Hepburn v. Deputy Commissioner of Taxation

Unreported 10 July 1989 FCA

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(Judgment by: Hill J)

Re: Norman Winston Hepburn; Ex parte Deputy Commissioner of Taxation
And: Norman Winston Hepburn; Intercapco Pty Limited; Reapgold Pty Limited; Donwren Pty Limited; Registrar General of New South Wales; Registrar of Titles, Queensland and Clyde Kenneth Dickens

Court:

Judge:
Hill J

Subject References:
Bankruptcy

Judgment date: 10 July 1989

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Judgment by:
Hill J

On 5 April 1989 Morling J made orders ex parte restraining inter alia the second, third and fourth respondents from disposing or otherwise dealing with certain of their assets and the second and third respondents from operating bank accounts in each company's name. These injunctions were varied by his Honour on 12 April 1989 to permit payment of certain kinds of expenses from the bank accounts of the second respondent and by me in a minor respect on the first day of hearing.

By the time of the order of Morling J varying the original injunction the applicant had served upon the respondents affidavit evidence with voluminous exhibits in support of the applicant's case but no argument was addressed to his Honour as to the question of whether the injunction should or should not have been made. The second, third and fourth respondents now seek an order that the injunctions granted by his Honour be dissolved. The proceeding comes before me on an interlocutory basis only and while there has been a substantial amount of evidence in affidavit form adduced before me, none of the witnesses has at this stage been crossexamined.

Mr Hepburn, the first respondent did not appear on the motion before me and it may be assumed that he is not interested in participating in the proceedings. Whether he is interested in the outcome is the ultimate question in the proceedings.

Mr Hepburn became a bankrupt on 29 March 1988 on the filing of his own petition and Mr Dickens the seventh respondent became as a consequence the registered trustee of Mr Hepburn's estate. Mr Dickens was represented before me and supported the submissions of the applicant, the Deputy Commissioner of Taxation.

It would seem that the Deputy Commissioner of Taxation is a substantial creditor in the bankrupt's estate, that officers of the Australian Taxation Office had made a very detailed investigation into the affairs of the bankrupt and that the application was bought by the Deputy Commissioner in the capacity of a major creditor. No objection was taken to the standing of the Deputy Commissioner to initiate the present proceedings and having regard to the particular circumstances of the present case it seemed a convenient course for the Commissioner to have the carriage of the application, notwithstanding that in doing so he was really acting for the benefit of the trustee. Cf. Clyne v. Andrew & Anor (1984) 52 ALR 532 .

The second, third and fourth respondents are companies each of which are involved in property development, the relevant properties having been purchased in 1988 and 1989. In each case the properties were purchased with borrowed funds, generally, although not invariably, from third party lenders and the present situation seems on the evidence before me to be that on present day values none of the three companies has much, if any, net value.

Mr Williams estimated the properties owned by the second respondent to have a present value of $3,480,000. The liabilities of that company to third party lenders (excluding amounts owing to a Mr Nemcich and a Mr Kalazich) were $3,875,000 leaving a deficiency of almost $400,000. According to Mr Williams the assets of the third respondent totalled at present market values $1,310,000 and its liabilities to third party lenders totalling $1,521,000 leaving it with a deficiency of some $200,000.

Mr Williams offered no evidence as to the value of the one property owned by Donwren Pty Limited, the fourth respondent although it was purchased at auction (the circumstances of that purchase will be dealt with later) for $1,900,000. The property, together with other properties owned by companies not parties to these proceedings, secures an advance of $5,300,000 from a third party lender as part of a refinancing arrangement in October and November 1988. As the value of the other properties which also secure the advance of $5,300,000 is unknown it is not possible to say whether there is any surplus of assets over liabilities in Donwren Pty Limited.

The trustee's valuations of the properties prepared after discussions with Mr Hepburn in consultation with a Mr Pantling, an independent property consultant, while differing in detail, lead substantially to the same result.

It would seem, so far as the second respondent is concerned, that only one property held by it might have a present value greater than the amount ultimately secured but, as Mr Pantling's oral evidence disclosed, the valuation did not take into account holding costs and the like which would be taken into account by a valuer if a proper current market value were obtained. The effect of the trustee's evidence is to show at present figures a deficiency of assets in the third respondent. So far as the fourth respondent is concerned the trustee values that property at $2,000,000 but as it is security for other advances no evidence has been or could be adduced by the trustee to indicate whether or not there is a surplus or deficiency of assets in this company.

