Appeal Outcome: Special leave granted by the High Court, 23 April 2010 s304/2009 [2010] HCATrans 97 New South Wales Court of Appeal CITATION: Chen v Marcolongo; Chen v Lym International Pty Ltd [2009] NSWCA 326 HEARING DATE(S): 8 & 9 July 2009 JUDGMENT DATE: 13 October 2009 JUDGMENT OF: Allsop P at 1; Giles JA at 28; Young JA at 30 40118/09 1. Appeal allowed 2. The declaration and orders of the Court made on 18 March 2009 and entered on 23 March 2009 in favour of the first respondent, Mrs Marcolongo, be set aside. 3. Order that Mrs Marcolongo's proceedings be dismissed with costs. 4. Order that Mrs Marcolongo pay the costs of the appeal but Mrs Marcolongo to have a certificate under the Suitors' Fund Act 1951. 40119/09 1. Appeal allowed in part. 2. Vary the order made by the Court on 18 March 2009 and entered on 19 March 2009 as follows: "(A) Delete orders 4 and 5 and substitute: DECISION: 4. Order that upon the plaintiffs and Westpac Banking Corporation agreeing that there can be an assignment of registered mortgage AC 5480628 to the first defendant with no future liability on the appellant or upon the first plaintiff tendering to the appellant the amount of money necessary to discharge the said mortgage, the appellant forthwith execute a transfer in registrable form of the Units in favour of the first plaintiff and do all things and take all other steps necessary to convey the Units to the first plaintiff. (B) Delete the words from order 8 "and to certify the results of the inquiry to the Court" and insert the words "and to give judgment for the party or parties whom such inquiry finds liable to pay monies to some other party." (C) Delete order 9(c). (D) (i) delete from order 17(a) the words "and Mrs Marcolongo"; (ii) add to the end of order 17(c) "provided that this order 17(c) shall cease to have effect upon the judgment in order 12 and the judgment in order 13 both being fully satisfied". (E) Delete from order 18(a) the words "and Mrs Marcolongo". (F) Add new order 24: "Liberty to any party to apply to a judge of the Equity Division on 5 days' notice to discharge any order that may have become otiose by way of changing circumstances and generally". 3. Order that the order for costs below stand. 4. Order that the appellant pays 95% of the costs of the first, second and third respondents and the whole of the costs of the fourth respondent as a submitting respondent. 5. The parties have 14 days to make any protest about the form of order or any clerical mistake in these reasons. CATCHWORDS: EQUITY – general principles – fiduciary obligations – scope and extent – conflict of interest and duty – fiduciary used power of attorney to sell property to himself – whether to set aside conveyance – obligation of plaintiff to do equity. - CONVEYANCING – s 37A of the Conveyancing Act – claim to declare conveyance void because of intent to defraud creditors – whether first respondent was a "person thereby prejudiced" – whether person with a claim for unliquidated damages in tort relating to development on another property of the second respondent pending in the District Court is a "creditor" under the section – whether first respondent has standing – distinction between determining standing and intention of defendant. - CONVEYANCING – s 37A of the Conveyancing Act – - intent to defraud creditors – whether dishonesty is necessary to find intent to defraud. Bankruptcy Act 1914 (UK), s 1(1)(b) Bankruptcy Act 1924 (Cth), s 52(b) Bankruptcy Act 1966 (Cth), s 121, s 122 Civil Procedure Act 2005 Companies Act 1943-1957 (WA), s 281 LEGISLATION CITED: Conveyancing Act 1919, s 37A Conveyancing Amendment Act 1930 Corporations Act 2001 (Cth), s 565, s 588FE(5) Law of Property Act 1925 (UK), s 172(1), s 207 Statute of Elizabeth (13 Eliz I, c 5) Suitors' Fund Act 1951 Uniform Civil Procedure Rules 2005, r 14.14 CATEGORY: Principal judgment Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461 Agricultural Mortgage Corp v Woodward [1995] 1 BCLC 1 Agricultural Mortgage Corp v Woodward [1995] BCLC 1 Allen v Bonnett (1870) LR 5 Ch App 577 Amann Aviation Pty Ltd v Continental Venture Capital Ltd [2004] NSWSC 228 Andrew v Zant Pty Ltd [2004] FCA 1716; 213 ALR 812 Barling v Bishopp (1860) 29 Beav 417; 54 ER 689 Barton v Deputy Commissioner of Taxation of the Commonwealth of Australia [1974] HCA 43; 131 CLR 370 Bill v Cureton (1835) 2 My & K 503; 39 ER 1036 Breen v Williams [1996] HCA 57; 186 CLR 71 Cadogan v Cadogan [1977] 1 WLR 1041 Cannane v J Cannane Pty Ltd; Cannane v Official Trustee in Bankruptcy [1998] HCA 26; 192 CLR 557 Cannane v Official Trustee in Banruptcy; Cannane v J Cannane Pty Ltd (in liq) (1996) 65 FCR 453 Chan v Zacharia [1984] HCA 36; 154 CLR 178 Davies v London and Provincial Marine Insurance Co (1878) 8 Ch D 469 Dewey v Bayntun (1805) 6 East 257; 102 ER 1285 Dunne v English (1874) LR 18 Eq 524 Dutton v Morrison (1809) 7 Ves 193 at 197; 34 ER 75 Electrical Enterprises Retail Pty Ltd v Rodgers (1988) 15 NSWLR 473 Emanuel Management Pty Ltd v Foster's Brewing Group Ltd [2003] QSC 205; 178 FLR 1 Ex parte Chaplin; Re Sinclair (1884) 26 Ch D 319 Ex parte Mercer (1886) 17 QBD 290 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; 37 ACSR 672 Freeman v Pope(1870) 5 Ch App 538 Friend v Brooker [2009] HCA 21; 83 ALJR 724 Gibb v Lombank Scotland Ltd [1962] SLT 288 Gonsalves v Debreczeni (1998) 9 BPR 16, 689 Green & Clara Pty Ltd v Bestobell Industries Pty Ltd (No 2) [1984] WAR 32 Green v Schneller [2001] NSWSC 897; 189 ALR 464 Griffiths v Falck [2008] NSWSC 998; 220 FLR 278 Hall v Poolman (2007) 65 ACSR 123 Hall v Poolman [2009] NSWCA 64; 71 ACSR 139 Hardie v Hanson [1960] HCA 8; 105 CLR 451 Hordern v Hordern [1910] AC 465 Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; 156 CLR 41 In re Carl Hirth; Ex parte The Trustee [1899] 1 QB 612 (CA) In re Fasey; Ex parte Trustees [1923] 2 Ch 1 CASES CITED: In re Maddever (1884) 27 Ch D 523 Langdon v Gruber [2001] NSWSC 276 Lloyds Bank Ltd v Marcan [1973] 1 WLR 339 Lloyds Bank v Marcan [1973] 1 WLR 1387 Lowther v Lowther (1806) 13 Ves Jun 95; 33 ER 230 Mackay v Douglas (1872) LR 14 Eq 106 Maguire v Makaronis [1997] HCA 23; 188 CLR 449 McKenzie v McDonald [1927] VLR 134 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; 110 ALR 449 Neesom v Clarkson (1845) 4 Hare 97; 67 ER 576 Noakes v J Harvy Holmes & Son (1979) 37 FLR 5 Official Trustee v Marchiori (1983) 69 FLR 290 P T Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515 Peldan v Anderson [2006] HCA 48; 227 CLR 471 Premium Real Estate Ltd v Stevens [2009] 2 NZLR 384 Premium Real Estate v Stevens[2009] 2 NZLR 384 (NZSC) Re Barnes; Ex parte Stapleton [1962] Qd R 231 Re Cummins; Richardson & Cummins (1951) 15 ABC 185 Re Hale [1974] 2 NZLR 1 Re Hale [1989] 2 NZLR 503 Re Kelly; Ex parte Young (1932) 4 ABC 258 Re Mackay (1951) 16 ABC 18 Reg v Ingham (1859) Bell 181; 169 ER 1221 Regal Castings Ltd v Lightbody [2009] 2 NZLR 433 Smith v Tatton (1879) 6 LR 32 Spina v Permanent Custodians Limited [2009] NSWCA 206 Spina v Permanent Custodians Ltd [2008] NSWSC 561 Surf Road Nominees Pty Ltd v Tass James [2004] NSWSC 61 The Bell Group Ltd v Westpac Banking Corporation (No 9) [2008] WASC 239; 225 FLR 1 Trautwein v Richardson [1946] Arg LR 129 Trustees of the property of Cummins v Cummins [2006] HCA 6; 227 CLR 278 Twyne's case (1601) 3 Co Rep 80b; 76 ER 809 United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 Vadasz v Pioneer Concrete (SA) Pty Ltd [1995] HCA 14; 184 CLR 102 Victoria University of Technology v Wilson [2004] VSC 33; 60 IPR 392 Warman International Ltd v Dwyer [1995] HCA 18; 182 CLR 544 Wentworth v Rogers [2004] NSWCA 430 Wickham v Autingo Pty Ltd (1993) 8 WAR 376 Williams v Lloyd [1934] HCA 1; 50 CLR 341 Williams v Scott [1900] AC 499 World Expo Park Ltd v EFG Australia Ltd (1995) 129 ALR 685 40118/09 Yu Po Chen (Appellant) Leonilda Marcolongo (First Respondent) Lym International Pty Ltd (Second Respondent) PARTIES: 40119/09 Yu Po Chen (Apellant) Lym International Pty Ltd (First Respondent) Westpac Banking Corporation (Fourth Respondent) Limin Yang (Second Respondent) Yang Liu (Third Respondent) FILE NUMBER(S): CA 40118/09, 40119/09 40118/09 D R Pritchard SC/J C Hewitt (Appellant) T A Alexis SC/D H Mitchell (First respondent) T S Hale SC/S Wells (Second respondent) COUNSEL: 40119/09D R Pritchard SC/J C Hewitt (Appellant) T S Hale SC/ S Wells (First, second and third respondents) Submitting appearance (Fourth respondent) 40118/09 Middletons (Appellant) Dunstan Legal (First respondent) Unsworth Legal Pty Ltd (Second respondent) SOLICITORS: 40119/09 Middletons (Appellant) Unsworth Legal Pty Ltd (First, second and third appellants) Henry Davis York (Submitting appearance) (Fourth respondent) LOWER COURT JURISDICTION: Supreme Court - Equity Division LOWER COURT FILE NUMBER(S): 5049/07; 5533/06 LOWER COURT JUDICIAL OFFICER: Hamilton J LOWER COURT DATE OF DECISION: 2 March 2009 LOWER COURT MEDIUM NEUTRAL CITATION: Lym International Pty Ltd v Chen; Marcolongo v Lym International Pty Ltd [2009] NSWSC 98; [2009] NSWSC 167; [2009] NSWSC 182 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40118/09 CA 40119/09 ALLSOP P GILES JA YOUNG JA 13 October 2009 CHEN v MARCOLONGO; CHEN v LYM INTERNATIONAL PTY LTD Headnote The two appeals, the "Lym appeal" (CA 40119/09; SC 5533/06) and the "Marcolongo appeal" (CA 40118/09; SC 5049/06) arise from matters in the Supreme Court involving the same factual substratum and were heard together. The appellant in both is Mr Chen, a New Zealand businessman of Chinese origin and principal of Heard Park Ltd. Both appeals concern the purported sale of a partially developed residential property of Lym International Pty Ltd by Mr Chen, on behalf of the company, to himself. In the "Lym appeal" the first respondent (the first plaintiff at trial) is Lym International and the second respondent (second plaintiff at trial), Ms Yang, was a director of Lym International. The third respondent (third plaintiff at trial), Ms Liu, is the daughter of Ms Yang. The fourth respondent (the second defendant at trial), Westpac Bank, obtained a mortgage over the property on completion of the sale to the appellant. The appellant and his wife and Ms Yang and her husband, Mr Liu (an original shareholder in the first respondent company until he sold his shares to his wife) were friends and business associates. Ms Yang's limited English, her residence in New Zealand and her husband's detention in China meant that in the time prior to the sale she required assistance in dealing with the property and affairs of Lym International. The company had debts relating to development and repayments of mortgages over properties in Mona Vale that needed to be managed. Mr Liu and Ms Yang had also borrowed money from the appellant's company, Heard Park on various occasions, including to make repayments on their mortgages. The appellant then obtained a power of attorney of Lym International from Ms Yang in circumstances where Ms Yang was named, erroneously, as a sole director of the company. Ms Yang signed the contract for sale and transfer to the appellant on behalf of Lym International as its apparent "sole director". At trial, the first, second and third respondents sought to set aside the sale of the property to the appellant. In the "Marcolongo appeal", the appellant was the second defendant at trial. The first respondent (the plaintiff at trial) is Mrs Marcolongo who owns property adjoining another property of the second respondent (the first defendant at trial), Lym International. Mrs Marcolongo has a claim against the company in the District Court for unliquidated damages claimed as a result deleterious effects to her property from development of that adjoining property. At trial, Mrs Marcolongo sought to have the sale of the property set aside pursuant to Conveyancing Act 1919 (NSW), s 37A. The trial judge found against the appellant, Mr Chen, in both matters and set aside the sale of the Golf Avenue property. The appellant seeks to have the transfer upheld on the appeals. In the "Lym Appeal" the central issue to a number of appeal grounds was whether the trial judge erred in finding that the appellant was liable for breach of fiduciary duties in transferring the property to himself. The appellant submitted that once the limited nature of his fiduciary obligations were appreciated, most of the alleged breaches of fiduciary duty underpinning the trial judge's decision became unsustainable. There were also appeal grounds in relation to the form of the primary judge's orders should liability be upheld. The issue in the "Marcolongo Appeal" was whether the trial judge erred in holding that Lym International, through its director Ms Yang, sold the land with an intention to defraud creditors and therefore Conveyancing Act, s37 provided grounds on which to set aside the sale. In relation to the "Lym appeal" Young JA (Allsop P and Giles JA agreeing) held that all appeal grounds in relation to liability should be dismissed. As holder of power of attorney Mr Chen was found to be an agent of Lym International. His conduct was a clear case of breach of fiduciary duty owed by an agent to a principal as, whatever the extent of an agent's disclosure, an agent will be in breach of his or her fiduciary duties if non-disclosure amounts to a preference to the agent's own interests. There was no error in the transfer being set aside in equity. Young JA (Allsop P and Giles JA agreeing) then held that some of the appeal grounds on the form of the orders setting aside the property transfer and dealing with subsequent interests in the property should be allowed, in particular on the basis that the receiver of equity is required to do equity and that the breach of fiduciary duties does not bar a claim for contribution to the current value of the property. In relation to the "Marcolongo appeal" Allsop P (Giles JA agreeing) held that the appeal should be allowed on the basis that the primary judge failed to direct attention to the question of the necessary fraudulent mental state required for s 37A. Their Honours held that s37A requires an element of dishonesty as it is an actual intent to deprive creditors of their rights or the fruits of their rights. The evidence was inadequate to attribute this requisite intention to Ms Yang when she signed the contract of sale to the appellant. In separate reasons Young JA concurred in allowing the "Marcolongo appeal". His Honour held that while Mrs Marcolongo was a creditor for the purposes of s 37A, as a disputed claim for damages is capable of enlivening the section, she did not have standing to bring a claim. There was no standing because she was not a "person prejudiced" at the time of the application as she was not then owed a debt by the disponor of the property. Young JA went on to hold that if there was standing, under s 37A it is necessary to establish real, actual fraud, which in the ordinary case, though not always, involves some element of dishonesty, and there was no evidence that Ms Yang acted with an intent to defraud Mrs Marcolongo when she signed the contract of sale to the appellant. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40118/09 CA 40119/09 ALLSOP P GILES JA YOUNG JA 13 October 2009 CHEN v MARCOLONGO; CHEN v LYM INTERNATIONAL PTY LTD Judgment 1 ALLSOP P: I have had the advantage of reading in draft the reasons of Young JA. I agree with the orders proposed by his Honour. I also agree with his Honour's reasons in the "Lym International appeal" (CA 40119 of 2009). My reasons in the "Marcolongo appeal" (CA 40118 of 2009) can be expressed shortly in the light of the discussion of the evidence by Young JA. 2 The principal error of the primary judge was a failure to direct attention to the question of the necessary fraudulent mental state required for Conveyancing Act 1919 (NSW), s 37A. When one adequately appreciates this requirement, the evidence is inadequate to attribute it to Ms Yang. 3 Before dealing with this central issue, I should note two matters that were not the subject of argument. First, no argument was put on behalf of the appellant that s 37A did not extend to "delay or hinder", as well as "defraud" creditors. The Bankruptcy Act 1966 (Cth), s 121 was expressly so extended by s 6 of that Act ("an intent to defraud the creditors of a person … shall be read as including an intent to defraud, or to defeat or delay, any one or more of those creditors"). 4 The original Statute of Elizabeth (13 Eliz I, c5) used the expression "the purpose of delaying, hindering or defrauding creditors …". The Law of Property Act 1925 (UK), s 172 (1) replaced the Statute of Elizabeth in the United Kingdom, repealing it by s 207, Sched 7. The terms of s 172(1) were: "Save as provided in this section, every conveyance of property, made whether before or after the commencement of this Act, with intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced." 5 The introduction in 1930 of s 37A into the Conveyancing Act by the Conveyancing Amendment Act 1930 (NSW) (Act No 44 of 1930) was accompanied by the repeal of the Statute of Elizabeth in New South Wales. Like the other Australian States and Territories, the model for the replacement of the Statute of Elizabeth in New South Wales was the Law of Property Act, s 172. 6 In Re Cummins; Richardson v Cummins (1951) 15 ABC 185 at 191, Clyne J noted as a point of distinction that s 37A does not include any reference to "hinder or delay" and was thus narrower than or at least different to the Statute of Elizabeth. Pincus JA in World Expo Park Pty Ltd v EFG Australia Ltd (1995) 129 ALR 685 at 708 agreed. 7 On the other hand, Dixon J in Williams v Lloyd [1934] HCA 1; 50 CLR 341 at 372 in dealing with s 37A (there being no equivalent of s 121 in the Bankruptcy Act 1924 (Cth)) said a "real intent to defeat or delay creditors must exist". See also Trautwein v Richardson [1946] Arg LR 129 at 133 where Dixon J expressed the view that the modern attempts to re-express in short form the wordier 16th century text of the Statute of Elizabeth should not be taken to have disturbed the traditional and well-settled branch of the law. This was the view of Lukin J in Re Kelly (1932) 4 ABC 258 at 261, citing Williams on Bankruptcy (14th Ed 1932) at 312; see also Williams and Muir Hunter on Bankruptcy (19th Ed 1979) at 7. The point was settled by the Full Court of the Federal Court in PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515 at 522 where the Court, citing Re Kelly, said that the short statutory re-enactments of the Statute of Elizabeth did not alter the pre-existing law. 8 The second matter not argued was that any intent was only directed to Mrs Marcolongo and not creditors generally. The sufficiency of such a limited intent may be seen to be supported by what Fitzgerald B said in Smith v Tatton (1879) 6 LR (Ir) 32 at 41. Nevertheless, the matter may not be free from doubt. As was implied in Smith v Tatton, the intent to defraud one creditor may be evidence of an intention to defraud creditors generally. Certainly, however, the intent to prefer one creditor over another is not sufficient to invoke the section: see [12] below. It is to be noted that the Bankruptcy Act, s 6 deals with this issue ("… any one or more of those creditors") in a statutory insolvency context giving primacy to pari passu distribution. 