Jonsson v Tim Ferrier Pty Ltd[2004] QSC 6

SUPREME COURT OF QUEENSLAND

1. MACKENZIE J:  The first plaintiffs who are the liquidators of the second plaintiff seek to recover, under s 588FE(1) of the Corporations Law, moneys allegedly paid to the first and second defendants in transactions claimed to be voidable.  The first plaintiffs were appointed administrators to the second plaintiff on 10 June 1999 and its liquidators on 14 October 1999. 

2. The essential facts are that the second plaintiff was a company associated with a developer named Thomas, which was developing a residential/commercial building at Port Douglas called La Pacifique. Mr Thomas was a bankrupt; his wife was the company’s director. The controlling mind of each of the two defendants was Mr Ferrier. The first defendant carried on business as a licensed real estate agent at Port Douglas as Ray White Port Douglas until 30 June 1998 and from 1 July 1998 onwards as Port Douglas Real Estate. The second defendant was described in Mr Ferrier’s evidence as trustee for the DA Ferrier Family Trust.

3. On 17 March 1998, a written agreement was executed under which the second plaintiff appointed the first defendant as real estate agent to sell units in the development and the second defendant as managing agent for the same units. The structure of remuneration was that the first defendant was to be paid commission (equivalent to the statutory rate of commission for residential properties) upon completion of contracts to which the purchaser was introduced by the first defendant. The second defendant was to be paid in respect of each such transaction a fee of $13,000, reduced by the amount of commission paid to the first defendant. (It is noted that the total return of $13,000 to the two entities equates to the maximum statutory commission payable on the sale of a residential property of the value of about $500,000; the agreement was described as relating to a “commercial property transaction”). The agreement also authorised the stakeholder to whom the deposit was paid under the contract of sale (the first defendant) to pay the first defendant and the second defendant commission and marketing fees respectively upon the completion of the contract.

4. There was a later agreement, also described as a “commercial property transaction,” dated 1 July 1998, which Mr Ferrier said superseded the earlier agreement. It provided for commission to be paid to the first defendant in the sum of $13,000 for each unit sold. No provision was made for payment to the second defendant. More reference will be made to this agreement later.

5. The statement of claim alleges that between 17 March 1998 and 10 June 1999 the first defendant receipted deposits of $350,440 from purchasers of units in La Pacifique into its trust account as stakeholder. It is alleged that on or about 7 June 1999 the first defendant transferred from the trust account the sums of $121,971.25 to its general account and $112,028.75 to the second defendant. It is alleged that each payment was a “transaction” within the meaning of s 9 of the Corporations Law and that the second plaintiff and the first defendant were both parties to each of the transfers of money from the trust account.

6. It is alleged that the payments resulted in each of the first and second defendants receiving from the second plaintiff, in respect of unsecured debts then due and owing by the second plaintiff to the first defendant and second defendant respectively, more than they would have received if transactions were set aside and they had to prove their debts in the winding up of the second plaintiff. It was alleged that each payment was either entered into at a time when the second plaintiff was unable to pay its debts as they fell due, or the second plaintiff became unable to pay its debts as and when they fell due as a result of the payments. It was alleged that because the payments fell within the relation back period for the purposes of the Corporations Law they were unfair preferences and therefore voidable.

7. In respect of the second defendant, it was alleged in the alternative that the amount paid to it was paid to it when it was acting as a real estate agent within the meaning of the Auctioneers & Agents Act 1971 when it was not a licensed real estate agent. 

8. The facts leading immediately to the plaintiffs’ claim are that within a couple of weeks of the intended settlement date for contracts relating to units in La Pacifique, Mr Ferrier’s mother passed away in Adelaide. Before he left for her funeral he gave instructions to his secretary concerning action to be taken to move moneys from the first defendant’s trust account, when a term deposit became due, to MacDonnell’s trust account so that settlements might be effected. She made certain arrangements with his bank but for reasons that are not entirely clear, sums of money not relating to La Pacifique were also transferred. When Mr Ferrier found out about this he promptly made arrangements which resulted in the latter sums being returned to the first defendant’s trust account.

