Robson v Robson[2007] QSC 217

SUPREME COURT OF QUEENSLAND 

1. MCMURDO J:  In this proceeding the plaintiff sues his brother and sister‑in‑law, claiming orders that they transfer to him one half of the shares in a company of which they are the only shareholders.  That company is Yalgold Pty Ltd (in liquidation) (“Yalgold”) and the plaintiff’s claim is to enforce the terms of a declaration of trust executed by the defendants on or about 28 April 1989.

2. Until the amendments the subject of the present application, the defendants’ case was that no trust was constituted because they had no intention to create a trust or that the trust should not be enforced because its execution was procured by unconscionable conduct and undue influence, or that the plaintiff had disclaimed the trust and transferred his beneficial entitlement under it to the defendants.

3. On 16 July 2007 the defendants filed their Second Further Amended Defence and the plaintiff then filed an application to strike out the paragraphs which had been added by that pleading.  The defendants then filed the Third Further Amended Defence which met some, but not most, of the plaintiff’s complaints about its predecessor.  This then is an application to strike out parts of this most recent Defence.  As argued, the application is made under UCPR r 171(1)(a) or r 171(1)(b), in that these parts of the pleading disclose no reasonable defence or tend to prejudice or delay a fair trial.

4. In essence, the defendants here plead that the plaintiff should be refused relief because of conduct that amounts to unclean hands. They plead that to grant the relief sought would be to aid the plaintiff to recover the benefits from what they allege was his fraud. However by this most recent pleading, the defendants do not allege that the declaration of trust itself was procured by the plaintiff to effect any fraudulent purpose. Part of their case is that the trust is sufficiently connected with at least some of the alleged fraud because the proceeds of that fraud have been paid to Yalgold and the plaintiff’s access to those proceeds would be by his becoming the holder of half of its shares. Yalgold is in liquidation but there is a surplus which will be paid to contributories.

5. In broad terms, the defendants allege that the plaintiff was fraudulent in two distinct ways. The first was in defrauding the Commissioner of Taxation. The second was in defrauding the plaintiff’s former wife in proceedings between them in the Family Court.

6. The tax fraud case is pleaded as follows. It is alleged that the plaintiff controlled a number of companies incorporated in Vanuatu, being Mine & Quarry Equipment International Ltd (“MQEI”), Pacific Ventures Limited, Global Nominees Limited and Credit Facilities Limited, and that he structured these companies so as to disguise his control. It is then alleged that a further participant in his scheme was a company incorporated in Australia, Mine & Quarry Equipment Pty Ltd (“MQE”). As the defendants plead, the first defendant has at all material times been its sole director and they have held or controlled all of its shares. It was placed in liquidation on 13 September 2000.  They plead that its business was the “purchasing, repairing or reconditioning, manufacturing and selling of mining equipment”.

7. They plead that the plaintiff “set up” MQEI and MQE on the bases that:

“(a)   The Plaintiff would manage MQEI;

(b)   The First Defendant would manage MQE;

(c)   MQEI and MQE would operate in conjunction in the business of buying and selling mining equipment;

(d)   The First Defendant  would manage the business of repairing or renovating, and manufacturing, mining equipment;  and

(e)   The Plaintiff would manage:-

(i)The business of buying and selling mining equipment;  and

(ii)The financial affairs of MQEI and MQE.”

They plead that those arrangements continued until about March 2000 when the parties fell out.  They allege that although they controlled all of the shares in MQE and the first defendant was its sole director, nevertheless the plaintiff “exercised total control over the financial affairs of both MQE and MQEI” and directed MQE’s staff as to the purchase and sale of mining equipment, “remittances of funds” and the recording of transactions or purported transactions in the books and records of MQE.