The common thread between the second, third and fourth respondents is the participation in their affairs in some way or other of Mr Hepburn and Mr Williams. It is the Commissioner's case that ultimately the shares in Intercapco Pty Limited and Reapgold Pty Limited are held by their respective shareholders on trust for the bankrupt. Donwren Pty Limited, it is alleged, is a wholly owned subsidiary of Intercapco Pty Limited. The result is, so it is alleged, that each of the three companies should be under the control of the trustee in bankruptcy the shares forming part of the property of the bankrupt. It is not suggested that the land in the name of each company is held for the bankrupt and it is conceded that that land is owned beneficially by the company in whose name title has been taken.

The remaining respondents submit to any order that the Court should make save as to costs and did not participate in the proceedings.

The starting point of the case for the applicant was the fact, not in dispute, that the shares in Intercapco Pty Limited had initially been purchased by Mr Hepburn from a proprietor of shelf companies for use by Mr Hepburn. Until March 1988 there were only two shares in that company, each of which was held for Mr Hepburn by Messrs Taylor and Slade, both closely associated with Mr Hepburn in his business operations as employees. It was only on 11 October 1988 that Mr Taylor signed a declaration of trust that he held his share in trust for Mr Williams. When Mr Taylor signed that trust deed he was aware that the details in it were inaccurate. The trust deed signed by Mr Taylor bore upon its face the typed date of 7 September 1987 being of course a date prior to the date of Mr Hepburn's bankruptcy. Mr Slade's share in Intercapco Pty Limited was transferred to Mr William's wife who also took over Mr Slade's position as director of the company on 30 January 1989 .

The evidence of both Mr Slade and Mr Taylor made it clear that at all times while they were associated with Intercapco Pty Limited its affairs were directed by Mr Hepburn. Mr Hepburn gave directions directly to the staff and directors of Intercapco Pty Limited in the same way as he gave directions in respect of a company Hepcorp Pty Limited which was clearly his own company. Mr Hepburn, it was, who in March 1988 arranged finance for Intercapco Pty Limited in the sum of $1,000,000 through an acquaintance he had had with a director of the lender of that sum, BCC Australia Limited. Both Mr Slade and Mr Taylor on their own evidence clearly reported to Mr Hepburn and accepted his directions as to the business operations of Intercapco Pty Limited. They each appeared to sign documents at Mr Hepburn's direction without questioning him as to what those documents were.

Mr Slade deposed to the fact that in around February 1988 a Mr Nelson became a director of Intercapco Pty Limited Mr Slade said that so far as his observations were able to reveal Mr Nelson's relationship with Mr Hepburn was the same as that of Mr Taylor and Mr Slade.

It would seem that Intercapco Pty Limited operated out of the same premises from which Hepcorp Pty Limited operated until late January 1988 and that thereafter the company operated in Brookvale at premises in which Mr Hepburn, Therese Wilson (Mr Hepburn's secretary it would seem), Mr Taylor and Mr Slade all worked.

According to Mr Slade at the time the shelf company which later became Intercapco Pty Limited was purchased, another shelf company, Valimo Pty Limited was also purchased. At that time Mr Hepburn had said to him:

"From these companies we will start again."

According to Mr Slade, Mr Hepburn was from about that time apparently under considerable financial strain. He apparently said to Mr Slade:

"I'm going to start up at least a couple more companies right away. I'm going to get some shelf companies, rename them and put in people I can trust as directors. One of them will be a property development company and the other will be the importing, inventing and marketing company."

Of course it does not follow from the making of this statement that Intercapco Pty Limited was one of the companies referred to by Mr Hepburn. It was, however, Mr Slade's understanding that Mr Hepburn was referring inter alia to Intercapco Pty Limited.

Mr Slade's evidence is substantially repeated by Mr Taylor. Mr Taylor recalls a conversation with Mr Hepburn said to have taken place in January 1988 when Mr Hepburn discussed forming a couple of companies of which he wanted Mr Taylor to be a director and secretary. Inter alia, Mr Hepburn is reported to have said:

"While I take a three year holiday I'll sit back like a puppeteer and pull the strings and then I will have my revenge a few years down the track on the likes of Estate Mortgage."

Mr Taylor understood the reference to a three year holiday to be a reference to Mr Hepburn's forthcoming bankruptcy. Estate Mortgage had apparently been blamed by Mr Hepburn for losses in Mr Hepburn's other business activities. Mr Hepburn also indicated that he was friendly with a Mr Nemcich and could organise funds through him.