9. However, moneys which had been on term deposit from the trust account, of sufficient amounts to cover his commission, had been transferred to the first defendant’s general account as part of this process. Mr Ferrier found out about it on his return on 3 June 1999. None of that money was returned to the trust account, although the event entitling the first defendant to the moneys, the completion of the transactions, had not yet occurred. The majority of the sales settled on 7 June 1999, but one did not settle until 11 June 1999. The focus of the plaintiffs’ claim was the failure by Mr Ferrier to take steps to return this money to the trust account.

10. It was relied on by the plaintiffs as of particular significance that while Mr Ferrier was in Adelaide, he received a phone call from Mr Widdicombe, director of the project manager, Earlsdon Constructions Pty Ltd, on the morning of 28 May 1999. During the course of the conversation Mr Widdicombe had told Mr Ferrier that he intended calling a meeting of the second plaintiffs’ creditors to be held on 1 June 1999 with the intention of appointing a provisional liquidator to the plaintiff. Several days earlier Mr Ferrier had informed Mr Thomas that he had had a number of buyers inspecting their units and that a number of them were threatening not to settle unless defects in construction were rectified. (Mr Ferrier explained that this was done in pursuance of an attempt to put pressure on Mr Widdicombe to finalise outstanding work). The plaintiffs’ submission was that by the time the moneys representing the balance of the deposit moneys after deduction of commission had been sent to the solicitor’s trust account and the balance transferred to the first defendant’s general account in anticipation of it becoming entitled to that sum, Mr Ferrier was aware that the subcontractors and other creditors were not being paid by the first plaintiff. The retention of the moneys equal to the sum of commission was allegedly a preference that could be attacked by the liquidators.

11. In respect of the second defendant there was an alternative claim that the amount of $112,028.75 transferred from the trust account of the first defendant to the second defendant on or about 7 June 1999 was a fee, charge, commission, reward or other remuneration in respect of a transaction by the second defendant as a “real estate agent” under the Auctioneers & Agents Act 1971 when it had never held a real estate agent’s licence in accordance with s 76(1)(b) of that Act.  It was alleged that it had failed to account to the second plaintiff for such sum under s 76(1)(b), or as moneys had and received to the use of the second plaintiff, the second plaintiff was entitled to recover that sum.

12. There were also certain agreed facts (Ex 1). They included that MacDonnells acted as solicitors for the second plaintiff in respect of the La Pacifique project from July 1998. A statutory demand against the second plaintiff by Total Project Group Pty Ltd in respect of architectural services for the project had been set aside on 30 October 1998 on terms designed to ensure that a sum sufficient to meet any judgment was retained by the second plaintiff in respect of the disputed debt. A letter had been sent subsequently by the solicitors for Total Projects expressing concern that there may have been a breach of undertakings given in connection with the adjournment of the proceedings. This was rejected by the second plaintiff. An assertion was made that a sum sufficient to meet the undertaking upon settlement would be available notwithstanding certain transactions referred to in the letter.

13. It was also an admitted fact that Mr Ferrier spoke to a solicitor, Mr Titmus of MacDonnells, on 26 May 1999 about a conversation that Mr Ferrier had had with another solicitor about a winding up application by McPhersons. Mr Ferrier was assured that the application would be dismissed upon the applicant being paid on settlement. On 28 May 1999, another of the Thomas’ companies settled a purchase for “Regal on Macrossan” for $1.3 million. The same day there was a telephone conversation in which Mr Ferrier told the solicitor for the second plaintiff that Mr Widdicombe wanted to sell his share in the project jointly developed by the company associated with the Thomas interests. On 1 June 1999, the certificate of classification issued by the Mossman Shire Council was faxed from the first defendant’s office to its solicitors. On 2 June 1999 the solicitors received a letter from Earlsdon Constructions Pty Ltd. (One of the substantial matters dealt with in the letter was a complaint about non-payment of subcontractors). On 5 June 1999 Mr Ferrier told the solicitor that he wanted to delay settlement of two units.  On 9 June 1999 Mr Widdicombe’s company sent a letter with details of unpaid tradesman’s accounts to the solicitors, having failed or refused to do so prior to that date.  The same day the solicitors first gave advice to Mr Thomas about the obligations of the company to its creditors and the desirability of the company going into external administration.  On 10 June 1999, Mr Thomas met the solicitors again, in the company of the first administrator. 