8. They then allege that the plaintiff developed and carried into effect a scheme which defrauded the Commissioner of Taxation as follows:

“43.During the period whilst the management arrangements were in place, the Plaintiff developed and carried into effect a system of business (“the transfer pricing scheme”), whereby:-

1. MQEI would purchase mining equipment;

2. The Plaintiff would cause such mining equipment to be invoiced to MQE;

3. If the mining equipment required repair or reconditioning, this would be undertaken by MQE at its expense;

4. The mining equipment would then be sold by MQE to an independent purchaser;

5. The sale price achieved by MQE for the mining equipment would be paid to MQEI in Vanuatu;

6. By this means, any profit generated as a result of the purchase, repairing or reconditioning, and sale of the mining equipment would be received by MQEI in Vanuatu;  and

7. A part of the profits generated by MQEI in Vanuatu would then be either:

1. Advanced by the MQEI, purportedly as a loan, to MQE;  or

2. Otherwise advanced, purportedly as a loan, by a Vanuatu company controlled by the plaintiff to the First Defendant, MQE or Yalgold.

44. The transfer pricing scheme was intended to, and did, have the following consequences:-

1. Any profits generated as a result of the purchase, repair or renovation, and sale of mining equipment were transferred offshore to the MQEI, or another company controlled by the Plaintiff;

2. No Australian tax was paid in respect of such profits;

3. A part of such profits was then repatriated to Australia, in the guise of loans, including to Yalgold;  and

4. No Australian tax was paid in respect of such loans.”

9. Paragraph 45 then pleads that for reasons unknown to the defendants the plaintiff modified this scheme by:

“(a)Advancing funds to the First Defendant, for the purpose of the First Defendant’s on‑lending such funds to MQE or Yalgold, purportedly as gifts, including:

1. By a Deed of Gift dated 7 April 1989, in the sum of $100,000.00;

2. By a Deed of Gift dated 5 July 1989, in the sum of $100,000.00;

3. By a Deed of Gift dated 1 March 1994, relating to the Plaintiff’s ‘entitlement to receipt of payments rights and benefits and other considerations contained in a deed of sale from [Gary Robson] to [Ventures] dated the 1^st March 1994’;  and

4. By a Deed of Gift dated 19 January 1997, relating to the Plaintiff’s ‘entitlement to receipt of payments rights and benefits and other considerations contained in a deed of sale from [Gary Robson] to [Ventures] dated the 19^th January, 1997’;  and

2. Procuring the execution of documents purporting to record loans involving the First Defendant, including:

1. A purported finance facility agreement, bearing the date 9 November 1995, by which Ventures purportedly agreed to make available to the First Defendant a finance facility of AUD$3.5 million upon the terms and conditions set out therein (“the purported finance facility agreement”);

2. A purported Deed of Loan between the First Defendant and Yalgold dated 7 July 1989;  and

3. An agreement in writing and bearing the date 2 November 1993, by which Venture purportedly agreed to make available to the First Defendant a finance facility of AUD$2.5 million upon the terms and conditions set out therein (“the Pacific Ventures Loan Facility Agreement”);  and

4. An agreement in writing dated in or about 1992 by which an entity which the Plaintiff owns and controls and which he calls Mine & Quarry Equipment South Pacific Ltd (“MQESP”) agreed to advance monies to the First Defendant and, if there is such a document (“the alleged MQESP Loan Facility Agreement”).”

10. Paragraphs 46 and 47 then plead that a number of transactions were shams and “void, invalid and of no effect” and entered into with the purpose and intention on the part of the plaintiff to defraud the Commonwealth of Australia by avoiding income tax:

“46.In the premises, the following were sham transactions, not intended by any of the parties thereto to have legal effect;  namely:-

(a)The purported finance facility agreement;

(b)If (which is denied) any advances were made by MQESP or Ventures to the First Defendant all such advances;

(c) Any advances which were in fact made, purportedly as loans, by the Plaintiff (rather than Ventures) to Yalgold (rather than the First Defendant);

(d)the alleged MQESP Loan Facility Agreement;

(e)the Pacific Ventures Loan Facility Agreement;  …

47.Further in the premises, each of the following transactions is void, invalid and of no effect, by reason that they were entered into with the purpose and intention, on the part of the Plaintiff to defraud the Commonwealth of Australia by avoiding Australia tax liabilities;  namely:-

1. The purported finance facility agreement;

2. If (which is denied) any advances were made by MQESP or Ventures to the First Defendant, all such advances;

3. Any advances which were in fact made, purportedly as loans, by the Plaintiff (rather than Ventures) to Yalgold (rather than the First Defendant);

4. the alleged MQESP Loan Facility Agreement;

5. the Pacific Ventures Loan Facility Agreement;  …”

11. Paragraph 48 is in these terms:

“48.The Plaintiff is prosecuting this proceedings, and seeking to acquire, or alternatively recover, a beneficial interest in one half of the shares in Yalgold for one or more of the following purposes:-

(a)to become a member and thereby a contributory of Yalgold;

(b)thereby to secure a dividend in the winding‑up of Yalgold;

(c)thereby to secure the benefit of the said sham transactions;

(d)thereby to execute and carry into effect the fraud on the Commonwealth.”