9 There was debate as to the proper mental state for s 37A. The cases in the 19th and 20th centuries revealed a tension between those which stated that the fraud required to be proved was "real" or "actual" and those which provided for constructive fraud based upon the consequences of the acts undertaken and impugned. The former cases rejected the notion that intent under the Statute of Elizabeth was a conclusion from the necessary effect of what was done: see generally Ex parte Mercer (1886) 17 QBD 290; Williams v Lloyd at 372; Lloyds Bank v Marcan [1973] 1 WLR 1387 at 1390 and 1392. On this view, fraud may not involve deceit, but does involve dishonesty. The latter cases looked to the "necessary effect" of a disposition: Freeman v Pope (1870) 5 Ch App 538. See, generally, the discussion by W A Lee "Trusts and Bankruptcy" (1973) 47 Australian Law Journal 365. 10 As Gummow J said in Cannane v J Cannane Pty Ltd (In Liquidation) [1998] HCA 26; 192 CLR 557 at 578 [54], the expression "intent to defraud" does not have a universal connotation in all statutory contexts. The same can be said about the word "fraudulent." 11 Great care needs to be exercised in interpreting s 37A not to rely too heavily upon cases from a related, but different, context in particular the law of the so-called fraudulent disposition as an act of bankruptcy under provisions such as the Bankruptcy Act 1914 (UK) s1(1)(b) and the Bankruptcy Act 1924 (Cth), s 52(b). Infusing many of these cases are the fact of actual bankruptcy, the statutory objective of rateable distribution in the administration of a bankrupt estate and the precise terms of particular provisions. For instance, the Bankruptcy Act 1914 s 1(1)(b) had its origins in the 1601 Statute (1 Jac 1, c15) which used the expression "… to the intent or whereby his creditors shall or may be defeated or delayed …" In any event, a significant body of cases grew up in which "fraudulent conveyances" were found where there was no dishonesty, but there was perceived to be a fraud on the creditors in the sense there was a design to prevent the distribution of the insolvent's estate in accordance with the bankruptcy laws: Dutton v Morrison (1809) 7 Ves 193 at 197; 34 ER 75 at 76; and Ex parte Chaplin; Re Sinclair (1884) 26 Ch D 319 at 335. See generally Williams on Bankruptcy (15th Ed) at 6-19; Williams and Muir Hunter on Bankruptcy (19th Ed) at 8-16; Halsbury's Laws of England (2nd Ed 1931) Vol 2 at 20-27; (3rd Ed 1953) Vol 2 at 263-268. 12 The point is exemplified by the fraudulent preference in England which involved an intent that was contrary to (and in fraud of) the statutory bankruptcy regime as seeking to undermine or defeat pari passu distribution; but such an intention was insufficient to exhibit fraudulent intent for the Statute of Elizabeth: PT Garuda at 525 citing HW May The Law of Fraudulent and Voluntary Conveyances (3rd Ed 1908) at 76-78 and 139 and the many cases there cited. 13 The High Court decision in Cannane made clear that the disponor's intent was critical. Brennan CJ and McHugh J at 567 said: "It is the disponor's intent to deprive creditors of assets against which (or against the proceeds of which) they would otherwise be entitled to prove their debts that enlivens the operation of s 121. As Dixon CJ said in Hardie v Hanson [[1960] HCA 8; 105 CLR 451 at 456]: 'The phrase 'intent to defraud creditors of the company' suggests that present or future creditors of the company will, if the intent is effectuated, be cheated of their rights'". 14 Their Honours went on to say that the relevant intent could be inferred from the surrounding facts. Nevertheless, their Honours' statement of the intent in the context of employing the words of Dixon CJ makes clear their view of the requirement to demonstrate a real intent to defraud. 15 Gaudron J at 571-572 adopted Dixon J's view in Williams v Lloyd of a "real intent". Her Honour said at 572 that the fraud or intent to defraud involved (the real and actual state of mind) of detrimentally affecting the property and rights of others which the law affords others: "'Fraud' involves the notion of detrimentally affecting or risking the property of others, their rights or interests in property, or an opportunity or advantage which the law accords them with respect to property. Conversely, it is not fraud to detrimentally affect or risk something in or in relation to which others have no right or interest or in respect of which the law accords them no opportunity or advantage. And there is no intent to defraud if the person in question believes that others have no right or interest in or in relation to the property concerned and that the law accords them no opportunity or advantage with respect to that property." 16 Gummow J at 578 said that the appellants properly relied on Dixon CJ in Hardie v Hanson. He also referred to Kitto J in the same case as referring to an actual purpose of "swindling" creditors out of their money. 17 It is clear from Cannane that s 37A requires (as does s 121) an element of dishonesty. It is an actual intent to deprive creditors of their rights or the fruits of their rights. Moral obtuseness will not save a disponor whose state of mind is one which is intent upon removing assets from the reach of creditors in order to defeat them. Fraud is not a superadded requirement; it is an integral aspect of the operation of the section. It is a serious finding of an actual and real intent to defraud, whether it is by defeating, delaying or hindering creditors. 18 The existence of the requisite intention is a question of fact, which, of course, can be inferred in all the circumstances. The difference in Williams v Lloyd between an intention of Mr Williams to make provision for, and ensure the security of, his family before embarking on a business venture with risks, and an intention of defeating future creditors was real, but not to be found merely in a realisation that if he gave assets to his family they would not be available to future creditors. The relevant question was what was his intention – to defraud creditors or to provide for his family. 19 On the facts here, as Young JA explains, there was insufficient material upon which to conclude that an operative intention of Ms Yang was to defraud Mrs Marcolongo. Ms Yang had a belief that the sale would produce some financial benefit to Lym International. She was not causing Lym International to give the property away. It was to obtain what she saw as value. 20 To the extent that money may be a more liquid asset and easier to move to defeat Mrs Marcolongo than the holding of land that proposition was never put to her. 21 Any desire on Ms Yang's part to avoid the "freezing" of assets can be seen as one capable of being held by someone who had no intention to deprive a creditor of the benefit of its rights. 22 Ms Yang's evidence was clear that she was very worried about a great number of factors, including the incarceration of her husband in China, the stalled building project, the claims from the first project and her inability to fund the project. In cross-examination she said: "Q. Did you understand that if the property was to be transferred out of Lym International's name, then there would be no asset or no moneys available to meet claims being made against the company? A. INTERPRETER: Well, Paul just told me that I need to transfer it as soon as possible. He said otherwise Lym International will suffer a big loss. I didn't realise what result it would lead to. Q. Do you recall also having a conversation on the telephone with Mr Chen's wife Amanda? A. INTERPRETER: Yes, we contact each other very frequently. Q. But do you recall having a conversation after Paul left New Zealand and flew to Sydney and you signing the contract document at CB1056? A. INTERPRETER: Yes. Q. And she said to you, didn't she, that you should transfer the project quickly otherwise the company will suffer a big loss? A. INTERPRETER: Yes. I trusted them at that time. Q. So the judge should understand that when you came to sign the contract in Tim MacAvoy's office, you did so because you wanted to get the property, the second project, out of Lym International's name and away from those who might be making a claim against the company. Is that right? A. INTERPRETER: That's one of the reasons. There are many reasons why I sold the project. Because at that time the Lym International has a large amount of loan and I was told that another 3.4 million is required to complete the project and I have to invest that amount of money within two months, otherwise the project will be freeze. And I was told I have to repay that debt, otherwise I could go to gaol." 23 Amanda Chen also told Ms Yang that the company would receive funds from the transaction. 24 In such circumstances, it was necessary, in my view, to take the matter further than was done in the last question set out above. For s 37A to be available avoid the transaction it was necessary to find that Ms Yang had an actual and real intention to defraud Mrs Marcolongo by depriving her of what Ms Yang appreciated to be Mrs Marcolongo's rights and that this intention was operative as one of the reasons for the transaction. 25 The primary judge did not direct himself to this central question. 26 On the evidence here, like Young JA, I am not prepared to conclude that it has been shown that Mr Yang had the requisite intent. 27 On the question of the meaning of the phrase "any person thereby prejudiced", the evidence disclosed that Mrs Marcolongo had a bona fide claim for unliquidated damages and that Mr Mao (a director, or erstwhile director, of Lym International) accepted that the claim had force. I do not think that s 37A requires the proof, by a trial within a trial, that the claim will necessarily or even probably succeed. In advance of a hearing a party with a bona fide claim is prejudiced if a disposition of property by the defendant would leave the claimant without a likely adequate fund against which to proceed. This is consistent with the proposition that prospective creditors are included in the concept of creditors: Green v Schneller [2001] NSWSC 897; 189 ALR 464 at 468 [16]. The statute should be read liberally as one for the suppression of fraud. 28 GILES JA: I agree with the reasons of Young JA in the Lym International appeal, and with the reasons of Allsop P (in the light of the discussion of the evidence by Young JA) in the Marcolongo appeal. 29 I agree with the orders proposed by Young JA. 30 YOUNG JA: These two matters, which were heard together both at first instance and on appeal, concern the property and affairs of Lym International Pty Ltd ("Lym"). 31 Lym is a company which was set up by a Mr Mao in 1998 and its shareholders were initially Mr Liu and Mr Mao. During 2000, Mr Liu transferred his shares to his wife, Ms Yang. Ms Yang and Mr Mao remained directors of Lym. However, there is in evidence a letter bearing date 29 January 2006, apparently signed by Mr Mao, resigning as a director of Lym. However, everybody accepts that this was a forgery and Mr Mao remains a director. 32 The litigation before the Court involves two separate claims. The first (SC 5533/06; CA 40119/09) is a claim by Lym to set aside a purported sale of land in Golf Avenue, Mona Vale to Yu Po Chen ("Mr Chen") for $15 million. The second (SC 5049/07; CA 40118/09) is a claim by Mrs Marcolongo to declare the conveyance of the Golf Avenue property to Mr Chen as invalid because it was effected in fraud of creditors pursuant to s 37A of the Conveyancing Act 1919. 33 Both matters were decided against Mr Chen by Hamilton J who gave his principal judgment on 2 March 2009 ([2009] NSWSC 98) and gave supplementary judgments on 16 March 2009 ([2009] NSWSC 167) and 18 March 2000 ([2009] NSWSC 182). 34 Mr Chen has appealed against both decisions. 35 The basal facts are uncontroversial and these can be set down more or less as they appear from the principal judgment of the primary judge. 36 Mr Liu is a Chinese businessman who was Chairman of Directors of what is claimed to be one of China's largest public companies. He has substantial investments in Australia and New Zealand. However, in May 2006 Mr Liu was detained by Chinese authorities and remains in prison. Although it does not appear that he has been charged with any offence, it would seem his detention arose out of the affairs of the large company. 37 His wife, Ms Yang, and their daughter, Jasmine, became residents of Sydney in 1998 and residents in New Zealand in 2003. Neither Mr Liu nor Ms Yang can speak or read English, but Jasmine has a New Zealand university degree and has some ability to speak, read and write English, though her ability in spoken English is far from perfect. Jasmine is now 27 years of age. 38 Lym had only two assets in Australia, the land in Golf Avenue as well as land in Darley Street, Mona Vale. It developed the Darley Street land in what was called "Project 1" by building townhouses, all of which have now been sold. 39 Mrs Marcolongo, the first respondent in appeal 40118/09, owned land adjoining Project 1 and she claims that her land was deleteriously affected to the tune of $600,000 by the activities of Project 1. The people who primarily caused the problem are the builder or the sub- contractor, but they are of doubtful worth and a claim has been made against Lym for that damage. The claim is pending in the District Court and we were told from the bar table that it was to be heard in August 2009. 40 By mid-2006, the Golf Avenue development known as "Project 2" was partly completed. Mr Mao was managing it. To fund the development, Lym raised a loan of $12 million on mortgage from Kingsway Group Ltd. This is referred to as the "Kingsway Mortgage". The limit on the Kingsway Mortgage was later raised to $13 million. By December 2005 the Kingsway Mortgage secured $12.5 million. 41 Before December 2005, the estimated value of the Golf Avenue property once that Project 2 was completed, was $22.5 million. In that month, the estimated value was revised downwards to $18.5 million. Lym's debts exceed that sum. 42 Also by late 2005, a major dispute had arisen between Lym and its builder. It would seem that it may have owed the builder $400,000 and could not pay. 43 In January 2006, there were disagreements between Mr Mao on the one hand, and Mr Liu and Ms Yang on the other, concerning the management of Project 2. The upshot was that, by agreement, Mr Mao withdrew from the management of both Project 2 and of Lym. He acknowledged a debt to Lym of $2.1 million. He returned to China to pursue his business interests there. 44 After Mr Mao returned to China in February 2006, Ms Sandy Lai was appointed to manage Project 2 and the affairs of Lym in Australia. Sandy Lai had worked in the Commonwealth Bank, spoke fluent English and Mandarin and had business experience. 45 In early March 2006, the builder terminated its retainer in relation to Project 2. On 7 April 2006, Lym's Quantity Surveyor, Mr Richmond, estimated it would cost around $3.4 million to complete Project 2. This was approximately double the estimated cost to complete in January 2006, the increase due to defective work that had come to light. 46 In April 2006, Kingsway revalued the subject property on an "as is" basis at $11.45 million. As a result, Kingsway required an additional $4.2 million to be paid at once under the Kingsway Mortgage. 47 Sandy Lai told Ms Yang that $4.5 million was needed to be paid. 48 I now break off the narrative to focus on Mr Chen. 49 Mr Chen is a New Zealand businessman of Chinese origin who speaks fluent English and Mandarin. He is the principal of a company, Heard Park Ltd ("Heard Park"). He is married to Amanda Chen, who throughout the proceedings below was referred to simply as "Amanda". I will do the same in these reasons without meaning any disrespect. 50 Amanda is a chartered accountant with Liew & Associates In New Zealand. 51 In early 2003, Mr Liu and Ms Yang engaged Liew & Associates as their accountants for themselves and their companies and it was through this connection that they began their association with Mr Chen and Amanda. 52 A business and personal association developed between the couples. Mr Chen, in particular, provided Mr Liu and Ms Yang with advice concerning their business interests in New Zealand, which he was able to do, due to his business experience in New Zealand and his fluency in English. Mr Liu made Mr Chen director of one of his New Zealand companies, Top International Ltd. He also introduced Mr Chen to business opportunities in China. 53 There were dealings between Mr Liu and Mr Chen outside the activities of Lym. Mr Chen says that Mr Liu or his companies borrowed from Heard Park, in particular there were borrowings from companies whose names included the word "Shenzhen", which were referred to by the primary judge as the "Shenzhen Loans". The primary judge said that he found difficulty in establishing how much was owing in respect of any particular Shenzhen Loan, see [18] of the primary judgment, though at Black 883 Mr Chen had given evidence that as at 15 August 2006, Shenzhen Ltd owed $5,311,531.67 to Heard Park. 54 I can now resume the narrative as at April 2006. 55 Mr Liu and Ms Yang told Mr Chen that they needed $4.5 million and asked him if he could arrange for it to be made available for repayment to Kingsway. Heard Park lent $4.5 million to Lym in late April 2006 out of which $4.2 million was repaid to Kingsway. It would appear there was no other source from which Ms Yang and Mr Liu were able or willing to provide money to pay Kingsway. 56 With Mr Liu's detention by the Chinese authorities in May 2006, Ms Yang became more dependent on Mr Chen and Amanda for friendship, business advice and assistance in attempts to conceal herself and her assets from the Chinese authorities. 57 During this time, Ms Yang withdrew funds from her bank and deposited them in Heard Park's name and also transferred shares in family companies to Mr Chen. These transactions are currently before the High Court of New Zealand. 58 Little substantive work had been done on Project 2 since January 2006. After the repayment of the $4.2 million to Kingsway, Lym had a liability of around $7.6 million in respect of the Kingsway Mortgage. Ms Yang had guaranteed that debt personally. 59 In the light of her obligation to Kingsway and the apparent need for $3.4 million to complete Project 2 and the loss of support of her husband, Ms Yang made inquiries concerning the possible sale of Project 2 or finding an investor who would be prepared to fund its future. However, the primary judge found that Ms Yang had not by 24 July 2006, made any firm decision to sell the property. 60 On 15 July 2006, Ms Yang met Sandy Lai at Auckland Airport where Ms Yang signed two documents: (a) a letter bearing date 11 July 2006 authorising Sandy Lai to transfer $3.5 million from the Kingsway Mortgage to Heard Park and; (b) a letter dated retrospectively 1 February 2006 appointing Sandy Lai as the manager of Project 2. 61 On 16 July 2006, Ms Yang and Jasmine met socially at their home with Mr Chen and Amanda. Ms Yang mentioned that she had signed the documents brought by Sandy Lai the previous day. At Mr Chen's suggestion, Ms Yang telephoned Sandy Lai and asked her to fax the documents to the Chens' home as Ms Yang did not have a fax machine. This Sandy Lai did. They discussed the documents and Sandy Lai's role, and Mr Chen offered to go to Sydney (where Ms Yang was reluctant to go) to investigate Lym's affairs if Ms Yang would give him a power of attorney. 62 The primary judge found at [29] that it was clear on Mr Chen's evidence, that by 24 July 2006, he considered as a possible course that he should buy the subject property from Lym as a means of obtaining the discharge of debts from the Liu interest to him or his associates. 63 On 24 July 2006, Amanda made an appointment to see Timothy MacAvoy ("Mr MacAvoy") at Kensington Swan, Solicitors of Auckland. Later that day there was a meeting at the offices of Kensington Swan at which Mr MacAvoy, Mr Chen, Amanda, Ms Yang and Jasmine were present. 