14. For reasons which will become apparent during discussion below of the agreements to pay commission, leave was obtained to amend the defence on 15 July 2003. In its amended form there was a denial that payments had been made in the sums alleged to the first and second defendants because the operative agreement was an exclusive agency agreement dated 1 July 1998. The second plaintiff was not indebted to the second defendant. The $234,000 transferred to the general account of the first defendant had been transferred in anticipation of settlement. The denial of liability was essentially that the first defendant had received the payment in good faith; it did not have reasonable grounds for suspecting that the second plaintiff was or would become insolvent at the time of the payments; that a reasonable person in its circumstances would have no ground for so suspecting. The defence further elaborated this position by reference to knowledge that the La Pacifique project was the second plaintiff’s sole business undertaking at relevant times; knowledge of the value of sales; a belief based on statements by Mr Thomas that the project would generate a substantial profit; and the apparent ability of other companies associated with Thomas to purchase and market other properties.

15. The allegations concerning the second defendant acting as a real estate agent were denied. It was alleged that only the first defendant was appointed as and acted as the second plaintiff’s agent to negotiate and sell property. The second defendant did not.

16. The reply alleged that the first and second defendants knew (through Mr Ferrier) that the project was in financial difficulties because of a number of circumstances allegedly known to him. These were particularised in some detail.

17. According to the liquidators’ report on the second plaintiff’s insolvency (the accuracy of which is not in issue) the company was insolvent as early as October 1998. With information available at that time, a director should have realised that fact. There were a number of unpaid and well overdue liabilities as at 10 June 1999, and receipts and incoming cash flow were substantially less than were adequate to meet the company’s commitments and liabilities. It was noted that all but two units, and the management rights, had been sold by 30 October 1998 and all were sold by the end of November 1998. The gross income was known and, had an appropriate calculation been performed, it would have been realised that the gross income would not exceed the total liabilities. However, that does not necessarily impact adversely on the first defendant since it is its state of mind, through Mr Ferrier, that should be the focal issue. Indeed, an argument was relied on by the defendants to the effect that MacDonnells only gave advice that the second plaintiff should go into administration when it received the list of creditors who were unpaid from Mr Widdicombe. If they only apprehended its insolvency at that time, then Mr Ferrier had no reasonable grounds to do so earlier. I do not accept that that argument has any special cogency.

18. The trial was conducted on the basis that the Auctioneers and Agents Act 1971 was the governing legislation.  The contract documents described the second defendant (trading as Port Douglas Real Estate) as stakeholder (as trustee appointed under s 23 of the Land Sales Act 1984).  Section 23 of the Land Sales Act is relevantly concerned with lots sold off the plan.  It imposes an obligation to pay all moneys whether by way of deposit or otherwise for a “proposed lot” into the real estate agent’s trust account, where the money is to be held by the real estate agent (s 23(1), 23(1A)).  Moneys are to be dealt with in accordance with the Land Sales Act and the law relating to the operation of trust accounts (s 23(1A)(b)).  Such moneys are deemed to be trust moneys (s 23(5)).

19. Apart from this, a stakeholder would in any event hold the deposit as trustee for both the vendor and purchaser to await the outcome of a future event, the completion of the contract (or earlier termination of it). At the relevant time, the application of the money received by the real estate agent in respect of a sale was governed by s 104 of the Auctioneers and Agents Act.  In the circumstances of the present case, the obligation was to pay money into the first defendant’s trust account, which was done (s 104(1)(a)).  Once it was in the trust account, s 104(2) required it to be retained in the trust account until disbursed under the Act.  Section 104(3) permitted the real estate agent to draw against the trust account to pay “the expenses, commission, and other charges of and incidental to such sale ….”.  However, s 104(4) prohibited drawing of an amount in respect of commission until payment of the balance of the money in the trust account had been made in accordance with s 104(7) or 104(8)(a).  Neither of these events had occurred at the time the moneys were transferred from the trust account of the first defendant to its general account.

20. Once the future event, in the form of settlement of the contracts, had occurred, there was an obligation to account to the vendor for the deposit. The agent would disburse the money to which the vendor was entitled and transfer a sum to which the agent was entitled from the trust account. Up to that time, the deposit could not be lawfully dealt with except by retaining it in the trust account, or investing it if authorised.