At Mr Hepburn's request Mr Taylor also became a director of R Crawford Limited, a company which Mr Williams says is owned and controlled by him, signing a consent form so to do in approximately March of 1988. At the time Mr Taylor signed that documentation Mr Hepburn had said to him:

"It will be the funding body for all the companies. Eventually we will try and make it go public and then we'll pick up a dollar."

Mr Hepburn told Mr Taylor that it was necessary to back date the appointment to the year 1987.

Mr Taylor also became a director of Reapgold Pty Limited and I shall return in due course to the evidence concerning that company.

It is not in dispute that on 21 September 1987 Mr Hepburn wrote a letter to Mr Williams in which he said:

"Following our discussions the other day on those two fresh company shelves (Valico Pty Limited and Valimo Pty Limited), I am not going to proceed with the use of those companies.

The costs are going to outweigh any benefits of keeping them around so they are available to you to use for the use of setting up your development company."

The company Valico Pty Limited ultimately changed its name to Intercapco Pty Limited. It was not suggested that this letter could operate as a valid assignment of Mr Hepburn's equitable interest in the shares, cf. Oughtred v. IRC [1960] AC 206, Vandervell v. IRC [1967] 2 AC 291 .

It appears that in the three months prior to his bankruptcy Mr Hepburn withdrew funds stated to be in the order of $750,000 from Hepcorp Pty Limited and as yet it is unclear where those funds had been deposited. Evidence was adduced before me which proved withdrawals of at least $500,000. I was asked to infer that this money had ultimately gone to Mr Nemcich or into R Crawford Limited which company, the evidence suggested, acted rather as a banker to the various companies with which in one way or the other Mr Hepburn was concerned. On the evidence I too am unable to say.

Of the transactions, detailed evidence of which had painstakingly been prepared by the investigator from the Australian Taxation Office, certain particular transactions were pointed to which it was said on behalf of the applicant indicated that at all times Mr Hepburn had treated each of the three corporate respondents, including Intercapco Pty Limited, as his own. I was asked to infer from this circumstantial evidence that it must follow that the shares in each of the companies were held directly or indirectly beneficially on behalf of Mr Hepburn.

Reapgold Pty Limited was a company incorporated in Queensland on 22 February 1988 . It had initially two issued shares one of which was held by Mr Taylor and one held by Mr Nelson. According to Mr Taylor's evidence Mr Taylor became a shareholder of Reapgold Pty Limited as well as of R Crawford Limited but, although Mr Taylor is not particularly specific about the matter, it would not seem that he regarded his shares in any of the companies as his own and certainly he says that he was unaware of any value to him of the various shareholdings he had. His evidence in effect is that the affairs of Reapgold Pty Limited were largely dictated by Mr Hepburn although Mr Nelson was introduced into Reapgold Pty Limited some time in February 1988. In that month Mr Hepburn said to Mr Taylor, according to Mr Taylor's version,

"I am going to introduce Ron as a director into the companies. This will give a good Queensland connection so that we can diversify our operations into Queensland. Since Ron is financially stronger than you or Brian. It (sic) can be argued that he put up some of the funds."

Subsequently it would seem that Mr Nelson became a director and was in daily contact with Mr Hepburn concerning the affairs of Reapgold Pty Limited.

The remaining company for present purposes is Donwren Pty Limited. Again there seems no dispute that Donwren Pty Limited, initially a shelf company, was purchased by a cheque drawn on the bank account of Intercapco Pty Limited. Prima facie, therefore, it became a wholly owned subsidiary of Intercapco Pty Limited. Mr Williams, on the other hand, suggested in his evidence that the shares were purchased on behalf of his wife and himself who were owed large amounts of money by Intercapco Pty Limited. One of the difficulties in assessing the evidence in the present case is that no financial records at all of any of the three companies were produced by the respondents so that there is no corroboration of matters asserted by Mr Williams such as the existence of such a loan account.

The first transaction to which attention was drawn commenced with the purchase by Hepcorp Pty Limited, a company clearly owned by Mr Hepburn, of a Jaguar motor car. In due course the car was sold and the proceeds ($65,000) were deposited into the bank account of R Crawford Limited. Of that $65,000, $47,500 went from the bank account of R Crawford Limited to Valimo Pty Limited and shortly thereafter money was used by Valimo Pty Limited to pay to Hedin Pty Limited, which company was the vendor of a property, 101 Darley Street Mona Vale, the title to which is now in the name of Reapgold Pty Limited. According to Mr Williams the funds were advanced to Reapgold Pty Limited by R Crawford Limited by way of a loan after an initial cheque provided by Valimo Pty Limited was not met on presentation. It is certainly true that a cheque drawn on the bank account of Valimo Pty Limited was not met on presentation, that being because the money from R Crawford Limited had not cleared through the bank account of Valimo Pty Limited in time.