64 At that meeting Mr MacAvoy was told about the loan agreement between Heard Park and Lym. The judge found Mr MacAvoy's diary notes were scrappy, but noted that there was no mention of the Shenzhen Loans or of any intention by Mr Chen to buy the Golf Avenue property. 65 However, it was clear that instructions were given by Ms Yang that Sandy Lai's authority from Lym was to be revoked and that Mr Chen should be given a power of attorney by Lym. Mr MacAvoy prepared those documents. 66 Mr Chen travelled to Sydney on 25 July 2006, arriving mid-morning. His first call was on Mr Mackay who is a partner of Middletons, Solicitors of Sydney, whom Mr MacAvoy had contacted for the purpose of him acting as Sydney lawyer in transactions affecting Lym. 67 By 2pm on 25 July 2006, Mr Mackay had obtained a Real Property search of the Golf Avenue property and Mr Chen had instructed Mr Mackay to act for him on the purchase of the property. Mr Mackay, and under his supervision, Mr Ben Everett, acted for Mr Chen in that transaction. 68 In the afternoon Mr Chen went to the Haymarket Branch of the Commonwealth Bank where, using the powers of attorney, he gained access to three bank accounts, one in the name of Lym, one in the joint names of Ms Yang and Mr Liu (the "Yang Account") and one in Jasmine's name. He had himself made as signatory on those accounts and removed Sandy Lai as a signatory, in so far as she was. 69 After doing that, Mr Chen telephoned Sandy Lai and informed her of her dismissal and his appointment as her replacement. 70 Later in July 2006, Ms Yang asked Sandy Lai to pay the $1.08 million that Sandy Lai owed to Ms Yang. Sandy Lai did so and paid the money into the Yang Account and this formed part of $1.2 million taken from that account by Mr Chen in August 2006 and paid into the Lym account. 71 On 26 July 2006, Mr Chen inspected the Golf Avenue property. He also made inquiries concerning Project 2 and learnt that many contractors needed to be paid. He collected from Sandy Lai a large quantity of books and records. 72 We were taken to a receipt seemingly prepared by Sandy Lai when she handed over those records. These are set out at Blue 424 and following. There was debate before us as to whether this was an exhaustive list of documents. This was because there was evidence that Mr Chen had picked up a greater bulk of documentary material than seemed to be covered by the list. However, in the end result, no further finding is required. 73 There is no doubt that whilst he was in Sydney and she was in Auckland, Mr Chen had numerous telephone conversations with Ms Yang. In them he conveyed to her various pieces of information concerning Project 2. It was in these conversations that it was agreed that Mr Chen would buy the subject property from Lym. There is no doubt that the price of $15 million was specified by Mr Chen and was not the subject of any negotiation. 74 As early as 27 July 2006, Middletons had prepared a contract for sale and they emailed this, together with a transfer, to Mr MacAvoy for execution by Ms Yang on behalf of Lym. 75 On 31 July 2006, Ms Yang, Jasmine and Amanda attended Mr MacAvoy at his office in Auckland. Mr MacAvoy was given the forged resignation of Mr Mao which seemed to him to make Ms Yang the sole director of Lym. 76 On that day, Ms Yang signed the contract for sale and transfer on behalf of Lym as sole director. She also signed a document confirming that Mr MacAvoy had not provided any legal advice in respect of the transaction. 77 The contract for sale was in the usual form for sales of land in NSW. The purchase price was $15 million. However, it contained a rather unusual special condition 33 as follows: "Price The Purchaser must pay the Purchase Price as follows: (a) $7,625,000 to the mortgagee of the Land; and (b) the balance to be applied to the debts owed to the Purchaser by the Vendor or a related entity (as that term is defined in the Corporations Act 2001 (Cth)) of the Vendor." 78 As the primary judge observed, it is significant that by the terms of the special condition the debts referred to included debts not only owed by the vendor but also by entities related to the vendor, but they only included debts to the purchaser personally and not to entities related to the purchaser. 79 The contract for sale and transfer executed by Ms Yang were sent to Middletons in Sydney, but were not executed by Mr Chen until 15 August 2006. 80 Between 1 August and 15 August 2006, Mr Chen transferred $1.2 million from the Yang Account and $120,000 from Jasmine's account to the Lym account. It would seem that Mr Chen believed that these monies were Lym monies. This was erroneous and, particularly with respect to Jasmine's account, an error that is hard to justify. 81 On 15 August 2006, not only did Mr Chen sign the contract for sale, but pursuant to special condition 32 he nominated that same day, 15 August 2006, as the completion day and completion took place accordingly. 82 Completion took place without any reference to Ms Yang. Mr Chen also made arrangements to discharge the Kingsway Mortgage. There was no settlement statement provided to Lym showing the amount paid to discharge the Kingsway Mortgage. The only document that shows any of these matters is the resolutions of Heard Park prepared by Amanda at some later date and backdated. 83 The judge accepted that the evidence showed that Kingsway was paid a total of $7,679,645.31 on settlement to procure the discharge of its mortgage. 84 The judge found that Lym received none of the proceeds of sale and that not only was there no settlement statement, but Mr Chen never provided any accounting either to Lym or Ms Yang for any proceeds of sale, nor any statement as to what debts were said to be owed by the Liu interests to the Chen interests but were satisfied by credit out of the proceeds of sale. On completion, Mr Chen used the money in the Lym account to pay $360,000 towards the discharge of the Kingsway Mortgage and $810,504.80 for stamp duty. 85 On 29 August 2006, Ms Yang and Jasmine again attended on Mr MacAvoy. Although he cannot say how these notes came about, the documents show that Mr MacAvoy made a note that the purchase price was $15 million, $7,679,645.31 was paid to Kingsway and there was $4,500,000 "owed by Lym International" which is said (wrongly) to leave a balance of $3,179,645 and then this note (at Blue 670): "This is effectively the money used by Paul [ie Mr Chen] to complete the property. He spent that on completing the property so that it would be worth the $15 million sale price. Otherwise he would have bought it for $12 million and paid the $3 himself to complete it." 86 In another place in his diary Mr MacAvoy noted: "7.679 Kingsway 4.5 Heard Park 3.0 Paul Chen" and then: "Paul has debited a further $818,000 from Mrs Yang's account. This was not contemplated by either Mrs Yang or ourselves." 87 Also on 29 August 2006, Mr MacAvoy noted that Jasmine had rung and complained that her Australian bank account had been closed on the instructions of Mr Chen. 88 In October 2006, Mr Mao returned to Australia and by chance met Ms Yang and Jasmine in the Commonwealth Bank at Haymarket. Mr Mao then told Ms Yang he had never resigned as a director of Lym and Ms Yang burst into tears saying that Mr Chen had been lying and had cheated her and both Ms Yang and Jasmine complained that everything had been stolen from them by Mr Chen and burst into tears. 89 The proceedings were commenced by the filing of a summons on 27 October 2006. 90 All these major players gave evidence before the primary judge. His Honour's findings as to credit were very definite. He found Mr Chen to be a most unimpressive witness with many inconsistencies in his evidence and at [78] he found: "As a result, except where his statements are against his interests or not contested, I am not prepared to accept Mr Chen's evidence except where it is corroborated by the evidence of a credible witness or by documentary evidence or extrinsic circumstances." 91 The primary judge found a deal of Amanda Chen's evidence had an air of unreality and improbability, but noted that her evidence actually conflicted with Mr Chen's in some important regards. Again, he came to the conclusion at [83] that Amanda was a witness of low credibility whose evidence he was not inclined to accept unless it was corroborated by the evidence of a credible witness or by contemporaneous documents. 92 As to Ms Yang, the primary judge at [93] finds that he formed the impression that she was trying to give the court the best possible account of the events she was dealing with. He said there must be some detraction from her credit by reference to the conflict of her evidence with Mr MacAvoy's diary notes, changes in her evidence and her self interest. However, whilst her evidence must be approached with some caution, in general terms her evidence on any particular matter must be assessed as a possible version of the facts along with other evidence bearing on the particular subject matter. Her evidence was to be preferred to that of Mr Chen or Amanda where they conflict. 93 The primary judge made much the same finding with respect to Jasmine at [97]. 94 Mr MacAvoy was found at [98] not to have a good recollection of events, though he gave his evidence to the best of his recollection. Largely his recollection does not go beyond what is contained in his diary notes. 95 The other witnesses who gave evidence, Mr Mao, Mr Lowes, Mr Browne, Mr Easton and Mr Mackay impressed the judge as witnesses who were doing their best to give the court an accurate account of events as they recalled them (see [103] of the primary judgment). 96 There were some contested matters of fact. One was when Mr Chen first intimated that he might be the purchaser of the property and on what terms. 97 Mr Chen says that he indicated at the meeting of 24 July 2006 that that was one of the matters he had in mind and this was corroborated by Amanda. Ms Yang, Jasmine and Mr MacAvoy denied that and the judge accepted those denials. Mr Chen deposed that on 26 or 27 July 2006 he telephoned Ms Yang from Sydney and remonstrated with her that he had been misled into thinking that she, Ms Yang, was the sole director of Lym to which Ms Yang had said "No, I am the sole director. William Mao resigned as a director of Lym International in January when he returned to China. That is why Sandy Lai took over the running of the project. have his resignation letter. I am the sole director." 98 Ms Yang denied that conversation and instead says that Mr Chen told her on the phone that he had found a document which proves that William Mao had resigned and that he would fax a copy to Amanda. She says that prior to 31 July 2006 Amanda gave her a copy of the supposed Mao resignation saying: "This is the document that Paul was talking to you about". 99 Again, the judge accepted Ms Yang's version of the conversation. He accordingly found that neither Ms Yang nor Jasmine had anything to do with the forgery of Mr Mao's resignation letter. 100 Mr Chen deposed that on about 28 July 2006, he told Ms Yang that Project 2 was viable but had problems, and "If everything is okay I am prepared to consider taking the property, paying its mortgage and forgiving you your other debts". He had said that: "Sandy gave me a quantity surveyor's report from April this year which estimates a cost of $3.4 million to complete. I will send a copy of this to you. Some of the contractors have not even been paid." There was then talk of the three Sydney bank accounts and Ms Yang is alleged to have said: "Please use the money in all the accounts". Ms Yang admitted that there was that conversation except she said that she never told Mr Chen to use the money in the Sydney bank accounts. 101 Mr Chen also deposed that around late July there were telephone conversations in which he told Ms Yang that "If I decide to go ahead, I propose a contract purchase price of $15 million. This will become the cost base for any capital gains tax I have to pay in the future. As you know the quantity surveyor's estimate that it will cost $3.4 million to complete. I am owed over $5 million by your husband's company from the telecommunication shipments and $1 million is still outstanding from the loan to your family trust. The cost of discharging the mortgage over the property is $7.6 million. If you wish I could pay off the mortgage direct to Kingsway Finance & Investment. If you want me to do this deal, the balance of the purchase price will have to be the forgiveness of all the other debts owed to me. I don't want to put more than $7.6 million of my own cash into the project. I can't do the deal otherwise." Ms Yang is alleged to have said, "Okay I will sell on the terms you propose". Ms Yang denied that conversation and the judge accepted that denial. 102 At the meeting in Mr MacAvoy's office on 31 July 2006, Ms Yang said: "During the course of that meeting, Amanda Chen did most of the talking with Tim MacAvoy. He said 'the purchase price is $15 million'. I said to Amanda Chen, 'why is the purchase price $15 million' and she said 'I don't know, Paul was taking care of that - trust him'." Mr MacAvoy turned over another page of the contract and let Jasmine read it. Jasmine said to Ms Yang and Amanda: "I can't understand it". Ms Yang says she said to Amanda: "Can you explain it". Ms Yang then says Amanda read the page and said "It says here $7.6 million is to repay the loan and the balance is owed by Paul to Lym". Mr MacAvoy then referred to GST. Amanda said: "There is GST of about $1.5 million. Don't worry about GST as it's a later thing and I think after the sale Lym will get money and we can discuss GST then". Ms Yang says that she accepted Amanda Chen's explanation and signed the document and she would never have signed it if Amanda had not said that Mr Chen would be paying the balance of purchase price to Lym. Jasmine gave similar evidence. 103 Amanda says that Mr MacAvoy explained the documents to Ms Yang and she remembers him saying the purchase price was $15 million which included Australian GST which meant that Lym would have to account for the GST to the Tax Office. He explained that Mr Chen has to pay off the Kingsway Mortgage and the balance of the purchase price, after payment of the mortgage, is to be set off against debts which are owed to Mr Chen. Amanda said he explained that: "with this arrangement you will not receive any money, is that what you want to do ?" Ms Yang relied, "Yes". 104 Mr MacAvoy could not really remember anything except what was in his notes. 105 The judge found aspects of Amanda's evidence that he did not accept. He found that Mr MacAvoy did not go orally through all the terms of the contract, but referred only to some of them, but that he did mention the price of $15 million and made some reference to special condition 33. 106 The primary judge then said at [132]: "If it were necessary, I should be prepared to find, on the evidence of Ms Yang and Jasmine, that Amanda did say that the balance of the purchase price would be a debt due by Paul Chen to Lym International. However, despite the purpose of her attendance at the meeting, I am not prepared to find that Amanda was authorised by Mr Chen to make such a representation (fraudulently or otherwise) on his behalf. There is no evidence that he authorised the making of such a representation or ever himself expressed such a proposition. It may have been a representation made by Amanda of her own motion or may have been a misunderstanding by her at the meeting of the terms of Special Condition 33. In any event, there can be no finding that such a representation should be attributed to Mr Chen." 107 At [133]: "However, the long and short of these findings is that I do not find it established that Ms Yang ever had conveyed or explained to her the terms of Special Condition 33 as contained in the contract for sale." 108 I now pass to the conversation that allegedly took place between Ms Yang and Mr Chen with respect to Project 1. 109 Ms Yang said that in about early August 2006, she had a conversation with Mr Chen in which he said that, as to Project 1, Lym had completed the project and all the properties had been sold. However, "Now, all the purchasers of those real properties have decided to sue, your company, because of the quality problems of those properties. As the builder of those properties has gone into liquidation your company will be solely liable for a damage of more than $0.6 million to those purchasers. If you are not [sic] going to transfer the development property, you must do it quickly, the plaintiffs will freeze any dealing in relation to the development property. If that is the case, the company will suffer a big loss." Mr Chen denied the conversation. 110 Ms Yang then deposed that Mr Chen said to her: "You can transfer the property to me, and then neither the company nor you can be liable for any money to the purchasers, otherwise the company will be liable to these purchasers and you could go to gaol. Don't worry about anything, I will look after it all". 111 In another affidavit Ms Yang said that in a telephone call in August Mr Chen said to her: "Lym has to pay $600,000 to purchasers (of the other project) otherwise they may sue Lym and its assets will be frozen. The project must be completed within two months because the construction licence only has two months left and it will cost about $3.4 million to finish the project". 112 Mr Chen denied these conversations. However, the primary judge accepted the evidence of Ms Yang that these statements were made to her by Mr Chen, including the reference to Ms Yang going to gaol. He also accepted that they were made before she executed the contract for sale. The primary judge said at [141]: "Mr Chen was determined to induce her to enter into the contract for sale to solve his problem with the debts owed by the Liu interests. He knew the reference to imprisonment would be alarming to her because of her fears of the Chinese authorities." 113 Mr Chen submitted that he had not and could not have heard of the Project 1 claim before 31 July 2006 and thus could not have made these representations before Ms Yang executed the contract for sale. 114 The judge rejected this at [142] saying: "I find the suggestion that he could not have known of the claim arising from Project 1 before 31 July unconvincing. Although there is no express evidence of his having learnt of it before, as opposed to after, 31 July, it is clear that he had access before then to copious written records of Lym International and Ms Yang and opportunities to speak to a variety of people concerning their affairs, including Project 1, which were potentially sources of the information. I infer that he had obtained it from some source before 31 July 2006." 115 In order to pay out the Kingsway Mortgage, Mr Chen remortgaged the property to Westpac and obtained $4.5 million. He paid the balance out of his own monies although, as I have said, he collected $1.2 million from the three Sydney bank accounts and from this paid part of the monies due to Kingsway and the $810,000 stamp duty. 116 Another significant fact is that although Mr Richmond, the Quantity Surveyor, had advised that it would cost $3.4 million to complete Project 2, on 3 August he revised this estimate down to $1.8 million. Mr Chen never advised Ms Yang of this. 117 Mr Chen gave the judge various excuses for not doing so, none of which the primary judge found attractive and ruled that [173]: "Whatever his beliefs concerning the significance of this report he was in my view obliged to report it to Ms Yang with a frank and truthful explanation concerning it." 118 After taking a conveyance of the Golf Avenue land, Mr Chen completed the Project 2 development and has sold some of the units that were built on the Golf Avenue land. When these proceedings started, interlocutory orders were made to allow the sales to continue on a supervised basis. 