21. Transferring commission at the time when it was transferred to the general account was non-compliance with the Auctioneers and Agents Act.  The question raised in this trial is whether what happened can be characterised as a voidable preference for the purposes of the Corporations Law.  Upon settlement of each transaction the vendor became entitled to payment of the amount of the deposit less the amount of commission and other monies owing to the real estate agent by the vendor (s 104(3)).  Nevertheless those amounts of commission are merely debts due to the real estate agent by the vendor.  The preoccupation with this subject by Mr Ferrier in his letter of 7 March 1998 to MacDonnells, to which reference will be made later, illustrates that this is so.  Section 104(3) did not, in my view, create a priority in favour of the real estate agent as against other debtors of an insolvent vendor.  It merely authorises a real estate agent to draw moneys from the trust account at the appropriate time.  The status of any such payment for the purposes of the Corporations Law is not affected by s 104(3).  What it permitted was the discharge of the debt owed to the real estate agent by the vendor by allowing the real estate agent to withdraw the sum from moneys held in his trust account once the entitlement had matured and the circumstances required by the Act had occurred.

22. It was conceded by the defendants that there was a “transaction” capable of being avoided within the meaning of the Corporations Law if the exemption was not made out.  The case was conducted on the basis that the defendants were potentially within the ambit of the exemption in s 588FG of the Corporations Law and that the issue was whether entitlement to the exemption was made out on the facts.  At a late stage of the trial an issue arose whether, on the pleadings, it was open to the plaintiffs to rely on the absence of good faith (s 588FG(1)(b)(i)) on the basis of the transfer of monies paid prior to crystallisation of the entitlement when bad faith was not pleaded as a particular.  After consideration, counsel for the plaintiffs informed me that he would not seek to amend at the risk of having the trial adjourned and that the plaintiffs would not rely on the absence of good faith if the pleading did not already adequately raise it as an issue.

23. The statement of claim claimed that there was an unfair preference within the meaning of s 588FA and a voidable transaction under s 588FE.  The defendant denied this, asserting both good faith and that the requirements of s 588FG(1)(b) were complied with.  The reply, after alleging that a number of facts were known to Mr Ferrier, denied that the payments were received in good faith and alleged that the defendants had reasonable grounds for suspecting insolvency, or insolvency as a result of the payments, and also that a reasonable person would have had grounds for so suspecting.  I think that the better view is that although bad faith was not specifically relied on as a specific particular it was clearly enough put in issue on the pleadings.

24. However, it also seems to me that, to prove absence of good faith on the basis of premature appropriation of the moneys, as a matter of practicality it would be necessary to prove that the motive for doing so was an apprehension that if it was not done, there may be complications at a later stage in securing the first defendant’s entitlements. That, as a matter of practicality, would require proof of a degree of apprehension on the part of Mr Ferrier that the second plaintiff’s financial position was precarious. That question has, at least, elements of the question to be answered under s 558FG(1)(b)(ii), although there may be a question of degree as well. Having said that, there is in my view, no impediment to using the fact of premature appropriation as one circumstantial fact to be taken into account, with others, in deciding whether to draw an inference that the qualification for exemption in s 558FG(1)(b) has been established.  The ultimate onus of persuasion that it should be drawn rests on the defendants.

25. When an inference as to what was in a person’s mind is to be drawn, especially in relation to a transaction in the development industry where there is a degree of pragmatic fluidity with regard to financial arrangements and during other transactions, it is important not to allow hindsight with the benefit of knowing of subsequent events to influence the outcome. (Sutherland v Eurolinx Pty Ltd (2001) 37 ASCR 477, 483-484).  It must also be kept in mind that in the development industry, payment of debts, especially to subcontractors may be delayed without the person liable to pay them necessarily being insolvent.  In this regard the defendants relied on a variety of facts including the absence of direct evidence from subcontractors, (apart from one) that they had not been paid, and what was said to be the absence of evidence that the defendants, through Mr Ferrier, knew that the first plaintiff was liable to pay them.

26. It was also submitted that the defendants, through Mr Ferrier, had received information explaining satisfactorily that winding up applications had been resolved, and that he was unaware of the extent of the unpaid debts. It was also submitted that the threat by Mr Widdicombe to call a creditors’ meeting had come to nothing and that he believed that there was another motive for the threat being made, the promotion of Mr Widdicombe’s own interests in his dealings with Mr Thomas. Further, he believed from his discussions with MacDonnells that there was no cause for concern that there was anything out of the ordinary about the situation or that the settlements might not proceed. Indeed, the request to delay settlements was inconsistent with concern about the second plaintiff’s solvency. There were other indications by reason of the project being brought to completion that reassured him. Reliance was placed on the fact that other Thomas companies were apparently able to raise money; in my view, this is not, in the context of the industry, a particularly cogent reason to infer that another company in a group must be solvent.