The next matter to which I was referred by counsel for the applicant was a series of deposits into the account of R Crawford Limited, physically effected by Therese Wilson, Mr Hepburn's secretary, being deposits apparently of cash. Certainly there is sufficient evidence, prima facie, to suggest that R Crawford Limited was being used by Mr Hepburn as a financing vehicle and continued to be so used even after his bankruptcy. It was then demonstrated that moneys had flowed from R Crawford Limited to Intercapco Pty Limited.

The third matter to which I was referred was a link between Hepcorp Pty Limited and R Crawford Limited which it was said demonstrated that after the bankruptcy Hepcorp Pty Limited continued to benefit from R Crawford Limited. It should perhaps at this stage be recalled that on Mr William's evidence R Crawford Limited is also a company associated with Mr Williams and not a company said to be associated with Mr Hepburn. Mr Taylor who had been one of the original shareholders of R Crawford Limited signed a declaration of trust of his shares in that company in favour of Mr Williams at the same time as he signed declarations in respect of shares in Intercapco Pty Limited and Reapgold Pty Limited. This was considerably later in time than Mr Hepburn's bankruptcy.

The next transaction concerned a vessel being a Cresta 46 Sports Cruiser leased in the name of Mr and Mrs Hepburn from Australian Guarantee Corporation Limited on 27 June 1986 the purchase price of which was $415,000. The evidence showed that after Mr Hepburn's bankruptcy the lease instalments were paid by R Crawford Limited and indeed, payments continued to be made until a payment of $19,796.74 drawn on the bank account of R Crawford Limited on 19 September 1988 . It is said that this evidence is inconsistent with a company which is controlled just by Mr Williams.

It might also be noted that on 29 January 1988 Hepcorp Pty Limited had paid $105,779.86 for a bank cheque in favour of Australian Guarantee Corporation Limited in connection with the same boat. It may well be the case, although nothing turns upon it here, that as and from January 1988, Hepcorp Pty Limited had purchased the boat following repossession from Australian Guarantee Corporation Limited. What, however, is significant here is the apparent ease with which Mr Hepburn was able to obtain moneys from R Crawford Limited at a time when that company was supposedly owned by Mr Williams. The implication from the Commissioner's evidence is that after his bankruptcy and the failure of Hepcorp Pty Limited as well, R Crawford Limited was used for Mr Hepburn's own personal benefit.

Other transactions as well clearly linked money of Mr Hepburn to R Crawford Limited. For example, shares had been purchased from funds emanating from the account of Hepcorp Pty Limited in late 1987 and early 1988 in Kelpie Industries Pty Limited, the shares being purchased through a broker, Johnson Wedell. The trust ledger of that company shows the shares being held for R Crawford Limited. In due course the shares were sold in July 1988 for $59,932, a marginal loss on their initial purchase price. The proceeds of sale were paid out to the credit of R Crawford Limited. In due course the moneys found their way to Intercapco Pty Limited, (formerly Valico Pty Limited) and Reapgold Pty Limited.

There is evidence that both Mr Hepburn and Mr Nemcich were friends and that Mr Hepburn or his companies had a pattern of borrowing from Mr Nemcich and his companies. That fact of its own, of course, is of little significance. However a transaction concerning a vessel "the Chasseur" raised questions as to the real relationships between Mr Hepburn and Mr Nemcich. The vessel "Chasseur", a 50 foot yacht was, so far as Mr Slade was concerned owned by Mr Hepburn. According to Mr Taylor negotiations for the sale of the vessel and instructions for the part Mr Taylor took in organising certain repairs came from Mr Hepburn. Other evidence before me suggested that the vessel belonged to R Crawford Limited for it was that company to whom the proceeds of sale, $103,340 were in due course paid. However, the cheque in payment of the purchase price was deposited to the account of Mr Nemcich on 15 June 1988 and on the same day three cheques cleared through that account each of $63,333 being cheques payable to F M Leca Pty Limited allegedly a company owned and controlled by Mr Williams. This left Mr Nemcich's account overdrawn by some $83,000 and two days later there was deposited to the credit of that account an amount which was said to have come from the estate of Mr Nemcich's father, leaving the account then in credit to a very small amount. It is interesting to note that as at 30 June 1988 the bank account of Mr Nemcich stood in credit to the sum of $1,461.88. The three cheques having been deposited into the account of F M Leca Pty Limited were used by that company to draw a cheque in favour of W W Vallack Pty Limited, the real estate agent acting as agent in the purchase by auction of property at Pittwater Road Bayview which was purchased by Donwren Pty Limited. It may be noted that this property had originally belonged to Mr Hepburn and evidence was given suggestive of there being at least contemplated by Mr Hepburn an arrangement whereby in due course after his bankruptcy had terminated this property could be returned to him.