119 The present situation is not completely clear, but it would seem that monies are still owing to Westpac and there are still some units left unsold. 120 Dealing with appeal 40119/09, the judge ruled that Mr Chen was a fiduciary agent with respect to Lym and Ms Yang and Jasmine. The judge said in his summary at [178]: "The duties imposed under that fiduciary relationship included duties to report to [Lym International and Ms Yang] fully and frankly concerning the results of his investigations. Furthermore, in relation to his intention to purchase the subject property he came under a duty of dealing with his principal at arm's length, after a full disclosure of all that he knew with respect to the subject property and in circumstances in which he could prove that the transaction was fair." 121 The judge found at [172] that when Ms Yang executed the contract for sale she had not had a satisfactory explanation of its effect nor did she realise that the whole of the balance of the purchase money, over and above the mortgage debt, could be taken by Mr Chen, who was in a fiduciary relationship, in satisfaction of any debts owed by anyone associated with Ms Yang to anyone associated with Mr Chen. 122 Furthermore, Mr Chen failed in his duty to report to Ms Yang in a complete and truthful fashion, including the fact that the Quantity Surveyor had revised his estimate of the cost to complete. 123 In the present situation, Lym had no solicitor acting for it. Mr Chen knew that he was being relied on to advise Ms Yang and Lym. Apart from the non­disclosure there was the intimation that Ms Yang could go to gaol and that the transaction could not stand. At [179] the primary judge found that Mr Chen did say to Ms Yang that if she did not dispose of the subject property quickly, the existence of a $600,000 claim or claims arising out of Project 1 could have disastrous consequences for her including her imprisonment but that both Lym and she herself would escape those consequences if the subject property was disposed of quickly. At [181] his Honour said: "I conclude that, under the circumstances set out, the transaction was entered into and carried out in breach of Mr Chen's fiduciary duties to Lym International and Ms Yang. Again, in view of the lack of authorisation of the taking of $1.2 million from the Yang Account and $120,000 from Jasmine's Account, these amounts were misappropriated by him. The plaintiffs are entitled to declarations accordingly." 124 The judge also found at [151]: "It is the fiduciary who bears the onus of proof that he has made reasonable use of his position of confidence, including, where disclosure is required, that full and proper disclosure has been made. It is equally clear that once it is established on the evidence that a fiduciary relationship exists, if the fiduciary relies upon agreement between the parties to discharge him from duty that would otherwise be imposed, it is for the fiduciary to establish the agreement upon which he relies." 125 I especially mention this paragraph of his Honour's judgment because in this appeal it was put that the way the pleadings were framed there was no switch of the onus from the plaintiff to Mr Chen even in an evidentiary sense. I will return to this point. 126 So far as appeal 40118/09 is concerned, his Honour noted that Ms Yang's evidence indicated that one of the reasons for her entering into the transaction with Mr Chen was to avoid liabilities of Lym to persons who might have claims over Project 1. 127 The judge said at [182] that that admission rendered the decision in Mrs Marcolongo's application comparatively simple. He found that the alienation of property was made: "'with intent to defraud creditors'…Mrs Marcolongo is a person prejudiced by the transaction and therefore entitled to bring proceedings. She had at the time and has a claim for some $600,000 against Lym International… [and is] entitled to have the transaction declared voidable [as it could not be said that Mr Chen was a purchaser in good faith not having notice of the intent to defraud]." 128 The appeal came on for hearing on 8 and 9 July 2009. Mr D R Pritchard SC and Mr J C Hewitt appeared for the appellant, Mr T Alexis SC and Mr D H Mitchell appeared for Mrs Marcolongo in appeal 40118/09 and Mr T S Hale SC and Mr S A Wells appeared for Lym and the respondents in 40119/09 save that Westpac Bank had filed a submitting appearance. 129 It is convenient to deal with the Lym appeal first (40119/09). The notice of appeal set out 25 grounds of appeal on liability and 10 other grounds directed to the form of the order. 130 Eleven of the grounds on liability and almost all the grounds relating to remedy were pressed. 131 Mr Pritchard accepted that the primary judge's acceptance of the evidence of Ms Yang and Jasmine as against Mr Chen and Amanda must be accepted for the purposes of this appeal. 132 However, Mr Pritchard put that the judge had not paid sufficient attention to the case as pleaded, nor had he paid sufficient attention to the scope of the alleged fiduciary duty. 133 As to the first of these points, Mr Pritchard pointed to the fact that on about day 8 of the hearing, the plaintiff Lym sought to amend its pleading by adding sub-paragraph (d)(4) and (d)(5) to para 22 of the statement of claim, the paragraph which alleged breaches of duty. However, his Honour noted at [3] of his 22 October 2008 judgment ([2008] NSWSC 1119): "Although those subject matters remain to be agitated under other provisions of the statement of claim, where they are already embodied." 134 Mr Pritchard told us that the reason why there was an objection to those paragraphs, as was submitted to the primary judge, was that for the first time these reversed the onus of proof in respect of certain facts and indeed he told the primary judge this at p 429 of the Black Book. 135 Mr Pritchard put to us that whenever it is alleged that the onus of proof is on the other side, that allegation must be pleaded because it is a matter which, if not pleaded, might take the opponent by surprise, vide r 14.14 of the Uniform Civil Procedure Rules 2005. 136 Where the onus lies is not a material fact as such. However, it could come under prevention of surprise as there are authorities to support the proposition that where a person is to suggest at the trial that a plaintiff should have mitigated its damage, a matter on which the defendant bears the onus, that must be specially pleaded. 137 Thus, Bullen and Leake and Jacobs Precedents of Pleadings 12th ed p 1032 (the restructuring of the work after procedural reforms in England means that there is no corresponding note in the current edition) says, with respect to mitigation of damages, that whilst there is generally no obligation on the defendant to plead to allegations as to damage: "Nevertheless, the prevailing and better practice is for the defendant to deal specifically with the claim for damages, though not the amount. The reason is that the plaintiff will know more clearly the case he has to meet and will not be taken by surprise at the trial. It is therefore common practice ... to raise, as positive allegations, such defences … [as] the failure of the plaintiff to mitigate his loss." 138 When taxed with the point that the books gave no example at all of a pleading where a person alleging a breach of fiduciary duty had to plead that the onus was on the fiduciary, Mr Pritchard replied that whilst it might have been optional before the Civil Procedure Act 2005, sections 56 and following of that Act now made it mandatory. 139 I do not accept this submission. The rules as to onus in cases of breach of fiduciary duty are clear cut and no surprise would be caused to anybody by a pleading which does not specifically mention the question of onus. 140 In Dunne v English (1874) LR 18 Eq 524, Jessel MR said at 534 that the agent must prove good faith and full information. 141 Mr Pritchard puts that this is not always the case and referred to an unreported judgment of Einstein J, Surf Road Nominees Pty Ltd v Tass James [2004] NSWSC 61 at [205]. After noting the authorities which say that the fiduciary must justify his advantage, his Honour said: "Notwithstanding those authorities, in my view the plaintiffs [who positively pleaded failure to obtain fully informed consent] had the onus of proving on the balance of probabilities that Mr James had fallen short of making full or adequate disclosure ... ". 142 Einstein J referred to the High Court's decision in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; 110 ALR 449. That case does not provide support for the proposition, but assuming the ruling in the Surf Road case was appropriate where there was a specific pleading, it certainly does not alter the great tide of authorities the other way. 143 I do not consider that there is any substantial question raised by this point. Wherever the onus lay, the present is close to the classic case of breach of fiduciary duty. 144 Mr Pritchard's written submissions in the Orange Appeal Book focus first, as was wise to do, on the scope of the fiduciary duty as alleged by the plaintiffs. 145 Mr Pritchard and Mr Hewitt put that the first inquiry must always be into the scope of any alleged fiduciary duty. They quote from the judgment of Mason J in Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; 156 CLR 41 at 98 where his Honour said, when contrasting a general fiduciary relationship with a more limited fiduciary relationship that: "It is well settled that a person may be a fiduciary in some activities but not in others." This is a helpful statement with respect to the difference between a general fiduciary and a limited fiduciary but does not really address the question as to whether Mr Chen should in the present case be considered to be a limited fiduciary or a general fiduciary. 146 Counsel then relied on what I said in Gonsalves v Debreczeni (1998) 9 BPR 16,689 at 16,696 that, merely because A reposes faith, confidence or trust in B, does not necessarily mean that B will owe A fiduciary duties. Even if a fiduciary duty is owed, it will not necessarily be coterminous with the expectations of the person who imposed the trust. 147 Here, it is put Mr Chen was a fiduciary agent in the sense of a person who was authorised by power of attorney to go to Sydney and investigate the circumstances of Project 2. It is put that Mr Chen never undertook the sale of the property on behalf of Ms Yang or Lym. He was only an attorney to investigate, not to use his power of attorney to effect the sale. It is then put that once the limited nature of Mr Chen's fiduciary obligations are appreciated, most of the alleged breaches of fiduciary duty become unsustainable. 148 This submission was given some weight to my mind by the way Mr Hale tackled it, that is, by virtually ignoring it and concentrating on what is generally expected of fiduciaries. However, it seems to me that whilst it is true one does have to work out the scope of the fiduciary duty, here we have a situation where Mr Chen used that power of attorney to close the Sydney bank accounts, to order completion of the contract of sale and to complete the contract of sale without any further notification to the person he was representing to be the sole director of Lym, Ms Yang. It must be unarguable that if Mr Chen's actions under the power of attorney in dealing with the sale in this way were authorised, and he really cannot be heard to say they are not, nor did he, then acting on the sale was within the scope of his fiduciary duty. 149 It is then put that the primary judge did not have regard to the terms of the pleaded case and that looking at the pleadings there was no reference to the allegation that special condition 33 of the sale contract was not adequately explained to Ms Yang, nor that the revised Quantity Surveyor's report of 3 August 2006 was not put to her, nor about the absence of a settlement statement. Indeed, the only pleaded breach of the fiduciary duty after 1 August 2006 concerned the appellant's use of funds and it was not open to the trial judge to find breach of fiduciary duty on the basis of these non-disclosures. 150 The appellant's submissions admit that even during the opening, counsel for Lym referred to the decision of Dixon AJ in McKenzie v McDonald [1927] VLR 134. 151 In that case, a widow wished to sell her farm to buy a suburban residence in Melbourne. She told a real estate agent that she wished to obtain £4.10.0. per acre for the farm. The defendant investigated the matter and found that it was more than likely that the widow could get that price and that the tenant of the farm might purchase it. However, he deprecated the farm and suggested that the widow should lower her price and then later that she should exchange the farm for his suburban shop and dwelling which he overvalued. The widow agreed. 152 The judge said that the agent, having assumed the function of advising and assisting the widow, occupied such a position of confidence as to bring him within the equitable requirements of full disclosure and fair and open dealing and to disclose fully all that he knew about the property and he had breached that duty and was liable. 153 In McKenzie at 144-145, the learned judge notes that Fry J had said in Davies v London and Provincial Marine Insurance Co (1878) 8 Ch D 469 at 474 that: "If there be a pre-existing relationship between the parties, such as that of agent and principal, solicitor and client ... then, if the parties can contract at all, they can only contract after the most ample disclosure of everything by the agent, by the solicitor .... " 154 Dixon AJ then went on to say at 145 that care must be taken with the expression "agent" because some agents owe fiduciary duties in a wider degree than others and that the basal question is whether the defendant occupied such a position of confidence towards the plaintiff as to bring him within the equitable requirements of full disclosure and fair and open dealing. 155 Mr Pritchard relied on Spina v Permanent Custodians Ltd [2008] NSWSC 561 at [117]-[121] (the actual decision was reversed by the Court of Appeal [2009] NSWCA 206 but this point was not considered). It is true that the terms of the power of attorney affect the scope and extent of fiduciary obligations. However, that point does not assist Mr Chen in the instant case because he used the power of attorney to do his divesting of the plaintiffs' property and securing his repayment of debts owed by other companies in the Liu interests at the expense of Ms Yang and Lym. 156 We were also referred to the decision of the Privy Council on appeal from NSW in Williams v Scott [1900] AC 499. That was a question as to whether an abstract of title was good because it appeared from the abstract that there had been a purchase by a trustee without full consent or release from the beneficiaries. The Privy Council said at 508: "It is important to remember upon whom the onus of proof falls. It ought not to be assumed, in the absence of evidence to the contrary, that the transaction was a proper one, and that the cestui que trusts were informed of all necessary matters. The burthen of proof that the transaction was a righteous one rests upon the trustee, who is bound to produce clear affirmative proof that the parties were at arm's length; that the cestui que trusts had full information upon all material facts; and that, having this information, they agreed to and adopted what was done." 157 There is justification for criticising the pleadings in the instant case. However, reading the Black Book, it does not seem to me that there is a shadow of doubt that throughout the lengthy trial before the primary judge, the appellant and his advisers were well aware of what was being put against them, and that what the judge found was well within the issues that were raised at the trial. 158 I believe this deals with grounds 1, 2, 3 and 25. 159 Ground 4 alleges that the revised Quantity Surveyor's report was really not material so there was no breach of fiduciary duty in its non-disclosure. 160 Appellant's counsel put that when one looks at the revised estimate to complete the project for $1.8 or $1.9 million and realises that there had been $600,000 worth of work not paid for, and that Ms Yang had spent $1 million on the project since April 2006, it can clearly be seen where the difference is between $1.8 and $3.4 million. Accordingly, the revised report did not change the factual situation at all. Moreover, there was no evidence that even if it had been disclosed to Ms Yang, that would have caused any change in attitude. The whole flavour of her evidence was that she could see nothing but trouble in the project including the possibility of imprisonment and she wanted to get rid of the project as soon as possible. 161 With respect, this submission does not focus on the real complaint. 162 Indeed, Mr Pritchard reminded us during the argument that fiduciary duties are proscriptive not prescriptive: Breen v Williams [1996] HCA 57; 186 CLR 71 at 113; Friend v Brooker [2009] HCA 21; 83 ALJR 724 at [84] 739. 163 However, it is not so much the doing or not doing of various acts by Mr Chen that are in issue in the present proceedings, it is his conduct in doing what he was forbidden to do, if the scope of his fiduciary duty was wide enough, and that was to purchase the property. The circumstances under which he purchased the property including not disclosing the revised report, not adequately explaining the sale contract, not giving any notice of settlement or providing a settlement sheet, are factors which taken cumulatively together, go to show that this is a classic case of a fiduciary benefiting at the cost of the person to whom he owed a fiduciary duty. 164 A good deal was said about onus in the course of argument. I would have thought that, apart from the exceptional case, the onus is on the fiduciary to show that his purchase of the property in respect to which he owed a fiduciary duty was not able to be criticised and cases such as Maguire v Makaronis [1997] HCA 23; 188 CLR 449 at 466, reinforce this view. 165 There are exceptional cases such as Hordern v Hordern [1910] AC 465, where a testator by naming his partner as his executor actually set up a situation where inevitably there would be a conflict of interest and duty. 166 However, it would seem to me on the facts of this case, as found by the learned primary judge, that no matter where the onus of proof lay, this was a case where it was established that there was a breach of duty. Here we have a company being run by a lady of no business experience with limited English, whose husband had just been arrested by a powerful foreign power and who was incommunicado, a threat that the lady herself might go to gaol if she does not act very quickly, insufficient information being given about the transaction, and the transaction effected because the opponent was armed with a power of attorney which authorised him (which authority he used to the full) to complete a transaction to his own advantage and to the detriment of the company and the lady. 167 Mr Pritchard says that the power of attorney was only a minor matter, and really it was only a power to enable Mr Chen to investigate what was going on in Australia. This submission cannot be accepted. The judge found that the intention of Mr Chen to purchase the property himself was formed at a relatively early stage, and indeed, one of his first actions in arriving in Australia was to instruct Mr Mackay to do a title search and prepare a contract for sale in his favour. Then aided by the power given to him by the power of attorney, he was able to complete the contract with minimum input from Ms Yang. 168 In Chan v Zacharia [1984] HCA 36; 154 CLR 178 at 198, Deane J said of fiduciaries: "The equitable principle governing the liability to account is concerned not so much with the mere existence of a conflict between personal interest and fiduciary duty as with the pursuit of personal interest by, for example, actually entering into a transaction or engagement 'in which he has, or can have, a personal interest conflicting ... with the interests of those whom he is bound to protect'. " The quotation comes from Lord Cranworth LC in Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461 at 471. 