12. Clearly the plaintiff brings these proceedings “to secure a dividend in the winding‑up of Yalgold” as a contributory.  What is far from clear is that, accepting for present purposes the truth of everything pleaded by the defendants, the plaintiff brings these proceedings “to secure the benefit of the said sham transactions”, because most of these transactions have no apparent connection with Yalgold.  Paragraph 44(c) pleads as generally that “a part of such profits was then repatriated to Australia, in the guise of loans, including to Yalgold”.  Paragraph 45 does not reveal even approximately the amount of “on‑lending” to Yalgold.  The allegations in paragraph 45(b), with the exception of that within sub‑paragraph (ii) which refers to a purported deed of loan between the first defendant and Yalgold, says nothing about the flow of funds to Yalgold.  And the pleading says nothing about how much, or approximately how much, was passed on to Yalgold in this way.  Nor does it say anything about the impact of such receipts on Yalgold’s present financial position.  From these allegations it is impossible to say how much, if any, of the surplus to be paid to contributories of Yalgold is attributable to what the defendants say were the ill‑gotten gains from avoiding or evading income tax. 

13. Nor is it clear how it is relevant to the defence of this claim to consider the validity or effect of agreements to which Yalgold was not a party, including the MQESP Loan Facility Agreement or the Pacific Ventures Loan Facility Agreement, by which other lenders agreed to lend money to the first defendant. As it happens, the validity of those agreements appears to be in issue in proceedings brought by Hannover International Limited and MQEI against the (present) First Defendant (respectively S7342 of 2000 and S8937 of 2000).  For that reason, the defendants say that the present proceedings (if these particular pleas are not struck out) have such a connection with those other proceedings that they should be heard together.  However, the determination of those other agreements does not matter to the defence sought to be raised to this case, which is that ill‑gotten gains have flowed through to Yalgold and that the plaintiff seeks to get hold of them by the relief which is sought.

14. Paragraphs 46(c) and 47(c) are problematical because they allege that amongst the transactions which are “void, invalid and of no effect” is “any advances which were in fact made, purportedly as loans, by the Plaintiff (rather than Ventures) to Yalgold (rather than the First Defendant)”.  It is not clear whether this means that advances purportedly made by Ventures to the first defendant were actually advances made by the plaintiff to Yalgold;  but in any case, the connection with the alleged fraud upon the Commonwealth is not clear.  Moreover, the pleading says nothing as to those “advances” as to when they were made and in what amounts. 

15. In paragraph 50 the defendants plead that the plaintiff set up Yalgold by acquiring it as a shelf company and instructing its original shareholders to remain as the apparent controllers to disguise its true ownership.  By paragraph 51, they allege this for the purpose of defrauding the Australian Taxation Office through the transfer pricing scheme.  By paragraph 53, they allege that granting the plaintiff the relief which he seeks would result in his profiting from his own wrongdoing and receiving the fruits of his fraudulent dealings (an assertion which covers both the tax fraud case and the alleged fraud in the Family Court proceedings).

16. The “clean hands” maxim provides a discretionary defence only where a plaintiff’s misconduct has immediate and necessary relation to the equity which is sued for: Meyers v Casey.^[1]  The defendants seek to plead that relation by the general assertion that some income, upon which tax has been avoided or evaded, has ultimately found its way to Yalgold.  But on the basis of the pleaded allegations, what is the impact of that upon the financial position of Yalgold at present and the source of the funds which the liquidator proposes to distribute to contributories?  Were receipts by Yalgold under these so‑called sham transactions its only business or do other matters have to be considered in assessing the extent to which, if at all, the present funds represent part of the proceeds of the transfer pricing scheme?  It should not be readily inferred that the only assets of Yalgold were the proceeds of the so‑called transfer pricing scheme because of what is earlier pleaded in this Defence, which is that certain land was transferred to Yalgold in 1989 (paragraph 21).

