Robson v Robson[2008] QSC 238

SUPREME COURT OF QUEENSLAND

[1] In these proceedings the plaintiff claims to be entitled to one half of the shares in Yalgold Pty Ltd (in liquidation).  At present all of Yalgold’s shares are held by the plaintiff’s brother and sister-in-law, who are the defendants.  Yalgold has been wound up and there is a substantial surplus for distribution to its members.

[2] Last year I struck out some paragraphs of the then Defence because they were so devoid of particularity that they would prejudice a fair trial of the action.[1]  Those paragraphs have now reappeared in the current Defence[2], with some amendments. 

[3] Last year the plaintiff’s case relied entirely upon a declaration of trust admittedly executed by the defendants in 1989.  The defendants then pleaded, and still plead, that no trust was constituted by that instrument because they had no intention to create a trust, the trust should not be enforced because its execution was procured by unconscionable conduct and undue influence, and the plaintiff had disclaimed the trust and transferred his beneficial entitlement under it to the defendants.  The paragraphs I struck out related to a suggested defence of unclean hands.

[4] In essence that case was that the plaintiff had been fraudulent in two ways and that his fraud should disentitle him to equitable relief.  First he had defrauded the Commissioner of Taxation.  I held that the case in that respect was not properly particularised.  The second was that he had defrauded his former wife in proceedings between them in the Family Court, which I held to have no prospects of success because it had no connection with the equity for which the plaintiff was suing in these proceedings.  It is that tax fraud cause, as recast by the present pleading, which is the subject of this strike out application.

[5] However, the tax fraud is not re-pleaded in answer to the 1989 declaration of trust.  It is raised as a defence (but not the only defence) to a new and alternative case for the plaintiff, which is that he is entitled to half of the shares in Yalgold according to declarations of trust executed by the defendants in 1995.

[6] This judgment must be read with last year’s judgment, because much of what is now challenged is in the terms of that which was struck out last year.  But again the case rests upon an alleged scheme, conceived and operated by the plaintiff, and described as “the transfer pricing scheme”.  In essence, the scheme was to hide the profits of an Australian business by a series of transactions by which those profits would be derived not by the Australian company Mine & Quarry Equipment Pty Ltd (“MQE”), but purportedly by a company incorporated in Vanuatu, which was Mine & Quarry Equipment International Ltd (“MQEI”).  Part of the scheme then involved the “repatriation” of those profits to Australia by transactions “in the guise of loans”, including loans to Yalgold.  It was then alleged, and is again alleged, that the plaintiff was seeking to benefit from his fraud in that scheme by these proceedings, in that profits of the scheme are amongst the funds which are to be distributed to those holding Yalgold’s shares, of which the plaintiff claims one half.

[7] A major flaw in last year’s pleading was that it was pleaded so broadly that it called into question the validity and effect of many agreements and other transactions to which Yalgold was not a party.  In particular the pleading challenged the validity of loan agreements by which other companies controlled by the plaintiff had agreed to lend money to the first defendant, when the validity of those agreements although in issue in other proceedings brought against the first defendant[3], was not relevant to these proceedings.  The same flaw exists in this pleading.  The position in that respect is no different except that it is made worse by the addition of some other transactions of this kind.  So amongst the transactions in this category are now a purported assignment by Pacific Ventures Limited (“Ventures”) to MQEI of the right to interest on advances by Ventures to the first defendant, and a purported assignment by Ventures to Credit Facilities Limited, and in turn to Hanover International Limited (“Hanover”) of loans by Ventures to the first defendant.  Again the validity of these transactions has no apparent relevance to the relief claimed in these proceedings.

[8] There is a new paragraph here which pleads various things about Hanover, including the fact that it was a company “which the plaintiff had intended to use to assist in executing the transfer pricing scheme pleaded in paragraph 44 hereof”.  But in paragraph 44, where the elements of that scheme are pleaded, all that is said of Hanover is that the profits of the scheme included the sum for which Hanover is now suing the first defendant in other proceedings[4] (as the assignee under that purported assignment referred to above).  So it does not appear that Hanover’s involvement in the scheme (if any) was relevant to any receipt by Yalgold of the scheme’s profits.