27. If the factors referred to in the following paragraphs were not operative, all that was submitted on the defendants’ behalf is of a kind that might be influential in their favour. However, in this case they are more theoretical than compelling. The case is essentially a circumstantial one, and credibility of Mr Ferrier’s evidence on vital issues is of particular importance. In resolving that issue, this was a case where the impression created by the two main witnesses was, in my view, of critical importance for the reasons elaborated on in the following paragraphs. As the transcript shows, but without recapturing fully the atmosphere of the trial, Mr Ferrier was inclined to be combative in defence of his position and was prepared go on the attack against others on the premise that he was, in his view, being unjustly pursued by them. There were also grounds for concern about Mr Widdicombe’s credibility, but overall, his evidence was, on key issues, less self serving, but subject to the observations that follow.

28. A tradesman who had not been paid and Mr Widdicombe gave evidence for the plaintiffs. Mr Ferrier gave evidence on behalf of the defendants. As between Mr Widdicombe and Mr Ferrier, the problem about accepting unreservedly any one version of relevant events in preference to another is related to the fact that the case has its origins in the Byzantine world of property development, where the evidence suggests even those in a symbiotic relationship have their own agendas as well. In the end the case has to be resolved circumstantially on the basis of the facts that can be safely regarded as facts. The credibility of both Mr Widdicombe and Mr Ferrier suffered from a lack of consistency in versions of events, especially between what was said in a public examination on behalf of the liquidator and in the evidence at the trial. However, on the critical issues of whether certain conversations happened in Mr Ferrier’s presence, on balance, I prefer Mr Widdicombe’s evidence, having seen and heard each at length while giving evidence.

29. The effect of Mr Widdicombe’s evidence was that he had participated in numerous conversations at which Mr Thomas, Mr Ferrier and he were present in which financial matters pertaining to the project were discussed. In particular he maintained that Mr Ferrier was present on occasions when it was said that the project was “hocked to the hilt” and that it was said that it would not make any money. Mr Widdicombe also said that cost overruns had been discussed in Mr Ferrier’s presence. One common recollection between the two of them was that some items had not been allowed for in costings and Mr Ferrier insisted that they had to be included because of representations to purchasers about them. On the plaintiffs’ case the telephone call from Mr Widdicombe to Mr Ferrier concerning the allegation that subcontractors were not being paid and that he was going to call a meeting to be held on 1 June to appoint a provisional liquidator precipitated relevant events. In that connection Mr Widdicombe also wrote a letter explaining why his company was not responsible for making payments and that it was the responsibility of the second plaintiff to do so.

30. Mr Ferrier’s connection with the project was more than that of a real estate agent who merely sold units in it. He was sole agent and actively involved with Mr Thomas in seeking out other development sites for the future. He said that at relevant times about 90% of his work came from Mr Thomas. He introduced a source of finance (Bells Securities) when the bank valuation proved to be $200,000 short of the purchase price, and was instrumental in persuading the vendor, on the basis that she has achieved a premium price, to take a second mortgage for that component instead of being paid immediately.

31. Mr Ferrier maintained that he had been present at very few meetings involving Mr Thomas and Mr Widdicombe. He denied having been present on any occasion when it was said that the project would not make money or that it was “hocked to the hilt”. He professed, almost to the point of lack of interest, that he knew little of the financing arrangements for the project notwithstanding his close connection with it. Having observed him and listened to his lengthy evidence, I am satisfied it was improbable that he not attempt to keep himself informed about such matters as far as he could, even if he did not receive information directly from Mr Thomas or Mr Widdicombe. There were oblique references to things he had heard in his evidence.