169 The Court was referred to a number of cases involving breach of duty by agents. In Lowther v Lowther (1806) 13 Ves Jun 95 at 103; 33 ER 230 at 233, Lord Erskine LC said it was one of the clearest principles of equity: "That an agent to sell should not convert himself into a purchaser; unless he can make it perfectly clear, that he furnished his employer with all the knowledge, which he himself possessed." 170 Of course, Mr Pritchard says that Mr Chen was not an agent for sale. I have already dealt with this point against Mr Pritchard. But Lord Erskine's second point is that it is the obligation of the agent to furnish the principal with all the knowledge which he himself possessed and it follows, in my view, that it is his obligation to show that he did that. 171 It may be that it is an overstatement to say that an agent must furnish all the knowledge he or she possesses to the principal; see eg Premium Real Estate Ltd v Stevens [2009] 2 NZLR 384 (NZSC). However, whatever the extent of the obligation as to agent's disclosure, an agent will be in breach of his or her fiduciary duty if non-disclosure amounts to preference to the agent's own interests Stevens at p 399 [27]. 172 Accordingly, in my view the liability grounds of appeal in the Lym matter fail and the appeal basically must be dismissed. I will return to the question of the appropriate remedy after I have considered the merits of the Marcolongo appeal (40118/09). 173 As I have already outlined, the judge's decision in the Marcolongo matter was fairly summary. Essentially he said that Ms Yang had conceded that she had in her mind that both Lym and she herself would be protected from claims arising out of Project 1. Those claims included the claims of Mrs Marcolongo, therefore in arranging for the property at Golf Avenue which was Lym's only existing property in Australia at the relevant time, to be transferred to Mr Chen for virtually nil consideration, it must follow that Mrs Marcolongo was defrauded. 174 With great respect to his Honour the matter is not quite that simple. 175 First, it is necessary to set out the text of s 37A of the Conveyancing Act 1919, the section relied on by Mrs Marcolongo. That section provides: "37A (1) Save as provided in this section, every alienation of property made ... with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced. (2) ... (3) This section does not extend to any estate or interest in property alienated to a purchaser in good faith not having, at the time of the alienation, notice of the intent to defraud creditors." 176 There was some debate before us as to whether Mrs Marcolongo was a creditor within the meaning of the section and whether she was a person prejudiced by the transaction. As Mr Pritchard said, there are really two questions: (a) Mrs Marcolongo's standing to sue; and (b) whether she should be included with others when inquiry is made as to whether creditors were defrauded. 177 It is probably simpler first to examine the second of these propositions. 178 Focusing on whether Mrs Marcolongo can be considered a creditor, it is necessary to consider her status. She is a person with a claim for unliquidated damages in tort pending before the District Court. She would not be a creditor in the ordinary sense of the word because a creditor is a person who is owed money by a debtor, usually a sum certain. 179 However, the word "creditor" is one which is capable of flexibility and is not a word of rigid meaning defined by authority: it is one of varying context whose meaning in any particular statute has to be found by construing the statute and looking at judicial decisions on it; see eg Gibb v Lombank Scotland Ltd [1962] SLT 288. 180 The word "creditors" in the section has been held on more than one occasion to mean present or future creditors, so that if a person fears that his or her activities may generate creditors and puts property out of the reach of such possible persons, the transfer of the property can be attacked under the section; see eg Mackay v Douglas (1872) LR 14 Eq 106. In Barling v Bishopp (1860) 29 Beav 417; 54 ER 689, 17 days before an action in trespass was tried in which Bishopp was a defendant, he transferred his property to his daughter. Bishopp had no creditors at that stage, but Romilly MR had no difficulty at 420 (690) finding that the conveyance was in fraud of creditors saying: "It is obvious that the statute is not, in terms, restricted to existing creditors alone, but that it extends to future creditors also." 181 Thus, if Mrs Marcolongo obtains a verdict in her action, she will become a creditor. It is sufficient if Lym's intention was to defeat future creditors generally of which Mrs Marcolongo might be one. 182 It must be noted that the notice of appeal (Red 170) ground 9 complains of the holding that Mrs Marcolongo was a creditor on the basis that there was no sufficient evidence that her claim would mature into a debt. There was nothing in the notice of appeal itself to suggest that Mrs Marcolongo is not a person prejudiced. 183 However, in the appellant's written submissions, Orange 61, it is put at [42]: "To bring her claim within s 37A(1), Mrs Marcolongo needed to prove that she is a creditor and that she is a person prejudiced by the alienation." 184 The appellant accepted: (a) that prospective creditors may be sufficient for the purposes of the section; (b) that an uncertain and disputed claim for damages is capable of enlivening the section and in that connection quoted words of Austin J in Langdon v Gruber [2001] NSWSC 276 at [58] (to which I will return). However, the appellant put that there was insufficient evidence that Mrs Marcolongo's claim was likely to mature into a debt. 185 The written submissions of Mrs Marcolongo's counsel debated these propositions, see Orange 86 and following. It would seem to me, accordingly, that one should read ground of appeal 9 in a liberal fashion. 186 Mr Alexis and Mr Mitchell for Mrs Marcolongo say [32] that the threshold to sue under s 37A is low: "and is available to: (a) persons intending to bring proceedings: Hall v Poolman (2007) 65 ACSR 123 at [536]; (b) possible creditors: Amann Aviation Pty Ltd v Continental Venture Capital Ltd [2004] NSWSC 228 at [35]; (c) prospective creditors: Green v Schneller (2001) 189 ALR 464 at [15]-[16]." 187 In Poolman, Palmer J merely held that a liquidator who would otherwise have been able to reach an asset which was placed beyond reach by a transaction was within s 37A. This is correct, but of no value in the present case. (The result of Poolman's case was actually reversed by the Court of Appeal; see Hall v Poolman [2009] NSWCA 64; 71 ACSR 139, but the present point was unaffected). 188 In the Amann case, Bryson J said at [35]: "Section 37A of the Conveyancing Act 1919 ... avoids alienations of property with intent to defraud creditors. This extends to possible creditors to whom obligations have not yet been incurred; see Mackay v Douglas (1872) LR 14 Eq 106. I would think that the interests of potential creditors would also be relevant for more generally expressed claims of breach of director's duties to which the interests of creditors are relevant." 189 The reference by Bryson J to Mackay v Douglas shows that he was thinking of the point that an intention to defraud creditors may cover creditors not yet in existence. However, this does not assist the present problem which is whether the claimant is a creditor or person prejudiced. 190 In Green v Schneller, a decision of Barrett J, that learned judge said at [16] (468): "The reference here to intervention by 'the creditors' shows that provisions such as s 37A available to any person 'prejudiced' by the challenged disposition exist for the benefit of creditors as the class most obviously affected by diminution in the property of their debtor. They do not represent the whole of the membership of that class (prospective creditors, for example are also included) ... but they certainly represent a very significant part of it." With respect, this does not take the present matter much further. 191 Again, Langdon v Gruber was a case where the point involved was whether, at the time of the transaction, the claimant could be considered to be a creditor. It does not deal with the question as to whether, at the date of hearing, the plaintiff was a person prejudicially affected. 192 I consider that Mrs Marcolongo must be considered a creditor for the present purpose. 193 As to locus standi, it is my clear view that the Court must make a clear distinction between testing whether, at the time of the transaction, the defendant intended to defeat creditors and the question as to who is a person thereby prejudiced in order to have locus standi to bring proceedings. 194 In the former case, the authorities are clear that it just does not matter whether there are any creditors in existence at that time and a fortiori the position is clear where there is a claim that has been made which is likely to blossom into a debt in the foreseeable future. 195 There is some disagreement between the learned judges who have decided cases on the section in the past as to whether the words "any person thereby prejudiced" refer to a wider class of people than creditors. 196 In Cadogan v Cadogan [1977] 1 WLR 1041, there was debate amongst the various judges as to whether the words "any person thereby prejudiced" extended beyond creditors. At first instance, Slade J said, at 1048, that there were two categories of people who were obviously persons prejudiced: "(1) persons who were creditors of the disponor at the date of the conveyance and whose debts remain wholly or partially undischarged at the date of the hearing; (2) persons who became creditors after [that] date but whose debts remain wholly or partially undischarged at the date of the hearing." 197 His Lordship then said that a third class has no right to impeach the conveyance even though on a generous interpretation of "thereby prejudiced" they might fall within the words, those persons are the grantor himself, his personal representatives and persons claiming under him. 198 His Lordship's statement is supported by cases such as Bill v Cureton (1835) 2 My & K 503; 39 ER 1036. 199 A possible fourth category was postulated, that is, a person who at the time of the transaction is not a creditor, but who has a claim which could result in that person becoming a creditor, is a person prejudiced. Slade J rejected the contention that such persons were "thereby prejudiced" (at 1049). 200 On appeal, Buckley LJ (at 1053 and following) looked at the history of the section and noted it in its earliest form. He doubted Slade J's analysis (p 1056) and said that it was clearly arguable that people could come within the category of persons prejudiced even though they were not properly described as creditors and were not prejudiced in the capacity of creditors. 201 At 1060, Goff LJ considered that "persons prejudiced" was limited to creditors. 202 It is unclear to me as to what the third judge, Shaw LJ, was indicating his assent. 203 As to locus standi, whilst there is a grey area, which may include claims by liquidators, may include claims by remaindermen etc, it seems to me the authorities support the general proposition that at the date of hearing or at the date of filing the summons, a person prejudiced is a person who is owed a debt, (Cadogan v Cadogan at 1048). I have not seen any case where this has not been so. 204 In my view the person seeking an order under s 37A of the Conveyancing Act must show that he or she is a person prejudiced, whatever the width of that expression, as at the date of the hearing (or perhaps the filing of the application); see eg Griffiths v Falck [2008] NSWSC 998; 220 FLR 278 at 281 [24], a decision of my own on a different factual situation. This is in accordance with what Slade J said in Cadogan's case. 205 In his oral submissions, Mr Pritchard clearly distinguished between the two parts of the section. To show that creditors have been defrauded, one takes into account prospective contingent and other persons including people who have unliquidated claims in tort. That is what happened in Bishopp's case, supra. However, for the purpose of working out who is prejudiced, there needs to be an actual debt as at the date of the action or filing of the statement of claim. 206 The actual debate on the point tended to focus more on whether there was sufficient evidence before the primary judge that Mrs Marcolongo's claim would mature into a debt. This may have been necessary to show that she was one of the people who were likely to be creditors, but was quite irrelevant as to whether she was a person "thereby prejudiced". 207 In my view, Mrs Marcolongo did not have locus standi to pursue the claim. 208 However, I must concede that there are some solid arguments the other way, and so it is necessary for me to look more deeply into the operation of s 37A of the Conveyancing Act. 209 The main contest was whether the section requires some dishonesty to be shown where the conveyance is for consideration and whether, in this case, that element has been satisfied. 210 Before dealing with the authorities, I should set out a series of propositions which appear to be non-controversial, but are useful to bear in mind when looking at the more precise question posed about the element of dishonesty. 211 First, Mr Pritchard put that where property is exchanged for other property, there is a mere conversion or exchange of one asset for another and not an alienation that comes within s 37A. 212 I accept that this proposition is mainly correct, but it is not completely correct. So if a person sells all his property to a company in consideration of the issue of fully paid shares in the company, that transaction may well be an alienation in fraud of creditors; see eg In re Carl Hirth; Ex parte The Trustee [1899] 1 QB 612 (CA); In re Fasey; Ex parte Trustees [1923] 2 Ch 1. 213 Indeed, even transactions designed to defeat execution are vitiated by s 37A, certainly if made voluntarily and in some circumstances even if made for valuable consideration. This proposition is supported by old authorities when only certain types of property could be taken in execution: see Kerr on the Law of Fraud and Mistake 7th ed (Sweet and Maxwell, London, 1952) at 354. 214 Accordingly, all the leading cases under s 37A or its equivalent suggest that the focus is on intention. The intention must be to deprive the creditors of something to which they would otherwise be entitled. 215 To find such intention one looks at all the facts including evidence of subjective intention and in particular looks at the nine "badges of fraud" as they were called by Lord Hatherley LC in Allen v Bonnett (1870) LR 5 Ch App 577 at 579. These derive from Twyne's case (1601) 3 Co Rep 80b; 76 ER 809, a decision of the Star Chamber and provide a check list for when a court is looking to see whether a conveyance for value was fraudulent. 216 The nine badges are (see Kerr on Fraud and Mistake at 350 and following) in summary as follows: (1) A conveyance of the whole of a person's property is a badge of fraud. (2) The second badge of fraud is the donor's continuance in possession of the property. (3) Secrecy of transfer. (4) Conveyance made pendente lite. (5) A trust or reservation for the grantor's benefit. (6) Unusual statements of fact in the deed (so a statement that the deed is made without any fraudulent intent is a suspicious circumstance). (7) Power of revocation. (8) False statements in the deeds. (9) Inadequacy of consideration. All of these flow from Twyne's case. 217 Accordingly, if one has a transaction like one used to have when one was barring an entail, an estate in fee simple was given up in exchange for a debt owed by a man of straw, the mere fact that there is an exchange of property would be insufficient to take the case out of a statute. 218 In May on Fraudulent and Voluntary Dispositions of Property, 3rd ed (Stevens and Haynes, London, 1908), the learned editor said at 68: "It is material to investigate the amount of property withdrawn from the reach of creditors in proportion to their demands, and the value and tangibility of that substituted in its place; for the consideration may be given in such a form as to defeat creditors; as where it consists in an agreement to maintain the grantor during his life, or to indemnify him against debts which he owes ...". 219 May's basal proposition comes from Dewey v Bayntun (1805) 6 East 257; 102 ER 1285. 220 The next proposition I should consider is what was put by Mr Pritchard in reply that potential debtors are not obliged to retain property for the benefit of potential creditors. I believe this proposition is correct and flows from the authorities, though one can't quote a simple chapter and verse for it. 221 Next, in the words of Kerr at 342 (exactly the same words are in May at 62): "The fraudulent intent ... is not established by evidence merely that the result of the conveyance has been to delay or exclude creditors. So, the fact of a bona fide creditor being defeated is not in itself a sufficient ground for setting aside a deed founded on valuable consideration." 222 The principal authority given is Freeman v Pope (1870) LR 5 Ch App 538. It is not the mere fact that the creditors have been impeded by the conveyance or even that that consequence is the probable result of what happens. One must be a little careful here because one is really dealing with a question of fact and there may be situations where a jury or other finder of fact will be justified in taking the view that a person must intend the natural and inevitable consequences of his or her acts. 223 As Pennycuick VC said in Lloyds Bank Ltd v Marcan [1973] 1 WLR 339 at 344: ''The word 'intent' denotes a state of mind. A man's intention is question of fact. Actual intent may unquestionably be proved by direct evidence or may be inferred from surrounding circumstances. Intent may also be imputed on the basis that a man must be presumed to intend the natural consequences of his own act .... ." 224 Pennycuick VC's judgment was criticised in part on appeal (though the appeal was dismissed), in Lloyds Bank Ltd v Marcan [1973] 1 WLR 1387, a case which will have to be discussed subsequently. However, in my view, his Lordship's statements which I have quoted remain correct. 225 The authorities also make it clear that intention to defraud need not be the only intention that a person has when making the alienation: Barton v Deputy Commissioner of Taxation of the Commonwealth of Australia [1974] HCA 43; 131 CLR 370 at 375. However, the intention to defraud creditors must be a prominent part of the intention of the debtor; see Williams v Lloyd [1934] HCA 1; 50 CLR 341. 