[9] There is a new plea in relation to the company called Mine & Quarry Equipment (South Pacific) Limited (“MQESP”), which is said to have been incorporated in Fiji and “which the plaintiff had intended to use to carry on a business of buying and selling mining equipment.” (emphasis added)  This company is not referred to within paragraph 44, where the scheme is described, although it is mentioned in paragraph 45, where it is said that the profits repatriated to Australia included sums amounting to not less than $1,319,592 that were transferred by “MQESP and/or Ventures, and/or another company in Vanuatu controlled by the plaintiff, directly or indirectly to [Yalgold]”.

[10] Another flaw in last year’s pleading was that insofar as it did allege that some profits from the scheme made their way to Yalgold, there was no particularisation of that allegation.  The pleading said nothing about how much, or approximately how much, was passed on to Yalgold and nor did it say anything about the impact of that upon Yalgold’s present financial position.  Accordingly it was impossible to say how much, if any, of the surplus to be paid on the winding up of Yalgold was attributable to what the defendants said were the profits from the fraudulent scheme.[5]  However in the present pleading, there is more detail.  It is within that allegation that profits of not less than $1,319,592 were transferred to Yalgold.  In that respect, this pleading goes significantly further than its predecessor.  It does not explain the impact (if any) of those transfers upon Yalgold’s present financial position, but perhaps the defendants will argue that in net terms, Yalgold is better off by that amount so that at least one half of it would represent the benefit to the plaintiff from his fraud if he is granted the relief which he seeks.

[11] However that new case has this problem: those profits are said to have come from the transfer pricing scheme, of which according to paragraph 44 MQEI was an essential participant, but MQEI was not incorporated until after these sums were paid to Yalgold.  The date of incorporation of MQEI does not appear from this Defence, but from uncontradicted evidence, it was 3 February 1994.  The sums totalling $1,319,592 are alleged to have been transferred “between November 1992 and February 1994.”

[12] In response to this point, the defendants argue that the transfer pricing scheme predated the incorporation of MEIQ, so that these were payments from profits of the fraudulent scheme although not derived through MEIQ.  In my view it is far from clear that this is the pleaded case.  It is necessary here to set out in full paragraph 44, which defines the transfer pricing scheme:

“44.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 –

(a)MQEI would purchase mining equipment;

(b)The Plaintiff would cause such mining equipment to be invoiced to MQE;

(c)If the mining equipment required repair or reconditioning this would be undertaken by MQE at its expense.

(d)The mining equipment would then be sold by MQE to an independent purchaser;

(e)The sale price achieved by MQE for the mining equipment would be paid to MQEI in Vanuatu;

(f)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;

(g)All or part of the profits generated by MQEI in Vanuatu would then be either:

(i)Advanced by MQEI, and/or one or more other companies in Vanuatu controlled by the Plaintiff, purportedly as a loan, to MQE; or

(ii)Otherwise advanced, purported as a loan, by a Vanuatu company controlled by the Plaintiff to the First Defendant, MQE or the Company;

(h)Such profits include:-

(i)the sum for which Hanover sues the First Defendant herein in proceedings BS 7342 of 2000; and

(ii)the sum for which MQEI sues the First Defendant herein in proceedings BS 8937 of 2000;

(i)Ventures purported to assign to MQEI part of such profits, in the form of interest on advances by Ventures to the First Defendant (being the assignment pleaded in paragraph 5 of the Second Further Amended Statement of Claim in BS 8937 of 2000, and referred to in paragraph F(b) of the particulars to paragraph 3 hereof) (‘the Purported MQEI Assignment’); and

(j)Ventures purported to assign to Credit Facilities, which then purported to assign to Hanover part of such profits, in the form of advances by Ventures to the First Defendant (being the assignments pleaded in paragraphs 5 and 7 of the Second Further Amended Statement of Claim in BS 7342 of 2000) (‘the Purported Hanover Assignment’).”

[13] So according to paragraph 44, any profit from the scheme would be “received” and “generated” by MQEI.  Paragraph 44 does not allow for an alternative under which some other entity performed the role later performed by MQEI.