32. There are several matters which detract from his credit. One was that, in the public examination on behalf of the liquidator, he did not reveal that the entry suggesting that the transfer of funds from the trust account to the general account had occurred on 7 June 1999 was incorrect since the transaction had occurred on 1 June 1999. Mr Ferrier took the stance that the liquidator had the accounts and had not asked him about it. The second was that he did not advance the explanation that the transfer had occurred contrary to his intention as a result of an error on the part of his secretary. He did not disclose that he had become aware of the fact on 3 June 1999 on his return to Port Douglas from his mother’s funeral and that he had not restored the money to the trust account. He said in defence of this that only a short time would elapse before the entitlement to have commission paid would crystallise. He rationalised the situation on the basis that he did not otherwise deal with the money in the interim period which meant, in practical terms, that it was equivalent to it being in trust.

33. He was also somewhat evasive at the beginning of the cross-examination at the trial in his responses to questions whether there were any other occasions when money had been prematurely transferred to the general account; he professed not to understand the questions although they were quite plain. Nor did he, in evidence at the public examination, give evidence that the original agreements under which the first defendant was to receive commission on the residential property scale and the second defendant the difference between the amount of commission and $13,000 had been superseded from 1 July 1998 by the later agreement under which the first defendant was to be paid $13,000. It was said that he had forgotten about the second agreement, which I find improbable since he gave evidence that the explanation for the second agreement was that he wished to factor commission entitlements but the factoring company would only do so for a licensed real estate agent’s commission, not other payments. The explanation that he had mistakenly not mentioned it and that his solicitors had not picked up the fact that there was such an agreement until he raised it in preparing for trial is unconvincing.

34. Some insight into Mr Ferrier’s preoccupation with ensuring payment of his commission, come what may, can be gained by reference to a letter dated 7 March 1998, to which previous passing reference has been made, during the course of correspondence between him and MacDonnells about the draft contracts for sale of the management and letting rights. In the letter he said that one required amendment to the agreements was to make “Tim Ferrier Pty Ltd trading as Ray White Port Douglas” the stakeholder, citing a very recent instance where “due to very unpleasant humiliating and traumatic treatment” he had received at the hands of solicitors where he had to “virtually … beg and grovel for commission due to him” on settled sales in another project. He continued by saying “I will not act in any capacity in any Contract of Sale prepared by MacDonnells in future unless I, that is Tim Ferrier Pty Ltd, is stake holder”. He then continued:

“My commission is not to be dependent upon the developer turning a profit, or upon the balance of the sales proceeds being sufficient to discharge any mortgage.  The argument that the mortgagee has first charge over the land may be fine in theory, but is fallacious in practical terms in relation to commission.

MacDonnells would be fully aware that the normal commercial practice is for the selling agent to hold the deposit as stakeholder and then to account to the vendor, or mortgagee as the case may be, at settlement for the balance of deposit, after the deduction of the Agent’s commission.  In my 30 years of experience in this real estate business, in every sale of property where there has been insufficient funds from proceeds to fully discharge the mortgage, the mortgagees have always agreed to pay the agent’s fees from the deposit in the situation where the agent is the stakeholder.  That is the commercial reality. -----

In a scenario where, say, I sell ¾ of La Pacifique, spend $50,000 up front on marketing, and Steve ‘gets hit by a bus’, where does that leave me if MacDonnells are stakeholder? 

Well, if MacDonnell’s want my commission to go towards settling the mortgagee’s debt, count me right out, right now!  And I will just get on with the rest of my business.”

35. Then on 23 December 1998 MacDonnells wrote to Bells Solicitors, who were acting for the financier Bells Securities, to the effect that the selling agent had requested confirmation that in relation to three contracts where the deposit had been secured by bank guarantee, commission would be retained from settlement moneys. Apart from making an observation that the amount of commission appeared high, Bells advised that there was no objection to proper commission being paid out of the settlement moneys. The query about the amount of commission was referred on to Mr Ferrier who responded that the amount of $13,000 was in fact commission and marketing costs incurred by the first defendant and payable to it under the agent’s fees authorisation. Consent was also sought from the original vendor of the property who had a second mortgage.

36. It can be seen that even at those relatively early stages of the project there was a determination on the part of Mr Ferrier to ensure that there was no impediment to obtaining payment of his commission without complications. That is not surprising in itself. But in the context of what happened at the end of May and the first part of June 1999, serious consideration has to be given to the possibility that the transfer of the moneys from the trust account to the first defendant’s general account “in anticipation of it becoming entitled to that sum…”, as Mr Ferrier deposed in para 5(j) of his affidavit of 9 July 2003, but before the entitlement to do so had arisen was a further manifestation of the same anxiousness demonstrated on the earlier occasions to ensure that he got his commission.