226 Next, one can have a transaction whose design is to remove property out of the reach of a particular person who happens to be a creditor without offending the section. So if a person has two creditors, one of whom he or she dislikes intently and pays all of his or her assets to the other without there being a fraudulent preference, then the transaction is not able to be attacked under s 37A: see Re Kelly; Ex parte Young (1932) 4 ABC 258 at 261-2; P T Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515 at 525; Cannane v J Cannane Pty Ltd; Cannane v Official Trustee in Bankruptcy [1998] HCA 26; 192 CLR 557 at 574 and May on Fraudulent and Voluntary Dispositions of Property at 76-78 and 139. 227 This follows from the proposition that the section is aimed at defeating creditors as a class. Thus, whilst it is not necessary that there be any actual creditors as at the date of a transaction, it likewise follows that if a person is discriminated against because of his or her personality rather than the fact that he or she belongs to a class of creditors, the section does not apply. 228 Finally, one has to look at the situation as at the date of the transaction. It is at that time, and that time only, that one judges the intent of the disponor, though in appropriate cases what happened afterwards may be used as evidence as to the intent as at the date of the transaction: see Kerr on Fraud and Mistake at 303 supported by In re Maddever (1884) 27 Ch D 523 at 530-531. 229 I now turn to the essential question, and that is, whether it is necessary to show dishonesty when finding an intent to defraud. Mr Pritchard submits that there was no dishonesty found by the primary judge. 230 Although it is true that the primary judge did not make any explicit finding that Mr Chen's conduct was dishonest, he certainly indicated that he thought he had stated such a finding. For instance, at Red 162 in one of the primary judge's supplementary judgments, that of 16 March 2009, his Honour said at [21]: "As already appears more than once in respect of Mr Chen's conduct, there is not an allegation, but a judicial finding, of substantial dishonesty." 231 Of course the real concern is not so much with Mr Chen's honesty as with that of Ms Yang. 232 There is no finding that Ms Yang was dishonest. 233 The Marcan case ([1973] 1 WLR 1387) on appeal was heard by Russell and Cairns LJJ and Goulding J. Russell LJ said at 1390 that a debtor is, in the ordinary case, acting in a fashion not honest if he or she: "disposes of an asset which would be available to his creditors with the intention of prejudicing them by putting it, or its worth, beyond their reach". 234 Cairns LJ said at 1392 that, whilst his mind had fluctuated on the question, he had reached the view that "fraud involves dishonesty". 235 The third judge did not deal with the point. 236 An allied point which I should mention at this stage because it is intertwined with the primary problem, is that if the primary purpose of the transaction was to remove Ms Yang from the trauma of holding the property and the effect on creditors including Mrs Marcolongo was "merely incidental", is that sufficient to bring the case within the section? 237 Counsel referred us to the recent decision of Owen J in the Western Australian Supreme Court in The Bell Group Ltd v Westpac Banking Corporation (No 9) [2008] WASC 239; 225 FLR 1. 238 At [9146] (736), his Honour sums up his view of s 37A (the Western Australian equivalent thereof) as follows: "(1) The person seeking to set aside a disposition must prove that the disponor has a real or actual intention to defraud creditors. 'Defraud' includes defeat or delay. (2) A real or actual intention means a dishonest intention. (3) Intention can be established by inference. (4) If the natural and probable consequences of the disposition are such that its effect will be to defeat or delay creditors, the necessary inference can be drawn and a court might more readily do so. But a finding to that effect is a finding of an actual or real intention, not one that is imputed to the disponor by virtue of a legal presumption. (5) The essence of the concept of defrauding creditors lies in a disposition which subtracts from the property which is the proper fund for the payment of the debts, an amount without which the debts cannot be paid. (6) Other relevant circumstances from which the necessary inferences might be drawn include: (a) the insolvency or difficult financial circumstances of the disponor (although establishing insolvency at the time of the disposition is not a necessary element); and (b) whether the transaction was voluntary or the consideration was colourable, negligible or trivial. (7) It is not necessary to establish that the intent to defraud was the only intent with which the disponor acted. (8) It is not necessary that the disposition affects creditors as a class generally; it is sufficient if one or some creditors are adversely affected. In this context 'creditor' is not confined to those to whom a debt is (at the time of the disposition) presently due and owing. It extends to impending liabilities and future creditors." 239 His Honour starts his discussion of s 37A at [9097] (726). It seems to me convenient to look at Owen J's judgment from that paragraph onwards and pick up the various threads which lead his Honour to the conclusions which I have noted and then examine the conclusions to see whether I fully accept them. 240 At [9098] (726) Owen J notes that it is the intent of the entity disposing of the property that needs to be examined. The state of mind of the entity receiving the property is not the focus though it may be relevant to the question of good faith. 241 That causes a problem in the instant case because, for the reasons discussed in the Lym case, the real fraudster was Mr Chen rather than Lym. Whatever Lym's intentions were, they were formed principally from the influence of Mr Chen. Notwithstanding this, one must look to see the intention of Lym at the date of the disposition, whether it was fraudulent predominantly or not. 242 At [9104] (728), after citing Williams v Lloyd at 371-2 and other cases dealing with whether a person is presumed to intend the natural and probable consequences of his or her action, his Honour concluded at [9109] (729) "that an intention to defraud creditors may be inferred where this is a necessary consequence of a disposition". There is no real dispute about that proposition. 243 His Honour then goes to the meaning of "intent to defraud". He starts with Hardie v Hanson [1960] HCA 8; 105 CLR 451. That case involved s 281 of the then Companies Act 1943-1957 (WA) which allowed the court, on the application of a liquidator; to declare directors personally liable for the company's debts. What had to be determined was whether any business of the company has been carried on with intent to defraud creditors. The headnote of the case says that incurring liabilities without any reasonable prospect of being able to pay will not of itself show that the directors of the company have carried on the business with intent to defraud creditors. The intent to defraud must be express or actual and real: nothing constructive: imputed or implied will do. 244 Dixon CJ at [4] (456) noted that the intent involved was a "real" intent and cited an old bankruptcy case Reg v Ingham (1859) Bell 181 at 185; 169 ER 1221 at 1222 which described what was necessary was "an intent by deceit to deprive creditors of something to which they are entitled". 245 Ingham's case was actually a case before the Court of Crown Cases reserved on appeal from a trial at the Old Bailey. It was heard by 5 of the 12 judges of England. 246 The point there was that the defendant who later became bankrupt, had adjusted his records to make it appear he was insolvent. He thus aimed to deceive his creditors, but not so that any of them would be deprived of money which was rightfully theirs. The court ruled that in order to be guilty of an offence of a bankrupt making a fraudulent entry in a book of accounts with an intent to defraud his creditors, the intent must not only be to deceive the creditors, but also to defraud them out of some money. 247 Kitto J said in Hardie's case at 463-464 that what was looked for was: "An actual purpose, consciously pursued, of swindling creditors out of their money .... It was not enough ... to prove that the appellant acted with blameworthy irresponsibility, knowing that he was gambling (in effect) with his creditors' money ... " 248 In the same case, Menzies J had said at 466 that what was required was "actual dishonesty involving real moral blame". 249 Owen J quoted much of the above and then said at [9118] (730): "If the matter rested there, the use of the words 'cheat', 'deceit' and 'swindle' would be compelling support for the narrower approach [of the phrase 'with intent to defraud creditors']." 250 With respect, I doubt whether one can use what the judges said in Hardie to draw this compelling conclusion. Although Sir Owen Dixon used the word deceit, it should be remembered that in Ingham's case at 185 (1222) Pollock CB said: "If a man wears an apron to conceal his worn out clothes he deceives, but he does not defraud. On some occasions both words mean to cheat, but to defraud means to cheat a person out of something." 251 All the High Court seems to me to be saying in Hardie v Hanson was that to make a director personally liable there had to be dishonesty. That was a construction of the particular section and, with respect, does not provide very strong guidance for the present problem. 252 Owen J then refers (at [9119] (730)) to Re Barnes; Ex parte Stapleton [1962] Qd R 231 at 237 and a decision in this State in Electrical Enterprises Retail Pty Ltd v Rodgers (1988) 15 NSWLR 473 at 497. 253 Barnes was an application under s 46 of the Queensland Mercantile Acts 1867 to 1896 corresponding to s 37A. All that Gibbs J said at 237 was that: "Actual fraud, that is an actual intention to defeat or defraud creditors, must be established, and whether the existence of such an intention should be inferred from the circumstances is a question of fact." This is hardly a world shattering statement. 254 In Electrical Enterprises all Kearney J said at 497, following Williams v Lloyd at 372 and Lloyds Bank v Marcan per Cairns LJ at 1392 per Cairns LJ: "deceit is not a necessary element but ... dishonest intention is, at any rate when the conveyance is for consideration", was that a real intent to defeat or delay creditors must exist. 255 The next case in chronological order is the decision of Ipp J (when a judge in Western Australia) in Wickham v Autingo Pty Ltd (1993) 8 WAR 376. In that case, his Honour said at 379, after analysing some of the cases: "While the onus remains at all times on the person seeking to set aside a transaction to prove intent to defraud, the requisite intent is capable of being proved 'by inference from the known facts'. The issue to be determined by reference to the evidence as a whole, including oral testimony of subjective intention. Dishonest intention will be more readily inferred where there is a disposition without consideration; nevertheless, all the evidence has to be weighed with a view to establishing whether or not there has been an actual intent to defraud." 256 The other cases relied on by Owen J are cases decided under s 121 of the Bankruptcy Act 1966 prior to it being recast in 1996. 257 The first is the decision of the Full Federal Court consisting of Wilcox, Gummow and Von Doussa JJ in P T Garuda Indonesia Ltd v Grellman. That was a case where an employee of Garuda had stolen money from it and in order to avoid prosecution an arrangement was made between the employee who later became bankrupt and Garuda which had the effect of giving Garuda a preference. 258 At 522, the court points out that in reading the authorities one must keep in mind the distinct statutory context in which they appear and in particular one must remember that on the face of it s 6 of the Bankruptcy Act 1966, which makes a reference to an intent to defraud creditors as including an intent to defraud, defeat or delay any one or more of those creditors, only applies to the bankruptcy situation. 259 There are very real differences between the operation of s 37A and the pre-1996 version of s 121 of the Bankruptcy Act 1966 (Cth). 260 Thus, a disposition of property void in bankruptcy as being opposed to the policy of the bankruptcy law that is pari passu disposal of the bankrupt's property between creditors is not necessarily void against creditors under s 37A: see Kerr on Fraud and Mistake (7th ed) at 302-303, approved in Garuda at 526 (the Court in Garuda referring to the 6th edition). 261 There is an article by W A (Tony) Lee in (1973) 47 ALJ 365 which, in some detail, examines the present statutory provisions entitled "Trusts and Bankruptcy". At 367 and following the learned author deals with the contradictory attitudes to the phrase "intent to defraud", noting that they have never been particularly well explained even by the monograph. Mr Lee takes the view that while it is doubtless convenient for courts wishing to find for the plaintiff to use one test and for those intending to find for the defendant another, the "more rational and modern test of 'intent to defraud' is that of reasonable foreseeability: that is, that if it is reasonably foreseeable that a voluntary conveyance will result in the defeat, hindrance or delay of a creditor, then the conveyance should be set aside. But if it is not, it should not be set aside." A test of reasonable foreseeability fulfils the purpose of the statute by having a flexible test. 262 The learned author notes that his test was virtually applied in the Federal Court of bankruptcy in Re Mackay (1951) 16 ABC 18. However, in view of later decisions of superior courts, probably his view cannot now be adopted. I note it for completeness. 263 Essentially, the Full Federal Court in Garuda decided (see 526), that under s 121 of the Bankruptcy Act in its old form: (a) the intent referred to may be inferred from the known facts, see Noakes v J Harvy Holmes & Son (1979) 37 FLR 5 at 11; Official Trustee v Marchiori (1983) 69 FLR 290 at 296; and (b) an intention to defraud or defeat or delay some one or more of the creditors of the disponor may be inferred where this is the necessary consequence of a disposition to stave off action by another creditor or creditors; and (c) an intention to defeat future creditors may be sufficient in particular circumstances; and (d) the class of creditors is not limited to those who at the time of the dispositions had claims which were susceptible of proof in bankruptcy nor is it necessary that an intent to defraud creditors be the sole intent of the debtor. 264 It thus follows that in bankruptcy, proof that the debtor intended to defraud a particular creditor will be sufficient whereas under s 37A it may very well not be if, as I have already said, the debtor intended to do one particular creditor in the eye because of that creditor's personality rather than the fact that that creditor was a member of a class of creditors: see World Expo Park Pty Ltd v EFG Australia Ltd (1995) 129 ALR 685 (Queensland Court of Appeal). 265 World Expo Park case itself was a case under s 565 of the Corporations Law (now s 565 of the Corporations Act 2001 (Cth)). Although s 565 of the Corporations Act 2001 (Cth) applied s 121 of the Bankruptcy Act in its pre-1996 form to corporations, that state of affairs only existed until 23 June 1993 when a new provision, basically s 588FE(5) of the Corporations Act 2001 in a different form replaced it. 266 The majority in the World Expo Park case (Fitzgerald P and Derrington J, Pincus JA dissenting) held that a transaction which gave one creditor a preference over all other creditors in a fund to be received from the Queensland Government which was the company's sole substantial asset (where the natural consequence must be to exclude all other creditors from distribution pro rata) constituted an intent to defraud those creditors. If dishonesty was the test, then this was dishonest. 267 Pincus JA dissented on the basis that, if the majority's analysis was correct, ss 121 and 122 of the Bankruptcy Act covered the same ground and s 122 would be otiose, see p 707. Pincus JA mentioned at 708 that cases like Hardie v Hanson showed that intent to defraud was not used in some limited or technical sense as s 121 but required proof of actual fraudulent intent. 268 The High Court considered s 121 in its pre-1996 form in Cannane v J Cannane Pty Ltd (supra). The basal facts were that a company, Carbon Consulting International Pty Ltd, was about to become the vehicle for a backdoor listing on the Stock Exchange. Mr Cannane so organised his affairs that other members of his family would benefit from that listing, rather than he and another one of his companies which were teetering on the brink of insolvency. Later, Mr Cannane became bankrupt and his trustee sought to upset the transactions pursuant to ss 120 or 121 of the Bankruptcy Act 1966 (Cth). 269 Tamberlin J at first instance, and the majority in the Full Federal Court (Beaumont and Hill JJ) found that Mr Cannane's object was to quarantine the shares beyond the reach of creditors and that that object satisfied the requirement of an intent to defraud creditors for the purposes of s 121 of the Bankruptcy Act. Lehane J dissented saying (1996) 65 FCR 453 at 476: "I find difficulty in seeing how creditors are defrauded ... except by a transaction which in some way depletes, or makes less accessible or advantageous, the assets which will be available for creditors if the debtor becomes bankrupt." 270 In the High Court, Brennan CJ and McHugh J held at [16] 568 that the evidence showed that Mr Cannane's intention was not to cheat the creditors of the benefit of the CCI transaction, but to provide the vehicle for conveying the benefit of that transaction to his children. Gaudron J said at [30] 572 that the notion of fraud was a notoriously difficult one for which to provide an exhaustive statement, but that it involved the notion of detrimentally affecting or risking the property of others or an opportunity or advantage which the law accords to them. Section 121 of the Bankruptcy Act depends on the intent of the bankrupt. In the present case the creditors had no right in relation to the CCI shares and there was no intent to defraud on the part of Mr Cannane. 271 Gaudron J, however, remarked at 572: "'Fraud' involves the notion of detrimentally affecting or risking the property of others, their rights or interests in property, or an opportunity or advantage which the law affords them with respect to property. Conversely, it is not fraud to detrimentally affect or risk something in or relation to which others have no right or interest or in respect of which the law accords them no opportunity or advantage. And there is not intent to defraud if the person in question believes that others have no right or interest in or in relation to the property concerned and that the law accords them no opportunity or advantage with respect to that property." 272 Gummow J came to much the same conclusion as Lehane J had in the Federal Court. At 578 he adopted the words of Hardie v Hanson that there needs to be an intent shown to cheat present and future creditors of their rights. He also said at [58] (579) that: "It may be conceded that, if the disposition in question is made with intent to defraud creditors ... the existence of a second or further intention may not be inconsistent with the first." 