Real property - Alienation of property with intent to defeat creditors - Whether transferor had intent - Whether interlocutory injunction should be granted restraining transferee from dealing with property

Property Law Act 1969 (WA), s 89

Plaintiff : Mr J T Schoombee & Mr O D Feinauer & Ms I T Grohmann

Adamson v Hayes [1973] HCA 6; (1973) 130 CLR 276

Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd [1981] HCA 75; (1981) 146 CLR 249

Allen & Ors v Jambo Holdings Ltd & Ors [1980] 1 WLR 1252

Corin v Patton [1990] HCA 12; (1990) 169 CLR 540

Custom Credit Corporation Ltd v Whitehall Holdings Pty Limited & Ors, SCt of WA; unreported Library No 920231; 7 April 1992

Frigo v Culhaci [1998] NSWSC 393

Harman Pictures NV v Osborne & Ors [1967] 1 WLR 723

In re Windle [1975] 1 WLR 1628

Kirklees Metropolitan Borough Council v Wickes Building Supplies Ltd [1993] AC 227

Third Chandris Shipping Corporation v Unimarine SA [1979] 1 QB 645

Walker v Nicolay (1991) 4 ACSR 309

Z Ltd v A & Ors [1982] 1 All ER 556

1 PULLIN J: The plaintiff claims either a mareva order or an injunction of the kind decreed by the Court in its equitable jurisdiction. I will refer to the relief sought after discussing some of the background. In this case, the plaintiff claims that it is a creditor of the first defendant for significant amounts of money which exceed $US300,000. Details are set out in my reasons for decision in First Industry Corp v Goh & Anor [2002] WASC 68. I will repeat from those reasons, some of the facts relevant to this case:

(a) The plaintiff became a creditor of the first defendant when it agreed to advance the first defendant the moneys in May 1999 and March 2000.

(b) The plaintiff was unable to repay those moneys on the due dates of 26 March 2000 and 26 May 2000.

(c) The first defendant then signed acknowledgements of debt and promised to repay the loans on 31 December 2001.

(d) On 9 July 2001, the first defendant transferred his half-share in his house at 14 Allenby Road, Dalkeith, to the second defendant, who is his wife.

2 The plaintiff contends that the transfer of the half-interest in the 14 Allenby Road property and certain other transfers of property by the first defendant to his wife, were alienations of property with intent to defraud creditors within the meaning of s 89(1) of the Property Law Act 1969.

3 Section 89(1) reads:

"Except as provided in this section, every alienation of property made, whether before or after the coming into operation of this Act, with intent to defraud creditors is voidable, at the instance of any person thereby prejudiced."

4 The alienations of property which the plaintiff attacks in its statement of claim are:

(a) The transfer by the first defendant of the undivided half-share in 14 Allenby Road, Dalkeith, on 9 July 2001.

(b) The transfer by the first defendant of $143,080.75, being half of the proceeds of sale of 35 Tyrell Street, Nedlands, to the second defendant on 9 January 1999.

(c) The transfer by the first defendant of $28,700.28, being the net proceeds of sale of a unit owned by the first defendant (2/123A Colin St, West Perth) to the second defendant.

5 There was also an attempt by the plaintiff, via submissions, to attack the transfer of approximately $11,000.00 in money by the first defendant to the second defendant. The statement of claim does not allege that this transfer contravenes s 89(1) of the Act, and there is no prayer for relief in relation to it. I will not therefore consider the plaintiff's submissions about this transfer.

6 The plaintiff has produced a table showing the property which has been transferred by the first defendant to his wife. I reproduce the table below. Not all of these transfers are said to be alienations within the meaning of s 89(1), but those which are not, are said to be relevant as background material. Before I set out the assets transferred by the first defendant, I should first state some other relevant background facts.

7 The first defendant and Mr Chuen Gin Goh, who is associated with the plaintiff, were founding members of Sanford Securities. The first defendant was the managing director of the company until June 1998, and he continued to be a director until November 2001. He owns 300,000 shares in that company, but they are in escrow and will not be available to deal with until August 2002.