It is unnecessary to discuss this evidence further. Suffice it to say that it demonstrates an interweaving of the affairs of Mr Hepburn, Hepcorp Pty Limited, the three respondents, Mr Williams and his entities including F M Leca Pty Limited and R Crawford Limited and Mr Nemcich in a way which circumstantially suggests that ultimately Mr Hepburn is the person who is behind all of these transactions.

Mr Williams seeks to answer these matters by pointing to the fact that ultimately, whether at the time of the original purchases or later, when refinancing became necessary, he, Mr Williams, had personally guaranteed borrowings of each of the three respondents. It is said that he had "put himself on the line" and that there is no explanation why he should so do if the companies ultimately were beneficially owned by Mr Hepburn.

It is pointed out also on behalf of Mr Williams that while it may have been the case that two shares in Intercapco Pty Limited were held beneficially for Mr Hepburn and while that may still be the case, there had been subsequent allotments of shares so that 85 shares were issued to Mr Nelson of which, according to Mr Williams, 15 were held in Mr Nelson's own right and 70 were to be held by Mr Nelson on behalf of Mr Williams. Mr Williams deposed that he gave Mr Nelson the money. Mr Nelson does not deal in his affidavit with the monetary side of the transaction whereby these shares were subscribed for. Nevertheless Mr Nelson also deposes to the fact that the shares were held for himself and Mr Williams. At the same time as the 85 shares were allotted to Mr Nelson, 13 shares were allotted to Mr Taylor. On 18 October 1988 a further 72 shares in Intercapco Pty Limited were allotted to Mr Williams and on this day Mr Taylor transferred his 14 shares, being the 13 shares allotted plus the one original subscriber share, to Mr Williams who thenceforth held 86 shares of the issued 172 shares, the remaining share still being registered in Mr Nelson's name.

So far as Reapgold Pty Limited is concerned Mr Nelson deposed that he negotiated for the purchase of the shares in Reapgold Pty Limited from a shelf company supplier and that he participated in the activities of that company.

So far as Donwren Pty Limited was concerned Mr Williams asserted that the moneys paid to the shelf company supplier were paid at the time of purchase by Intercapco Pty Limited for convenience as he did not have at the time a personal cheque account. He said that Intercapco Pty Limited was indebted to his wife and himself for substantial sums. There has never been any subsequent allotment or issue of shares in that company since its incorporation.

Mr Williams in his affidavit paints a different picture of the relationship between Mr Hepburn and himself from that which is painted in the affidavits filed on behalf of the applicant. He says that they had known each other since about 1983 and had become good friends. According to Mr Williams he from time to time discussed with Mr Hepburn the possibility that he, Mr Williams, would become involved in property development and that Mr Hepburn had agreed to assist Mr Williams in so doing. At the time of that discussion Mr Williams had been engaged in another business involving a company called Modern Home Industries Pty Limited and Mr Hepburn agreed that while this business was being wound up by Mr Williams, Mr Hepburn would identify projects and put together financial packages for those projects. For some reason which is not identified by Mr Williams, Mr Williams asked Mr Hepburn not to tell Messrs Slade and Taylor of Mr Williams' involvement with the company. In this conversation he said to Mr Hepburn:

"Let them believe you're in charge, because they have worked for you for the last number of years. I'd prefer that situation until I can physically be present full-time at the office."

According to Mr Williams he later had discussions with Mr Nelson about Mr Nelson joining in the business and that he asked Mr Nelson to become a director and to hold the majority of shares in Intercapco Pty Limited until such time as Mr Williams became involved full-time. It was, according to Mr Williams, only in September 1988 that he ceased all involvement with the home improvement business and on 18 October of the same year he then caused to be allotted shares in Intercapco Pty Limited directly to himself as well as causing Mr Taylor's shares to be transferred to him and Mr Slade's share to be transferred to his wife.

According to Mr Williams he was introduced to Mr Nemcich by Mr Hepburn and was able to arrange financing through Mr Nemcich. He says that he commenced working part-time in June 1988 on the affairs of Intercapco Pty Limited and that he gradually took over more and more of the business of that company until early 1989, by which time he was in full control of it.

