable to the passage of time or to the extent of work done on the Land. In any event, the benefit to the directors increased. The reality is in all likelihood due to both but there is no evidence as to the increase in value of vacant land in that location or the effect on that value of the work that had been carried out, whatever that may have been. Under those circumstances, I am quite unable to determine whether the increase in the value of the Land was due to one or other cause. In the circumstances, I proceed on the basis that the value of the Land increased because of the construction work done on the land which came about as a result of a change in position on the part of CEG in making the Runtong Advances. The assessment of the value of any benefit under s 588FF(4) 175 In any event, doing the best I can and conscious of the broad discretion in the Court to do what is just and equitable in the particular circumstances of each case and so thereby to avoid the possibility of capricious and unfair consequences for innocent third parties, I assess the recoverable benefit under s 588FF(4) as follows: Section 588FF(4)(a) 176 I find that for purposes of s 588FF(4)(a) of the Act the total value of the benefits provided by Runtong to CEG in the Transaction, after the payment of the expenses of settlement and CEG's solicitors fees associated with the mortgagee sale, is $12,143,003.07. Section 588FF(4)(b) 177 The plaintiff contends that the value that it may be expected that a reasonable person in Runtong's circumstances would have provided to CEG, for the purposes of s 588FF(4)(b) of the Act, having regard to the matters referred to in s 588FDA(1)(c) of the Act, was the amount of the Runtong Advances, agreed between the parties at $10,160,200.07. 178 The plaintiff concedes that the $10,160,200.07 should be set off against the $12,143,003.47. As I understand it, the basis of that concession is that since the value of the Land increased as a result of the work done on the U2 development, it may be expected that a reasonable person in the company's circumstances would have provided security to the value in the amount of the Runtong Advances. 179 CEG contends that such an approach ignores Runtong's liability for interest and costs under the CEG Direct Mortgage and associated loan and guarantee documents and that it is unrealistic to expect a lender, where there is prior ranking security in favour of the National Australia Bank, to make the Runtong Advances secured by a second mortgage on terms that do not involve any liability for interest or costs of default. 180 The plaintiff contends that the CEG Direct Mortgage contains no provision imposing any obligation on Runtong to pay interest or costs of default. 181 A number of points may be made in relation to CEG's contention. 182 First, the Third Loan Agreement imposes an obligation upon Borrowers to pay interest. To the extent the covenants within the Third Loan Agreement impose an obligation upon the Borrowers to pay interest, there is no obligation within that document for Runtong to pay interest. 183 Second, there is no evidence of any obligation on the part of Runtong to pay interest under the terms of the CEG Direct Mortgage. The mortgage provides in clauses 4 and 5 of the Schedule: Annexure NDC-9 to the first Cooper affidavit; Exhibit P1, p 123 at p 125: 4. You acknowledge that, as at the date of this mortgage, we have agreed to lend $15,110,715.07 to you or at your request. This amount, together with any further advances and other amounts more fully described in the Memorandum, is called the Mortgage Moneys. 5. You acknowledge indebtedness to us for the Mortgage Moneys and agree to pay to us the Mortgage Moneys, together with interest and all other money due to us at the times agreed with us, or failing agreement on demand. You agree that the covenants set out in the Loan Agreement(s) in respect of the Mortgage Moneys, are deemed to be covenants included in this mortgage. 184 The Standard Terms and Conditions incorporated into the mortgage: Annexure NDC-9, Exhibit P1, p 131, provides in clause 5 that "The Principal Sum and interest thereon (if any), shall be paid to the Lender in the manner and at the times stipulated in the Covenants for Payment." There is no evidence of the manner or the time at which interest is to be paid under the CEG Direct Mortgage. 