37. Further, there was a revealing answer given in his public examination although an attempt was made subsequently at trial to minimise its effect. The passage from the transcript of the public examination is as follows:

“But you would certainly be concerned about the commission payments though, if -----?—Well I didn’t – I didn’t have any concern at all because I had commissions in my – I mean I knew that I was in a good position that I had the commissions in my – I was in control of the commissions.”

38. There was also a question and answer in cross examination at trial which is as follows:

“… Isn’t it the case, Mr Ferrier, that although you were concerned about the position of your commissions and the position of Riaps, the fact is that you considered you had control of the commissions and you could transfer them if any trouble arose?  That – that was your position, wasn’t it? – Well, if I’m the stakeholder I guess I’ve got control.”

39. Mr Ferrier’s secretary, who, he said, was responsible for the erroneous transfer of the commission to the general account did not give evidence. That was surprising, since acceptance that the commission was left in the general account, as a matter of convenience only, after the error had occurred because it was expected to be payable within a few days was of considerable importance. There was some concern on the defence side when the question whether an inference ought to be drawn that had the secretary given evidence she would not have assisted the defence case was raised. The clear impression left was that the witness had not been called because of a decision not to do so, although whether it was a tactical decision or merely a perception that it was unnecessary to do so is less clear. There is no doubt that moneys in excess of those which should have been transferred to MacDonnells were transferred to them by the Commonwealth Bank. However, the evidence is unclear as to the circumstances in which the money was transferred from the trust account to the general account of the first defendant. I am not inclined to draw an adverse inference against the defence, all things considered, but the result is that Mr Ferrier’s evidence is the only evidence on the point.

40. It is also true, as he maintained vigorously, that the money was not dissipated from the general account during the period it was prematurely in that account. Nevertheless, in my view there are indications which point to the inference being valid that Mr Ferrier had a suspicion that the first plaintiff might be unable to pay its debts. Even on the most favourable view of the facts for the defence, Mr Ferrier had been told, on 28 May 1998 when he was in Adelaide for his mother’s funeral by Mr Widdicombe, that the subcontractors were not being paid and that he intended to call a meeting with a view to putting the company into provisional liquidation. This is corroborated by the existence of a file note compiled by the solicitor at MacDonnells to whom he spoke at 9.40am that day. It is clear that Mr Ferrier was sufficiently concerned by the threat to telephone the solicitor from Adelaide, even in the personal circumstances he then was. Mr Ferrier’s handwritten note on the copy of the file note shows that he was concerned. The money was transferred to the general account on 1 June 1999, which appears to be the date when the term deposit in which it was held matured. Not later than 3 June 1999 he knew that the money representing commission which would fall due upon settlement had been transferred to the general account, but did nothing return it to the trust account. The evidence suggests that this was unique in the conduct of his practice as a real estate agent over a period of about 30 years.

41. I do not accept his explanation that the money was allowed to remain in the general account simply because it would only be a few days until the commission would become payable. It follows from that conclusion that there must have been some other purpose, since Mr Ferrier was obviously aware of his obligations with regard to moneys paid by way of deposit but made a deliberate decision not to reinstate the money to the trust account. The only plausible inference to be drawn in my view is that he did suspect that the second plaintiff was insolvent.

42. There was no dispute that the first defendant received more than it would receive from the company in respect of the debt if the transaction was set aside and it were to prove for the debt in the winding up of the company (s 588FA). By virtue of s 588FC and in light of the defendant’s concession that there was an insolvent transaction, the transaction became a voidable transaction under s 588FE and the range of orders in s 588FF became available.

43. Since it was accepted by the plaintiffs that s 588FG(1) was the critical provision in the circumstances of the case, it is necessary to express a conclusion on whether the transaction was one where the second plaintiff was exempted from liability to have an order under s 588FF made against it. I am satisfied that at the time when the first defendant received the benefit, Mr Ferrier had reasonable grounds for suspecting that the company was insolvent at the time. I am satisfied that he harboured a strong suspicion that the company was unable to pay its debts. It is said in Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 303 that “reason to suspect” involves more than “mere idle wondering” whether a state of affairs exists.  It requires a positive feeling of apprehension or distrust.  I am satisfied that the inference should be drawn that Mr Ferrier’s state of mind went beyond mere idle wondering about the state of the company’s finances.  I am satisfied that he did suspect that the company was insolvent.  I am not satisfied that he did not have any reasonable grounds for suspecting that the company was insolvent at that time.  Accordingly it is a case where an order should be made that the first defendant pay to the first plaintiff the amount equal to the payment on account of commission.