[14] However paragraph 45(a) pleads as follows:

“45.The transfer pricing scheme was intended to, and did, have the following consequences –

(a)Any profits generated as a result of the purchase, repair or renovation, and sale of mining equipment were transferred offshore to (and therefore artificially derived by) MQEI, or another company controlled by the Plaintiff; …”

which does indicate an alternative case under which some profits from the scheme were transferred and “artificially derived” by another company.

[15] Then in paragraph 46, it is alleged that from time to time the plaintiff modified the transfer pricing scheme by doing various things.  (This is the equivalent of paragraph 45 of last year’s pleading[6].)  As some of these things predated the incorporation of MQEI, it could be said that there is here a case that the transfer pricing scheme was in existence, and was modified, prior to the participation of MQEI.

[16] Consequently the pleaded case is ambiguous.  According to paragraph 44, the scheme was conducted only through MQEI, whilst other paragraphs indicate that some other entity controlled by the plaintiff did so prior to its incorporation.  The pleaded case that the $1,319,592 paid to Yalgold came from MQEI cannot be maintained.  In addition, the allegation that the scheme was modified by events in 1989[7] is inconsistent with paragraph 44 which describes the Australian company, MQE, as an essential participant although, as the defendants also plead, it was not incorporated until 1990.

[17] To the extent that there is this alternative pleaded case (that there was a fraudulent scheme prior to the incorporation of MQEI in 1994), the case is vague and embarrassing.  In relation to the participation of MQE, it is self-contradictory.  Moreover there is still the problem that the case which pleads the specific payments to Yalgold is immersed in a wider and far reaching case which impugns agreements and other transactions which have no relevant connection to Yalgold and to the relief claimed in these proceedings.  For these reasons the paragraphs which plead the scheme to defraud the Commissioner of Taxation should be struck out.

[18] There are two further parts of the pleading which are also the subject of this application.  One is the pleading, within paragraph 3(e)(iv), that the 1995 declarations of trust are of no effect because “their execution by the defendants was procured by fraud on the part of the plaintiff.”  No particulars are provided of that fraud and during the oral argument, Mr Morris QC disavowed this case.

[19] The other is the allegation, pleaded within paragraphs 3(e)(i) and 47, that the 1995 declarations were “sham transactions, not intended by any of the parties thereto to have legal effect”.  Paragraph 47 is the successor to paragraph 46 of the 2007 pleading[8] but with the addition to its list of sham transactions of the 1995 declarations of trust and “the Purported MQEI Assignment” and the “Purported Hanover Assignment”.  What I said in last year’s judgment about that pleading’s paragraph 46 applies to this paragraph 47.  And whether those two assignments (by Ventures) were shams seems irrelevant to the present proceedings.  The allegation that “in the premises” the 1995 declarations of trust were sham transactions is certainly relevant, but it is difficult to understand.  Within the matters pleaded prior to this allegation, there is no apparent basis for a conclusion that the 1995 declarations were not intended to have legal effect.  In Raftland Pty Ltd as trustee of the Raftland Trust v Federal Commissioner of Taxation[9], the term “sham” was said by Gleeson CJ, Gummow and Crennan JJ to be ambiguous and with uncertainties surrounding its meaning and application.[10]  However in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd[11], Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ said that:

“‘sham’ is an expression which has a well-understood legal meaning.  It refers to steps which take the form of a legally effective transaction but which the parties intend should not have the apparent, or any, legal consequences.”[12]

It is this meaning which the pleader here has in mind.  The reference to “the premises” is apparently to the alleged fraud upon the Commissioner and the repatriation of its profits to Australia.  It would seem to be entirely consistent with that case, and in particular the repatriation of the scheme’s profits to Yalgold, that the plaintiff would seek to secure his interest in the profits from his scheme by procuring a declaration of trust by the defendants of the shares in Yalgold which was effective.  On the other hand, there seems no reason why the 1995 declarations would have been executed to create the mere appearance of the plaintiff’s ownership of shares in Yalgold.  This allegation, that the 1995 declarations were shams, is embarrassing and should be struck out, at least because it is unsupported by the stated basis of “the premises”.

[20] The outcome then is that the application to strike out the pleading, insofar as it raises the matters discussed in these reasons, should succeed.  The relevant paragraphs are 3(e) and 35 through to 49, and they will be struck out.  I will hear the parties as to costs.