273 Kirby J dissented. His Honour noted at [89]-[91] (589-590) that there has been divergence in the approaches taken by Australian judges to the requirements of s 121 and that at one end of the spectrum is the judgment of Kitto J in Hardie v Hanson. The other was as per Garuda that an intention to defraud creditors is established merely because of an intention to deprive creditors of recourse against assets. At [92] (591 and following), his Honour set out six points germane to s 121 of the Bankruptcy Act. These points might be briefly summarised as follows: (1) The object of the section to prevent insolvent debtors dealing with their property to the prejudice of creditors must be borne in mind and assistance can be gained from cases under s 37A and the equivalent. (2) The mere fact of disposition of a property by a debtor is not sufficient to attract the section. There must be a coincident intention to defraud. (3) Proof of intention always presents difficulties. It is not necessary to establish that the disponor actually had in mind an intention to defraud. However, the court must divine the real intention of the transferor decided objectively. (4) All the circumstances of the case must be considered. (5) It is not necessary to show that an intent to defraud was the sole intent of the debtor. (6) The burden of proof lies upon the trustee. 274 His Honour held that the preliminary disposition of property, which enabled the children to benefit from the CCI transaction, was thus a disposition of property with intent to defraud creditors. 275 The next case to consider is Emanuel Management Pty Ltd v Foster's Brewing Group Ltd [2003] QSC 205; 178 FLR 1, a decision of Chesterman J. At 107 his Honour set out the terms of s 121 at the relevant time and referred to the judgments of the High Court in Cannane noting that four judges had employed words such as "cheating or deceiving creditors". At 111 Chesterman J said that in so far as the proposition is put that irrespective of the presence or absence of an actual fraudulent intention, if the result of the dealing is to put property beyond the reach of creditors, the transaction will be considered as fraudulent under s 121. That proposition and any statement in the World Expo Park case is misplaced in view of the majority view in Cannane. 276 In Andrew v Zant Pty Ltd [2004] FCA 1716; 213 ALR 812, Hill J appears to have applied Garuda though he referred to Cannane and indicated that all that was needed is that the court could infer, in a case where there was an alienation of property and insufficient funds for the payment of creditors, an intent to defraud. 277 In Zant's case, Hill J did not appear to consider there was any real difference between the various tests and found that in all the circumstances he could readily infer intention to defraud in the case of a person whose activities showed that he was prone to fabricating documents and was otherwise of low business morality. However, it must be remembered as appears from [80] of the judgment at 830-831, that Hill J was dealing with s 121 in its post-1996 form which is in different terms in material respects to its predecessor. 278 The post-1996 form of s 121 of the Bankruptcy Act refers to the main purpose of the transaction. This does not come into the cases on s 37A. 279 However again one must be careful not to be too clever with words. Cases such as Marcan and Agricultural Mortgage Corp v Woodward [1995] 1 BCLC 1 show that a principal purpose may be to keep one's home and business by entering into a gift or lease transaction with one's spouse. However, such a transaction with its direct and foreseeable effect of removing an asset from the creditor's reach will offend against legislative provisions against fraudulent conveyances. 280 The New Zealand courts have considered their equivalent of s 37A in a number of recent cases. 281 In Re Hale [1974] 2 NZLR 1 (Perry J) and on appeal (1975) [1989] 2 NZLR 503n, the New Zealand courts considered the case of a man who in 1967 provided a statement of affairs showing that he was not able to pay all his unsecured creditors, yet in July 1968 gave his wife a mortgage to secure a loan she had made to him. The courts held that in all the circumstances, the mortgage was not voidable. The mere fact that a person intended to prefer his spouse to other creditors was insufficient to fall within the section. 282 In the Court of Appeal, Richmond J, with whom Woodhouse J agreed, set out five principles. In a simplified form, these are as follows: 1. No alienation of property can be caught by the section unless it is first shown to have been made with intent to defraud creditors. With the possible exception of a voluntary alienation made by an insolvent debtor ( Freeman v Pope (1870)) the existence of an intention to defraud is a question of fact to be decided by a consideration of the alienation in the light of all the circumstances … .The onus of establishing intent to defraud rests on the party attacking the transaction. 2. If there is an intention to prejudiced creditors by putting an asset wholly or partly beyond their reach then that will be an intent to defraud creditors provided that in the circumstances the debtor is acting in a fashion which is not honest in the context of the relationship of debtor and creditor. 3. If the real object of an alienation is to give a preference to an existing creditor then the alienation will not be made "with intent to defraud creditors" merely because it has that effect. 4. The fact that a charge is given to secure a past debt without any present consideration does not make the alienation a voluntary one within the principle of Freeman v Pope 5. If the real object of the alienation was to defraud creditors then the fact that one creditor incidentally got a preference as a result of the alienation does not prevent the transaction from being voidable, Re Fasey [1923] Ch 1. 283 In Regal Castings Ltd v Lightbody [2009] 2 NZLR 433, the Supreme Court of New Zealand endorsed Re Hale. 284 Elias CJ said at 442-3 [5]-[6]: "The meaning of 'intent to defraud' has been held to include the purpose of delaying as well as defeating creditors…. The question of intent to defraud is one of fact. It must be determined at the time of alienation, but the intended prejudice may be to future creditors, rather than creditors existing at the date of the alienation. Absence of full value obtained for an asset transferred is evidence from which an inference of intent to defraud may be taken. But full value of itself may not be sufficient to displace an intent to defraud. … If the debtor retains the benefit of the property, that may be evidence of fraudulent intent. But a bona fide family arrangement is not evidence of intent to defraud. Nor is an arrangement to prefer one set of creditors to others evidence from which an intent to defraud can be inferred…." 285 Blanchard and Wilson JJ said much the same at p 451 [40] but noted that an intention to defraud was not established merely by showing that an alienation had the effect of defeating a creditor. Inevitability of loss had to be apparent at the time of the transfer. 286 The majority of the New Zealand judges in Regal Castings apply what Gaudron J said in Cannane at p 572 which I have quoted in [271] above. Tipping J, however, considered Gaudron J in error in one respect. It is unnecessary to consider this view in Australia. 287 Mr Pritchard puts at [30] in Orange 59 that he accepts that the relevant fraudulent intention does not need to be the sole motivating factor of the transfer. However, he puts: "The intention must be a sufficiently significant motivating factor to warrant the conclusion that the disponor's intention was a dishonest one." 288 I would agree with the principle in that submission. The mere fact that a creditor or creditors generally may be by-passed is insufficient. One must focus on the actual intent of the disponor and ask whether there was a sufficient motivating factor in the transaction that creditors would be defrauded and by-passed. 289 In Trustees of the Property of Cummins v Cummins [2006] HCA 6; 227 CLR 278, the High Court considered s 121 of the Bankruptcy Act in its post-1996 form. The High Court confirmed that creditors normally included future creditors. I only mention the case because it is referred to by Owen J in Bell at [9146] (736). 290 The same could be said about the other case to which his Honour referred: Peldan v Anderson [2006] HCA 48; 227 CLR 471. Again, a case involving s 121 of the Bankruptcy Act in its post-1996 form. 291 Finally, I should refer to the decision of this Court in Wentworth v Rogers [2004] NSWCA 430 particularly at [62]. That was a case where the plaintiff alleged that her former husband who owed her money had disposed of property to his second wife so as to defraud creditors. The primary judge said that he was not satisfied that that was so and dismissed the claim. The plaintiff appealed. 292 The Court consisted of Hodgson and Santow JJA and Hislop J. The leading judgment was given by Hodgson JA with whom the other judges agreed. At [62] Hodgson JA said: "The onus lies on the person seeking relief under s 37A to prove 'intent to defraud creditors'. It is not necessary to show the elements of the tort of deceit: what is required is an intent to defeat or delay or hinder creditors. It is not entirely clear if there is a superadded requirement to show dishonesty; but in any event, if there is an intent to defeat or delay or hinder creditors, dishonesty will readily be inferred, particularly if the alienation is not for consideration. " 293 The Court held that on the facts the judge was justified in declining to find that the transaction was entered into with intent to defeat creditors. Accordingly, his Honour's remarks as to dishonesty were obiter. 294 I now return to consider what Owen J said in Bell at [9146]. 295 I have slowly analysed the cases to which his Honour referred. They do have a flavour that dishonesty is required before a plaintiff can succeed under the section. However, it seems to me that the principal point being made by authorities which stress dishonesty, is that the section is not dealing with a situation where there is constructive fraud or equitable fraud, but on a par with fraud in the Torrens system one is dealing with real actual fraud which almost always involves an element of dishonesty. Of course, dishonesty is in itself a very broad concept, probably extending from overriding one section on a public omnibus to defrauding fines of $20 million. 296 The emphasis on dishonesty must not distract from the main focus of the section which is proving the actual intent of a disponor. 297 The cases show, to my mind, that where there is a disposition without consideration, then one presumes an intention to defraud and also presumes the element of dishonesty. 298 Where the transaction is for consideration, again one must look at the actual intent. That intent is to be gleaned on all the facts of the case including subjective statements of intention and bearing in mind the nine badges of fraud. The mere fact that a creditor would miss out on receiving a payment which he or she might otherwise have obtained is not enough. To an extent, one assumes that a person foresees the natural consequences of his or her act, but one must be very careful not to judge that in hindsight. 299 To a considerable degree we are really involved in a battle of semantics. Some good common sense is found in what Russell LJ said in the Marcan case on appeal (at 1390) that, ordinarily, a person who disposes of an asset with the intention of prejudicing his or her creditors is being dishonest. 300 This dovetails with what Hodgson JA said in Wentworth v Rogers that it is not entirely clear whether there is a superadded requirement to show dishonesty. The element of dishonesty may well be inherent in the required intention to defraud creditors. 301 I would speculate that in a case it may be possible for the plaintiff to prove a claim made under s 37A without showing actual dishonesty. However, in the "ordinary" case, it would almost always be the situation in a conveyance for consideration that some actual dishonesty in the wide sense at least would come into play. 302 Accordingly, although, with great respect, I do not fully accept what Owen J said in Bell at [9144] that an actual dishonest intent is required, I am not far away from that proposition in what I have just outlined. 303 As I remarked during argument, at [9141] Owen J used rather odd words, if I could say so with respect, that is: "The concept of an intent to defraud carries with it the need to establish some subjective element approaching dishonesty". [My emphasis] 304 Although that is rather nebulous, it does seem to me that it gets fairly close to my summation of the authorities, and that is that, in the ordinary case, actual fraud which involves some element of dishonesty, needs to be established, but may well appear from the facts as found. 305 Now turning to Hamilton J's decision, Mr Pritchard says that as his Honour never found dishonesty, the appellant must succeed. 306 I do not think that the case can be resolved as simply as that. 307 It will be remembered that the primary judge found that Amanda had said at a conference with Mr MacAvoy that the mortgage would be paid out and the balance would be paid to Lym. The judge found that Mr Chen had never said this, and Amanda had no authority to make the statement, but nonetheless, Amanda did make it, Ms Yang believed it, and it motivated her actions on behalf of Lym. 308 The judge's finding was that Lym entered into this transaction because it was a way of eliminating the trauma of Lym's Australian assets and believing that there would be money over and above the amount needed to discharge the Kingsway Mortgage available to the company. 309 Whilst it may well be that Ms Yang realised that there were claims and perhaps even Mrs Marcolongo's claim which could be affected if the Golf Avenue property was sold, if money was going to flow through to Lym, there is no reason to find that she acted in fraud of Mrs Marcolongo or any other creditor. 310 Even if one pursued the motto that a person is to be held to be intending the natural consequences of their acts, there would be insufficient for any judge to find an intent to defraud. 311 Accordingly, in my view, Mrs Marcolongo's case fails. 312 I would propose, accordingly, in 40118/09 that: (1) The appeal be allowed; (2) The orders of Hamilton J in favour of the first respondent Mrs Marcolongo be set aside; (3) In lieu thereof the order be made that the first respondent's claim be dismissed with costs; (4) Order that the first respondent pay the appellant's costs of the appeal; (5) If qualified, the respondent, Mrs Marcolongo, to have a certificate under the Suitors' Fund Act 1951. (6) No order as to the costs of the second respondent. 313 I now turn to the question of remedy in 40119/09. 314 The orders made by the primary judge were, in summary, as follows: (1) Declare that the contract for sale, whereby Mr Chen purchased the Golf Avenue property, and the resulting transfer were entered into and put into effect in breach of Mr Chen's fiduciary duty to Lym. (2) Order that that contract for sale and transfer be rescinded and set aside. (3) Declare that Mr Chen holds the property which has now become Lots 1 to 6 and 8 to 12 and 14 in Strata Plan 79487 ('the Units") in trust for Lym. (4) (a) Order that Mr Chen forthwith execute a transfer in registrable form of the Units subject to the Westpac mortgage and to existing tenancies; (b) If there is non-compliance with order (a) appoint the Registrar to execute the appropriate documents on behalf of Mr Chen. (5) Order that upon Lym receiving a transfer in registrable form of the Units: (a) it is to pay the interest payments falling due under the Westpac mortgage, Lym being entitled to receive the rents payable under existing tenancies; and (b) Lym indemnify Mr Chen in respect of future interest under that mortgage. (6) (Definitions) (7) Order that there be an inquiry to determine the accounts between the parties. (8) Order that an Associate Judge conduct the inquiry and certify the results of the inquiry to the Court. (9) Order that upon the transfer of the Units: (a) there shall be a charge in favour of Mr Chen in respect of certain amounts; (b) subject to sub-paragraph (c) the charge to take priority next after and subject only to the Westpac mortgage; (c) the charge shall not take priority over Mrs Marcolongo. (10) Declare that the transfer of $1,118,000 by Mr Chen from the Commonwealth Bank was a misappropriation. (11) Declare that the transfer of $120,000 from Jasmine's account amounted to misappropriation. (12) And (13) judgment accordingly (13) " " (14) An order for costs. (15) An order for interest. (16) An order for payment out for the security for costs. (17) Upon the plaintiffs by their counsel giving the usual undertaking as to damages, restrain Mr Chen from further encumbering the Units without prior warning and require Mr Chen to place the proceeds of the sale of Units into a controlled monies account operated by the plaintiffs' solicitors and place any monies received from the revenue authorities in respect of refund of stamp duty into the same account. (18) Restrain Lym from further encumbering the Units without permission and order it to place the proceeds of sale of Units into a controlled monies account. (19) Providing exceptions to orders (17) and (18). (20) to (23) Consequential orders. 315 There were ten grounds of appeal with respect to the orders made by the primary judge. One of these, the matter set out in appeal ground 30 that there was no justification for giving Mrs Marcolongo preference over Mr Chen has evaporated in view of my finding on the Marcolongo appeal. However, even if that were not the case, there was no justification in making such an order because at no stage has Mrs Marcolongo any valid claim to be paid ahead of anybody else. The mere fact that she has made a claim which is before the District Court and may be entitled to apply under s 37A of the Conveyancing Act 1919 does not give her any more security than a Mareva injunction would. In other words, no security. 316 Accordingly, I turn to the other 9 grounds of appeal and it will be convenient to deal with them in a slightly different order than listed in the notice of appeal. 317 A. I will deal first with the objection that it was wrong to order transfer of the Units without requiring Lym to repay the mortgage to Westpac in full as a condition of the transfer (ground 27). 318 Lym succeeded in equity for breach of fiduciary duty. Whenever a person has an equity against another person, that person is required to "do equity". Indeed, in earlier days, unless the statement of claim contained an offer to do equity, the suit was demurrable. Snell's Equity, 31st ed (Thomson Sweet and Maxwell, London, 2005) [5-09] says that this means: "To obtain equitable relief the claimant must be prepared to do 'equity', in its popular sense of what is right and fair to the defendant. This is a rule of 'unquestionable justice' which, however, 'decides nothing in itself: for you must first enquire what are the equities which the defendant must do, and what the plaintiff ought to have'." The quotes come from the judgment of Wigram VC in Neesom v Clarkson (1845) 4 Hare 97 at 100; 67 ER 576 at 578. 319 What is required is that equity must ensure the observance of the requirements of good conscience and practical justice: Vadasz v Pioneer Concrete (SA) Pty Ltd [1995] HCA 14; 184 CLR 102 at 112-3. 