44. Lest it be suggested that the strength of the inference is weakened because retaining the money in the general account would prove futile if the liquidators pursued its recovery, it is important to distinguish between the theoretical and the practical. While the proposition may be true as a matter of law, the evidence discloses that there was vigorous advocacy by Mr Ferrier designed to deter those interested in pursing recovery of the money from doing so. It is not unusual that he may have had a sense of grievance if he thought he might not get his full entitlements for his efforts, but, no doubt, the same grievance would be equally felt by others who had not been paid. Had the proceedings not been pursued in the face of that campaign, which was not always conducted in temperate terms, the practical outcome of possession of the money already in the first defendant’s general account would have been that it was available to be used by it at will. The benefit of the money would have gone to it rather than into the pool of moneys available to the creditors, including it. The reality is that the company has had use of the money for a period of over 4½ years as a result of its premature appropriation and inability of the liquidators to recover it.

45. I therefore give judgment for the first plaintiffs against the first defendant in the sum of $343,397.55 being $234,000 commission and $109,397.55 interest in accordance with s 47 of the Supreme Court Act 1995  The plaintiffs are entitled to costs on the standard basis against the first defendant, subject to the leave given in para [48].

46. With regard to the claim against the second defendant, the premise upon which the plaintiffs’ case was founded, that there were agreements with both defendants, was put in dispute by the amendment allowed by leave. One of the difficulties for the plaintiffs is that an allegation that there was some other construction to be put on the agreement of 1 July 1998 was not pleaded. In particular, it was neither pleaded nor sufficiently developed in evidence that the agreement did not represent the true relationship between the second plaintiff and the defendants. It is true that there was evidence that Mr Ferrier wished to factor the moneys coming to the defendants but the factoring company would only factor commission of a licensed real estate agent. In my view, that may provide an explanation why the second agreement was entered into, but that in itself does not mean that it did not represent the true legal relationship between the parties to it.

47. It is curious that it was revealed late, and there were workings on the face of Mr Ferrier’s records reflecting a notional break-up of the sums as if the original agreements had been operative. There is also a letter of 12 February 2001 to the first plaintiff actively promoting the position that, since the transactions were commercial, not residential transactions, the first defendant would itself have been entitled to charge a fee of $13,000. The difference between the residential scale fee and $13,000 was a negotiated recompense for work done by way of marketing and promotion by the second defendant, of which Mr Thomas did not wish to bear the primary cost. This seems to me to necessarily mean that there was an agreement for the sum to be paid to the second defendant, which implies reliance on the continued operation of the two agreements. The expressed reason for the arrangement was tax effectiveness. However, the moneys were, in fact, all paid into the first defendant’s accounts first, and later, on 30 June 1999 transferred as “marketing fees” to the second defendant. Mere allocation of moneys as between the two companies for Mr Ferrier’s own purposes, if that happened, is not a persuasive reason to find that the second agreement was not operative in law. It is beyond the scope of these proceedings to be concerned with issues concerning accounting and taxation consistency.

48. I am satisfied that on the evidence as it stands and the way the case was conducted the agreement of 1 July 1998 was operative as between the parties. The claim against the second defendant therefore fails because no moneys were payable directly to it. It was not acting as a real estate agent and did not have moneys of the second plaintiff that could be recovered as moneys had and received. The action against it must therefore be dismissed. The plaintiffs were unsuccessful against it but the late application to amend and withdraw admissions based on late revelation of the second agreement may have some relevance to costs. For that reason, the parties will be given leave to make written submissions as to costs, including the form of the whole order as to costs. Such submissions must be delivered to the other parties and my Associate within 14 days.

Orders:

1. Judgment is given for the first plaintiffs against the first defendant in the sum of $343,397.55 being $234,000 commission and $109,397.55 being interest pursuant to s 47 of the Supreme Court Act 1995.

2. The action against the second defendant is dismissed.

3. Leave is given to the parties to make submissions as to costs, such submissions to be delivered to the other parties and to my Associate within 14 days.