Mr Williams does not attempt to meet all of the detailed allegations made by the Deputy Commissioner but says that he agreed to allow Intercapco Pty Limited to meet certain expenses of Mr Hepburn in view of the work which Mr Hepburn had done for Intercapco Pty Limited. He says that while Mr Hepburn may have appeared to be controlling the various companies, that control, direction or management was always on behalf of Mr Williams and at his request pending Mr Williams assuming physical and formal control. According to Mr Williams, Mr Hepburn's only entitlement or interest in any of the companies really was for consulting fees or commission or expenses by way of remuneration.

Of Donwren Pty Limited Mr Williams declares on oath that this is a company in which only his wife and himself were interested and that no other person has any interest whatever in it. According to Mr Williams the only involvement that Mr Hepburn had, if it be right to call that involvement, was in the recommendation he made to Mr Williams that Donwren should consider purchasing the property "Rathmore" 1788 Pittwater Road Bayview at auction.

I have endeavoured to set out the matters of fact and allegations made by each side as best I can although I have no doubt not done complete justice to the argument of either side in the way I have done so. The case proceeded, as is usual, in interlocutory matters, on affidavit evidence without crossexamination of any witness and it is obvious that the evidence of some of the witnesses is in conflict. Particularly of course the evidence of Messrs Taylor and Slade is prima facie in conflict with that of Mr Williams. So too the evidence of Messrs Taylor and Slade is in conflict with that of Mr Nelson. On the other hand the evidence of Messrs Nelson and Williams is generally, as one might expect, consistent, as is the evidence from Messrs Taylor and Slade. Mr Hepburn of course gave no evidence at all and no financial records of any of the second, third or fourth respondent were produced which records might have been expected to provide some corroboration of the evidence of Mr Williams.

The principles to be applied in determining whether or not an interlocutory injunction should be granted, applicable of course to the analogous question of whether an ex parte injunction should be continued are not in dispute. They are set out in the decision of the Full Court of this Court in Epitoma Pty Limited v. Australasian Meat Industry Employees' Union & Ors (No 2) (1984) 54 ALR 730 at p 734 where the Full Court said:

"In an application for an interlocutory injunction, the court must inquire first whether there is a serious question to be tried (see Australian Coarse Grain Pool Pty Ltd v. Barley Marketing Board of Queensland (1982) 46 ALR 398; 57 ALJR 425; Tableland Peanuts Pty Ltd v. Peanut Marketing Board (1984) 52 ALR 651; 58 ALJR 283, per Brennan J at 284). In the Barley case, Gibbs CJ said (57 ALJR at 425) that he inclined to the view taken by the House of Lords in American Cyanamid v. Ethicon Ltd [1975] AC 396 rather than to some of those expressed obiter in Beecham Group Ltd v. Bristol Laboratories Pty Ltd (1968) 118 CLR 618; (1968) ALR 469. It would seem that the Chief Justice had in mind the following statement of principle in the opinion of Lord Diplock, concurred in by the other members of the House, in American Cyanamid (at p 407):

"The use of such expressions as "a probability", "a prima facie case", or "a strong prima facie case" in the context of the exercise of a discretionary power to grant an interlocutory injunction leads to confusion as to the object sought to be achieved by this form of temporary relief. The court no doubt must be satisfied that the claim is not frivolous or vexatious; in other words, "that there is a serious question to be tried"."

Lord Diplock went on (at p 407) to explain the practical considerations underlying this approach:

"It is no part of the court's function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend, nor to decide difficult questions of law which call for detailed argument and mature considerations. These are matters to be dealt with at the trial. One of the reasons for the introduction of the practice of requiring an undertaking as to damages upon the grant of an interlocutory injunction was that "it aided the court in doing that which was its great object, viz abstaining from expressing any opinion upon the merits of the case until the hearing": Wakefield v. Duke of Buccleugh (1865) 12 LT 628 at 629. So unless the material available to the court at the hearing of the application for an interlocutory injunction fails to disclose that the plaintiff has any real prospect of succeeding in his claim for a permanent injunction at the trial, the court should go on to consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief that is sought" (cf Dimbleby & Sons Ltd v. National Union of Journalists (1984) 1 WLR 427; Appleton Papers Inc v. Tomasetti Paper Pty Ltd (1983) 50 ALR 428; (1983) 3 NSWLR 208 at 214 -5)."