320 Obviously, what is required to do equity will vary from case to case. However, where the court sets aside a mortgage, ordinarily the court will require the plaintiff to do equity by requiring the plaintiff to refund the fruits of the transaction of which they complain; see eg Maguire v Makaronis [1997] HCA 23; 188 CLR 449 at 475. 321 As the High Court said in Maguire, the purpose is to restore the parties as far as possible to their position before the transaction took place. 322 In the instant case, this is extremely difficult to effect because, since the transaction took place, the Kingsway Mortgage has been discharged, a mortgage for a lesser sum has come on to the title, part of the Kingsway Mortgage was discharged with Mr Chen's own funds, and part from funds which he scooped from the three Sydney bank accounts and moreover, semi-developed land has now been converted into Strata Title home units. 323 The learned primary judge was acutely conscious of the principle that equity must be done by the plaintiffs and the position of the party re-transferring the property properly secured in relation to monies expended by him on the property: see [5] of the supplementary judgment of 16 March 2009. His Honour said: "It is in the discretion of the Court as to how this ought to be done: there is no absolute rule that payment must be made before retransfer. What the court must do is achieve what is practically just between the parties." There is no error in that statement. 324 However, when exercising the discretion as to what order to make so that the plaintiffs "do equity" the discretion is not at large but is to be exercised in accordance with the guidelines that have been set down by cases over the centuries. 325 It seems to me that those cases tend to indicate that if the plaintiffs have actually received a benefit then that benefit must be neutralised at the time when the contract is set aside rather than there merely be an inquiry as to adjustments that should be made with a charge in the meantime. 326 I consider that his Honour's approach is a significant departure from the norm without adequate reason for such departure. Although his Honour made a discretionary judgment, this Court should adjust it. 327 At the very least, Lym must discharge the Westpac mortgage. If it did not do this as a condition of getting the Units transferred to it, then it may have a windfall gain. 328 As the Units are now built on the land and the land is far more valuable, there should be little difficulty in refinancing the Westpac mortgage and perhaps even Westpac itself would wish to do this, but whether that is possible or not, discharging that mortgage is a clear part of the first plaintiff's obligation to do equity as the price of receiving equity. 329 Accordingly, I would uphold ground 27. The consequences will be reflected in the orders which I will sketch out at the end of these reasons. 330 B. The next question is made by ground 29 as to whether Mr Chen is entitled to just allowance for time, skill and expertise expended. The primary judge did not make any such allowance. In his judgment of 16 March 2009, [2009] NSWSC 167 at [14] the learned primary judge said that he had found substantial dishonesty on the part of Mr Chen. Mr Pritchard cavils with this. He says that the judge had not made any such finding at all. However, he certainly had made findings of severe breach of fiduciary duty. After setting out the conduct already referred to which amounted to a breach of fiduciary duty, his Honour said at [14] (Red 159F): "In the face of this course of conduct I have come to the conclusion that no allowance should be made to Mr Chen for his time and trouble in procuring the completion of the town houses that he avowedly carried out to increase his own profit. This is not a case where the Court will interfere to preserve 'for the fraudulent dishonest party the contribution which he made and used to carry out his fraudulent and dishonest purpose'. Part of the justification for this course is to deter others from behaving in the same way." 331 The words his Honour has quoted come from the decision of this Court in United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 at 241. The last sentence derives from the judgment of Brinsden J in Green & Clara Pty Ltd v Bestobell Industries Pty Ltd (No 2) [1984] WAR 32 at 38. 332 In Warman International Ltd v Dwyer [1995] HCA 18; 182 CLR 544 at 560 and following, the High Court considered the case of an actively dishonest fiduciary who had acquired and operated a business. The unanimous judgment of the five judges said at [33] (61): "In the case of a business, it may well be inappropriate and inequitable to compel the errant fiduciary to account for the whole of the profit of his conduct of the business or his exploitation of the principal's goodwill over an indefinite period of time. In such a case, it may be appropriate to allow the fiduciary a proportion of the profits, depending on the particular circumstances. That may well be the case where it appears that a significant proportion of an increase in profits has been generated by the skill, efforts, property and resources of the fiduciary, the capital which he has introduced and the risks he has taken, so long as they are not risks to which the principal's property has been exposed. Then it may be said that the relevant proportion of the increased profits is not the product or consequence of the plaintiff's property but the product of a fiduciary skill efforts, property and resources. This is not to say that the liability of a fiduciary to account should be governed by the doctrine of unjust enrichment, though that doctrine may well have a useful part to play; it is simply to say that the stringent rule requiring a fiduciary to account for profits can be carried to extremes and that in cases outside the realm of specific assets, the liability of the fiduciary should not be transformed into a vehicle for the unjust enrichment of the plaintiff." 333 In Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 at 744 and following, I set out the key passage from Warman which I have set out above, analysed other cases and held that it was too wide a proposition to say that allowance for improving the subject property is invariably withheld against a dishonest fiduciary. I put at 745 that: "The court must examine all the circumstances of the case and see what is fair and equitable. If there has been a degree of dishonesty by the fiduciary, but the fiduciary's efforts have been the prime source of the profit, it is open to the court to make an allowance." 334 On appeal ([2001] NSWCA 97; 37 ACSR 673), that part of the judgment was not disturbed, see Priestley JA at [582] 774. 335 Accordingly, I do not consider that even if Mr Chen can be classed as a dishonest fiduciary, and there are considerable grounds for so thinking even if Hamilton J did not expressly so decide, that of itself bars a claim by him for his contribution to the present value of the property. To fail to recognize a claim is to enrich Lym because instead of Lym being in a situation where it had a partly developed project and problems in financing it, it now has property of vastly increased value and no such financial problems. Bearing in mind the object of the exercise to restore the parties to their pre-transaction position, it seems to me that it would be quite unjust not to recognise that Mr Chen has invested his own capital and his own skill and has vastly improved the value of the property. 336 As I understand it, Mr Chen does not seek that there be a definite amount paid to him, or even the amount which he paid over and above what he received from Westpac to discharge the Kingsway Mortgage. However, he does seek that the account to be taken before an Associate Judge includes this factor, and in my view, he is entitled to it. 337 C. Ground 26 is that the Units should not have been ordered to be transferred before the appellant had been repaid his costs and expenses. 338 It seems to me that there is some distinction between the amount by which Lym was directly benefited by having its mortgage discharged, an amount of a little over $7 million, and the amount by which it will benefit by having conveyed to it fully completed home units that have Strata Titles. In working out the first benefit, the amount is certain. However, the second one is a matter of accounting. It seems to me that the learned primary judge made a discretionary judgment and considered that the appropriate order was to convey the Units subject to a charge in favour of Mr Chen. The exact amount of that charge will not be able to be ascertained until after the inquiry. 339 Mr Pritchard calls in aid the decision of Nettle J when sitting in the Commercial and Equity Division of the Supreme Court of Victoria in Victoria University of Technology v Wilson [2004] VSC 33; 60 IPR 392 at 459. 340 That was a case where various academics developed a patentable invention on university time using some university facilities. The learned judge ordered that they convey their shares in the company they had established as a vehicle to exploit the invention, or to pay to the university an amount of money equal to the value of their shares, see [222], and also ordered that an account of profits be taken. However, he said that whilst the burden was on the defendants to establish the amount of their allowances, and they would need to give credit for so much of the university's time and resources as they may have used, a generous view should be taken of the contribution of the academics in terms of both time and money and other contribution to the value of the software and expenses incurred should bear interest at the appropriate commercial rate: see [223]. 341 I cannot see anything in his Honour's judgment which suggests that the account is to take place before the conveyance is made. In any event, as I have said, the matter is a discretionary one and I cannot see any way in which his Honour's discretion ought to be disturbed on appeal. 342 I should mention here that the orders made by the primary judge were that the Associate Judge hold an inquiry and certify the result to the court. That is the traditional way of dealing with these matters. However, in my view, in this 21st century where Associate Judges have most of the powers of full judges they no longer fulfil just the role of the judge's clerk it is preferable to allow the Associate Judge to actually give judgment for the amount that he or she certifies subject, of course, to the usual rights of appeal. I have adjusted order 8 accordingly. 343 D. Ground 31 is that the judge erred in reducing the charge imposed to cover Mr Chen's expenses with the sums owed to Ms Yang and Jasmine. The simple ground is that there is no relation between the two. The only answer to this is that it was within the trial judge's discretion and that Mr Chen "should not be entitled to a charge in respect of any amounts he owes the second and third respondents". 344 I must confess I can find no valid reason for making this exception, nor can I see any valid reasons in the learned judge's judgment. In my view this ground should be upheld. 345 E. The submission is there was no basis for a declaration that the funds were misappropriated and misappropriation is not the appropriate word to use in any event. 346 This request was made on at least two occasions before the learned primary judge. He said at Red 167 in his judgment of 18 March 2009 at [9]: "It was submitted that there is no finding that Mr Chen knew that the power of attorney did not permit him to use the funds in the manner in which he used them and that he therefore lacked the mental element necessary to found a declaration that the funds were misappropriated. It is true there was no finding in those terms. But whether he realised it or not, Mr Chen was not authorised by a general power of attorney to take and use money for his own purposes. It might be observed, in addition, that he did not have, as I understand it, a general power of attorney from Jasmine at all. But, even in relation to the money taken from Ms Yang's account, there could have been no authorisation by that power for him as a fiduciary to use those monies for his own purposes. His deliberately taking and using the monies in that way is sufficient to support a finding that the taking of the money was a misappropriation, whatever he knew or did not know about the effect of any power of attorney." 347 Accordingly, the learned judge directed his mind to the question, found that there was a misappropriation, and made a declaration. The attack on that finding is not that in his discretion he should not have made a declaration of misappropriation because it was merely a step along the way to an executory order, but rather that the judge should not have made the declaration at all. 348 In my view, there was sufficient material for his Honour to make the finding and the declaration he did on the merits. 349 F. Order 6(a)(ii) is challenged. This order is really a matter of definition defining the words "out of the first defendant's own money" as excluding any money that was money from the bank accounts of Ms Yang or Jasmine except the $360,000 paid to Kingsway on 15 August 2006. 350 The definition becomes relevant because of order 7(d), (e) and (f) which are part of the inquiry being the amounts paid by Mr Chen out of his own money to pay out the Kingsway Mortgage, complete the town houses and allied matters. 351 Mr Pritchard argues that if Mr Chen repays the funds in accordance with orders 12 and 13, then there should be no provision made such as order 6(a)(ii). The answer of Mr Hale is merely to say that the judge was correct. 352 The primary judge's judgment of 18 March 2009 (Red 166 at [5] and [6]) shows that his Honour considered this a very difficult matter. The monies were taken from the three bank accounts but they were used to pay the Kingsway Mortgage and therefore were for the benefit of Lym. The objection was that the exclusion of these words may involve a double up on the accounting giving Mr Chen a double credit when one looked at some other orders. 353 It seems to me this may well be right and that there is no particular vice in those words remaining in the order as it will all be worked out by the Associate Judge in due course. 354 Accordingly, I would reject ground 26. 355 G. Ground 33 says it was wrong to give a money judgment for the monies misappropriated from the three accounts and that that matter should be left to the accounting. I can see no error in what his Honour did. These monies were a completely separate matter to other matters of account which only concerned Lym and Mr Chen. A fortiori is this the case with Jasmine's money. 356 H. This involves the question of what should happen to any stamp duty refund. There is very much doubt as to whether there will be any stamp duty refund. The evidence before the primary judge showed that the whole amount of the stamp duty was paid from the monies abstracted from the three bank accounts. Mr Pritchard says that since Mr Chen was ordered to repay those funds, any stamp duty refund must be considered as a refund to Mr Chen's funds. He says that any "Mareva type" order protecting that refund is no longer a live matter. 357 It seems to me that Mr Pritchard is correct once the monies payable under 12 and 13 have actually been paid. Accordingly, in my view, this Court should add to order 17(c) "provided that this order shall cease to have effect once the judgments under orders 12 and 13 have been fully satisfied". 358 I. Finally, it is said that no undertaking as to damages should have been required under order 18 which was an order restraining Lym from encumbering the Units or using the proceeds of sale of Units whilst the inquiry was pending. 359 Mr Pritchard is quite correct in saying that this is not the usual scenario in which an undertaking as to damages is required. This is not an interlocutory injunction. However, under order 17, which is the mirror order for order 18, an undertaking as to damages was given by the plaintiffs and it seems to me that unless both undertakings go, neither should go. Accordingly, as there has been nothing said about order 17 I would leave in place the requirement of an undertaking as to damages for order 18. 360 As to costs in the Lym appeal (40119/09), it seems to me that the appellant has almost completely failed though he has obtained some very minor relief in respect of the remedies. Although that relief was minor, it was relief which was strongly contested by the first, second and third respondents. In my view there should be a slight discount of the costs so that the appellant should pay 95% of the costs of the appeal of the first, second and third respondents. 361 The Lym interests also filed a notice of contention in appeal 40119/09. This raised the point that Mr Chen's title was not indefeasible because he had been fraudulent. The point was raised below, though in a peripheral way. It does raise some awkward matters which were not fully argued and in my view, in the light of the dismissal of the appeal, there is no reason to consider it in these reasons. 362 The upshot of this is that I would modify the orders made by the primary judge as follows: (A) Delete orders 4 and 5 and substitute: 4. Order that upon the plaintiffs and Westpac Banking Corporation agreeing that there can be an assignment of registered mortgage AC 5480628 to the first defendant with no future liability on the appellant or upon the first plaintiff tendering to the appellant the amount of money necessary to discharge the said mortgage, the appellant forthwith execute a transfer in registrable form of the Units in favour of the first plaintiff and do all things and take all other steps necessary to convey the Units to the first plaintiff. (B) Delete the words from order 8 "and to certify the results of the inquiry to the Court" and insert the words "and to give judgment for the party or parties whom such inquiry finds liable to pay monies to some other party." (C) Delete order 9(c). (D) (i) delete from order 17(a) the words "and Mrs Marcolongo"; (ii) add to the end of order 17(c) "provided that this order 17(c) shall cease to have effect upon the judgment in order 12 and the judgment in order 13 both being fully satisfied". (E) Delete from order 18(a) the words "and Mrs Marcolongo". (F) Add new order 24: "Liberty to any party to apply to a judge of the Equity Division on 5 days' notice to discharge any order that may have become otiose by way of changing circumstances and generally". 363 In appeal 40119/09 I would propose the following orders: (1) Appeal allowed in part. (2) Vary the order made by Hamilton J in accordance with what appears in the preceding paragraph. (3) Order that the order for costs below stand. (4) Order that the appellant pay 95% of the costs of the first, second and third respondents and the whole of the costs of the fourth respondent as a submitting respondent. 364 As indicated above, in appeal 40118/09 I would propose the following orders: (1) Appeal allowed. (2) Orders of Hamilton J in favour of the first respondent Mrs Marcolongo be set aside. (3) Order that Mrs Marcolongo's proceedings be dismissed with costs. (4) Order that Mrs Marcolongo pay the costs of the appeal but to have a certificate under the Suitors' Fund Act 1951 . 365 The parties have 14 days to make any protest about the form of order or any clerical mistake in these reasons. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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