185 Third, as to the costs associated with default under the mortgage, clause 6 of the Standard Terms and Conditions provides for the recovery of expenses associated with the exercise by the Lender of any of the Lender's rights and powers under the mortgage. Those expenses have been accounted for in the deduction from the net sum due on settlement of CEG's solicitor's fees in the sum of $65,765.61. There is no evidence of any other expenses associated with the mortgagee sale. 186 Next, CEG does not accept that the quantum of the benefit to the directors, being the eventual reduction of the directors' liability by reason of the CEG Direct Mortgage, informs the relief available to the plaintiff, namely the difference between the total value of the benefits provided by Runtong to CEG under the CEG Direct Mortgage and the value that it may be expected that a reasonable person in Runtong's circumstances would have provided to CEG. 187 CEG advances that contention on the basis that as at 12 December 2014, it may be expected, having regard to the matters set out in s 588FDA(1)(c) of the Act, a reasonable person in Runtong's circumstances would have granted the CEG Direct Mortgage. Specifically, that a reasonable person in Runtong's circumstances would have done so given the subsequent advance of $10.16 million to Built Environs for the purposes of developing the Land. 188 That is a contention which seeks to benefit from hindsight. It assumes that as at 12 December 2014, a reasonable person in Runtong's circumstances would be expected to have contracted with CEG to borrow money on the terms that it did. On the findings I have made in this matter that is not the case. 189 Although the plaintiff refers to the sum of $2,048,866.01, that figure does not represent the difference between the total value of the benefits provided by Runtong ($12,143,300.47) and the Runtong advances of $10,160,200.07. That difference is $1,983,100.40 and I assess the benefit under s 588FF(4) in that sum. Orders under s 588FF(1) 190 There is a question which remains unresolved as to whether s 588F(1) confers a discretion or rather, jurisdiction. 191 The Full Court of this Court made reference to that unresolved question in Great Investments v Warner [2016] FCAFC 85; (2016) 243 FCR 516 at [141] (Jagot, Edelman and Moshinsky JJ). The Full Court found it unnecessary to decide that issue because assuming a discretion exists, no grounds were shown not to make an order as contemplated by s 588FF(1). On that basis, the Full Court proceeded on the assumption that the provision confers a discretion. 192 So too, in this matter, it is not necessary to decide that issue because on the assumption a discretion exists, no grounds have been shown not to make an order as contemplated by section 588FF(1). I proceed on the assumption the provision confers a discretion. 193 I have assessed the value of the benefit under s 588FF(4) as $1,983,100.40. That value was assessed in the exercise of the broad discretion of the Court to do what is just and equitable in the particular circumstances of each case and so thereby to avoid the possibility of capricious and unfair consequences for innocent third parties. 194 The plaintiff seeks an order under s 588FF(1)(a), that CEG pay to Runtong an amount equal to some or all of the money that Runtong has paid under the transaction. In the alternative, the plaintiff seeks an order under s 588FF(1)(c) that CEG pay to Runtong an amount that fairly represents the benefit CEG received from the Transaction. 195 In all the circumstances, I am not satisfied it is appropriate to order that CEG pay to Runtong an amount equal to some or all of the money that Runtong has paid under the Transaction. In my view that would be a capricious or unfair consequence for CEG. 196 I am, however satisfied that it is appropriate to order pursuant to s 588FF(1)(c) that CEG pay to Runtong an amount of $1,983,100.40 on the basis that that sum fairly represents the benefit CEG received from the Transaction. There will be an order accordingly. CONCLUSION 197 There will be a declaration that the grant of a mortgage from Runtong Investment and Development Pty Ltd (in liq) to the CEG Direct Securities Pty Ltd on 12 December 2014 is an unreasonable director-related Transaction within the meaning of s 588FDA of the Corporations Act 2001 (Cth). 198 There will be an order pursuant to ss 588FF(1)(c) and 588FF(4) of the Act that CEG pay to Runtong the sum of $1,983,100.40. 199 I will hear the parties on the question of interest and costs. I certify that the preceding one hundred and ninety-nine (199) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Sullivan. Associate: Dated: 12 January 2024