Hence it does not fall to me to endeavour at this stage of the litigation to resolve the conflicts of evidence to which I have referred. These matters will be dealt with in due course at a final hearing of the application. It is however quite evident from the evidence which I have discussed that there is a real question to be tried, namely whether the admitted involvement of Mr Hepburn in each of the three companies is ultimately such that it can be determined on the balance of probabilities that he was the beneficial owner of the shares in them.

Counsel for the respondents sought to persuade me that no prima facie case had been made out. It was said that the Commissioner had been investigating the affairs of Mr Williams and the three respondent companies for almost eighteen months and had not been able to come up with any more direct evidence than had been put before me. In essence the evidence adduced before me was criticised as being circumstantial and indirect. Given the nature of the task of an applicant seeking to demonstrate that some other person is in truth the beneficial owner of shares, the fact that the evidence is circumstantial and indirect is hardly surprising. Given, however, an inability at this stage of the proceedings to crossexamine Messrs Williams and Nelson and the absence from the witness box of Mr Hepburn and indeed, the absence of financial accounting records of the three respondents it is clear that the Commissioner's claim is far from being frivolous or vexatious but raises a very serious question indeed as to the true beneficial ownership of the three respondent companies.

I turn therefore to consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief that is sought.

Counsel for the respondents relied first upon the provisions of s.30(1)(b) of the Bankruptcy Act, that section being the genesis of the Court's power to grant an injunction in the present circumstances. Section 30(1)(b) empowers the Court to:

"make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter."

The reference to a "case" is a reference to a case of bankruptcy and the reference to a matter is a reference to a matter under Part X or Part XI of the Bankruptcy Act coming within the cognizance of the Court.

It was said that I could not, having regard to the assets and liabilities of each of the respondents, conclude that the continuation of the present injunction was necessary for any of the purposes mentioned in s.30(1)(b). Further, it was said that the principles applicable to Mareva injunctions would provide an appropriate guide to determine when, in a case such as the present, an injunction was necessary. Thus it was said that the applicant would have to establish that there was a risk that funds otherwise part of the property of the bankrupt would be dissipated. Mr Williams, it was said, was a man of substance, a man of some position in society; he had personally guaranteed the indebtedness of the respondents and there was just no evidence upon which the Court could conclude that there was any risk that assets otherwise available to the estate of the bankrupt could be removed.

It should not be assumed that s.30(1) of the Act was enacted by Parliament to limit the jurisdiction of the Court. As was said by Neaves J in Re Bilen; ex parte Sistrom (unreported) 11 April 1985 , s.30(1) uses words of extension rather than limitation.

Jurisdiction in bankruptcy was from the earliest times vested in the Chancery Court and courts of bankruptcy in England were courts not only of law but also of equity: Re Hart [1912] 3 KB 6 . Thus, it was held in Ex parte Anderson; Re Anderson (1870) LR 5 Ch 473 that a court exercising jurisdiction in bankruptcy had jurisdiction to restrain a person not a party to the bankruptcy proceedings from dealing with property alleged to have been fraudulently assigned before the bankruptcy.

The 1924 Bankruptcy Act contained no specific provision empowering the court to grant injunctions. Nevertheless the learned authors of McDonald, Henry & Meek's Australian Bankruptcy Law and Practice (5th ed. Law Book Company) record that injunctions were granted by the Federal Court of Bankruptcy and reference is made inter alia to the case of Re Trautwein (No 229 of 1940) NSW (unreported) where an injunction was granted against a stranger to the bankruptcy.

The Committee appointed by the Attorney General to review the bankruptcy law of the Commonwealth (the Clyne Committee) in its report published in 1962 recommended that the powers that a Court exercising bankruptcy jurisdiction is enabled to exercise be clarified. The report noted at para 40:

"In particular, while Courts exercising bankruptcy jurisdiction in Australia have power in certain circumstances to stay proceedings in other Courts, it is doubtful whether they have powers to grant remedies of an equitable nature (e.g. injunctions).

Accordingly it was recommended that courts exercising bankruptcy jurisdiction should have express power to grant equitable remedies. The reference to doubt as to power probably arose from the fact that the Federal Court of Bankruptcy was a statutory court unlike the English High Court of Justice which had been granted bankruptcy jurisdiction and which clearly was a court of equity as well as law. Having regard to the provisions of the Federal Court of Australia Act 1976 (s.5(2)) this Court is a court of law and equity and would, in my view, in the absence of s.30(1)(b) have had power to grant injunctive relief in appropriate circumstances.