17. An outsider to fraudulent conduct usually has an understandable difficulty in particularising that conduct and in explaining the steps by which it has had its alleged consequences. In the present case however, Yalgold has been in liquidation for some years and its financial position should be readily ascertainable from the liquidator, especially by the defendants who are and have always been its only shareholders and where there is a surplus to be paid to them.

18. Ultimately, it is unfair to the plaintiff that he should have to meet this very general case which is raised against him and so late. It is a case which would permit a wide ranging enquiry of the affairs of Yalgold and several other entities over more than a decade prior to the parties falling out in 2000, and a consideration of the financial history of Yalgold since then.  The plaintiff would be forced to confront this case without any particulars of the alleged frauds, the amounts thereby derived or the disposition of those amounts.  The present proceedings have been on foot since 2004.  There is no satisfactory explanation of why the defendants cannot properly particularise a case, if they have one, that descends to some particulars of amounts and dates, or approximate dates, of payments, by which the court could determine fairly whether, more probably than not, success in the present proceedings would result in the plaintiff’s obtaining the benefit of a fraud.  The lack of any particularity is more difficult to explain given the amount of time which the defendants have had to investigate this case.

19. In answer to this complete lack of particularity, it was said that the plaintiff had not sought particulars. But it is incumbent upon the defendants to properly particularise their case, rather than to wait for a demand that their case be pleaded appropriately, so that their opponent can understand the case which he has to meet and so that the relevant factual inquiry is sufficiently defined.

20. I turn then to the other type of fraud which is alleged. In paragraph 49 the defendants allege that in an affidavit sworn in Family Court proceedings, the plaintiff in effect swore to the contrary of his present claim, and that he did so to disguise his beneficial interest in these shares so as to defraud his former wife by depriving her of the benefit of that property for the purposes of s 79 of the Family Law Act 1975 (Cth).  It is then pleaded (by paragraph 49(g)) that “to grant the relief the Plaintiff seeks would give effect to that fraudulent scheme”.  Within paragraph 53 that last allegation is effectively repeated. 

21. Unlike the tax fraud case, this case does not allege that the property which the plaintiff seeks to recover is the product of the alleged fraud. Nor is it alleged that it is property to which the plaintiff is still entitled because of that fraud: it is not alleged that had the plaintiff disclosed this property to his former wife, the result would have been that the shares would now be hers. The consequence (if any) of this fraud for the resolution of the Family Court proceedings is a matter of speculation. There may have been a benefit from this alleged fraud, but if so, it is the benefit of a more favourable settlement. This Defence incorrectly characterises the property claimed here as the fruits of his fraud (paragraph 53) and incorrectly describes the granting of the relief claimed as giving effect to a fraudulent scheme (paragraph 49).  And further, if the plaintiff’s former wife was worse off for this alleged fraud and wished to avoid the settlement agreement on that ground, her interests would be unlikely to be furthered by allowing the defendants to keep these shares by the discretionary refusal of the plaintiff’s claim.  In my opinion there is “no immediate and direct relation” between this alleged fraud and the equity for which the plaintiff sues.  The prospects of this defence could not be improved by a trial.

22. In my conclusion, the tax fraud case ought to be struck out because it is so devoid of particularity that it would prejudice a fair trial of the action. The other fraud case should be struck out because it discloses no reasonable defence.

23. The result is that the application to strike out paragraphs 50 to 53 inclusive of the Third Further Amended Defence should succeed.  Those paragraphs will be struck out as will paragraph 2(f) which the defendants conceded at the hearing could not stand (it being an allegation that the declaration of trust itself was void, invalid and of no legal effect).  Further, paragraphs 34 to 49 inclusive should be struck out because their only apparent relevance is to the matters pleaded in paragraphs 50 to 53 inclusive.

24. There is a cross‑application by the defendants to have these proceedings heard together with those claims against the first defendant under the alleged loan facilities.  The defendants conceded that if the plaintiff’s strike‑out application succeeded, there was no sufficient connection between the present proceedings and those proceedings for them to be heard together.  That cross‑application will therefore be dismissed.  Subject to any further submission, the costs should follow the result in each case.