It is not however necessary to determine that issue because in my view the submission of the respondents gives, in the context of s.30, a too restrictive operation to the word "necessary". In my view in the context of s.30(1)(b) the word "necessary" does not require that the applicant for an injunction demonstrate necessity before injunctive relief is granted. It is sufficient if the applicant shows that injunctive relief is necessary in the interests of justice having regard to the purposes of the bankruptcy law one of which purposes of course is the preservation of the assets that are the property of a bankrupt to enable those assets to be divided rateably among creditors.

The argument that it was necessary in circumstances such as the present that Mareva injunction principles apply before an injunction would be granted was considered and rejected by Pincus J in Re Bayliss; Ex parte Official Trustee in Bankruptcy (1987) 73 ALR 455 but his Honour in that case did not consider the meaning of the word "necessary" or whether it in any way limited the ability of the court to grant injunctive relief. Nevertheless the judgment makes it clear that it is unnecessary for an applicant for an injunction to show a real likelihood that moneys that are or otherwise might be the property of the bankrupt will disappear. See at p 459.

Like Pincus J, I am unable to say on the evidence before me whether there is any real threat of such asset as there may be in these companies ultimately being dissipated. The problem in the present case is rather that on the evidence before me it does not seem that there is at present any net value in the companies in question, all the assets being mortgaged, although it must be conceded that provided the various properties are developed and provided the property market does not collapse further than it is said to have done in recent months, there is a prospect of the companies ultimately having some assets in the form of profit after the current development properties have been sold.

On the question of balance of convenience the respondents point first to the guarantees given by Mr Williams, secondly to the evidence, such as it is, of the values of assets and liabilities of each of the respondents and thirdly to the difficulty that they say exists in dealing with financiers and others when an injunction of the Court is directed against the respondents restraining them from dealing with assets. To the last of these matters the applicant replies that there is no evidence that in fact the respondents have had difficulty to date dealing with financiers as a result of the injunction.

That details of the injunction are known to financiers is obvious. Indeed, one of the financiers sought and was granted leave to appear in the present proceedings limited to obtaining a variation of the injunction which would permit it to register a transfer on sale acting as mortgagee in possession of the property following default by one of the respondents. While it is true that no actual evidence of difficulty is before me, I think that it is quite likely that there would be real difficulties for the respondent companies carrying on their operations and particularly dealing with financiers while an injunction remains restraining them from dealing with the assets of the company either generally or specifically.

I am conscious of course that the applicant has given the usual undertaking as to damages and that no question could arise as to the worth of this undertaking given the nature of the applicant in the present proceedings.

In the present circumstances and notwithstanding any of the matters pointed to by the respondents, I would have continued the present injunction but for an offer of undertakings by the respondents and Messrs Williams and Nelson in the form annexed to this judgment.

These undertakings in effect require the respondents to give to the Commissioner seven days notice in writing of any proposal which might affect the assets of the respondent companies, including the disbursement of funds and details of that proposal. In the case of funds to be disbursed, the funds only to be used for the purpose notified to the Commissioner. The Commissioner will have the opportunity in the seven day period to determine whether the transaction proposed, of which he has been given details, is one in the ordinary course of business. If it is, then it is proper that it proceed. If the Commissioner is of the view that the transaction proposed is not in the ordinary course of business then he may apply to the Court on 24 hours notice to restrain the particular transaction.

The undertakings do not of themselves prohibit the respondent companies from entering transactions that are not in the ordinary course of business or which may provide financial benefits to the individual respondents to which they are not entitled but I am satisfied that to accept the undertakings at the present interlocutory stage of the proceedings will do justice as between the parties particularly having regard to the personal guarantees given by Mr Williams which result in his having a very real interest in the ability of the respondent companies to meet their creditors and the fact that the respondent companies (perhaps with the exception of Donwren Pty Limited) are, on the evidence before me, presently insolvent. In my view the acceptance of the undertaking will better permit the respondent companies to trade, if they can, out of their present financial difficulties as well as providing a balance between the legitimate interest of the Commissioner that the assets of the companies be not dissipated and the interests of those who are the directors and shareholders of these companies and in particular Mr Williams who has personally guaranteed the indebtedness of the companies.

Accordingly, if the undertakings so proffered are given to the Court in the form proposed I would order that the injunctions granted by Morling J on 5 April 1989 as varied by his Honour on 12 April 1989 and as further varied by me on 26 June 1989 be dissolved. I propose at this stage to make no orders other than to adjourn the matter until a date to be fixed when, if the undertakings be then given, orders can be made dissolving the injunction. I will hear argument as to costs. The respondents should on that date bring in short minutes of order to give effect to this judgment.