8 In May 1999, Sanford Securities decided on a rights issue in order to raise further capital. It was in relation to that rights issue that the plaintiff agreed to lend monies to the first defendant to enable him to purchase shares in Sanford Securities. Sanford Securities was at that time unlisted. According to the first defendant, the company had received an offer of 27 million dollars for a 60 per cent shareholding from one of the major banks. As the first defendant says, this was a good time for high tech companies such as Sanford Securities. The first defendant also reveals that he invested in a mobile phone venture at some stage, which venture completely failed. The first defendant lost all his monies he invested in that venture.

9 The first defendant's wife, Patricia Ai-Tuan Goh, has sworn an affidavit deposing to the fact that her husband had a significant share portfolio in Malaysia in his own name, and that she was advised by her husband that he lost all of the shares through speculative margin trading. She says that this was one of the factors which led to a breakdown in the marriage, which is said to have occurred in 1998.

10 There is a dispute between the parties about whether or not there was a breakdown in the marriage. The first and second defendants in these proceedings allege that this was so. The first and second defendants say that it was agreed between them that the first defendant would relinquish his entitlement to, or interest in, assets on the basis that he had lost his entire share portfolio which had been in his name. The plaintiff has led evidence which, if accepted, supports the submission that there was no breakdown in the marriage. It is not necessary, nor possible, for me to resolve that issue at this time. All I need to do is note that the first and second defendants allege that this explains the transfers of property which are complained about, whereas the plaintiff says that a marriage breakdown did not occur and that the first defendant transferred assets to his wife in order to defraud creditors.

11 The plaintiff argues that the first defendant engaged in speculative or hazardous financial activities. They were the trading in shares in Malaysia before 1998, and then the investment in the mobile phone company. He then borrowed from the plaintiff, monies to purchase shares in Sanford Securities. This was a transaction which involved borrowing all of the money necessary to buy the shares. The first defendant provided no funds of his own. In fact, the money was used by the first defendant and a company called Healthy Skin Pty Ltd, a Singapore based company, to purchase the shares, and as my reasons for decision in [2002] WASC 68 reveal, the first defendant arranged for the loan from the plaintiff to be secured by shares registered in the name of the borrower, or Healthy Skin, in Sanford Securities. In fact, when the plaintiff called on the shares held by Healthy Skin by way of security, security was not provided, and the first defendant claimed that it was unable to cause Healthy Skin to make the shares available by way of security.

12 All of this reveals that during the period from some time before about the middle of 1998 through until the year 2000, the first defendant may have engaged in speculative or hazardous financial activities.

13 I now set out the schedule of assets which the plaintiff produced to show the transfers of property by the first defendant to his wife. The figures and comments are those of the plaintiff.

First Defendant (perhaps held on trust but no trust deed produced)

7 October 1998 to second defendant (1 ordinary share) & Michael Goh (2 ordinary shares)

$1.00 each (at par) True value of "Trust" assets not disclosed

$595,000 - Mortgage $295,036.21 - Net proceeds of $286,161.50 Half = $143,080.75

$1,200,000 - Stamp duty paid on transfer of $600,000 Mortgage of $421,448.10

Sold 12 March 1999 - all proceeds to second defendant

$63,000 - Mortgage $34,299.72 - Net proceeds of $28,700.28 paid to second defendant

14 The plaintiff contended that I should examine the position concerning assets and liabilities of the first defendant after all these transfers had taken place. To assist, the plaintiff produced a table which showed the following information. I doubt that this information is as significant as the plaintiff regards it, but I will refer to this evidence later in my reasons.

300,001 shares personally held in Sanford (299,001 shares in escrow till August 2002)

681,818 shares held by Healthy Skin Pte Ltd (first defendant not a shareholder or director nor are shares under his control)

Mortgage (joint and several liability) over 14 Allenby Road, Dalkeith

Loans from First Industries Corp (USD $406,951.00 and $74,279.00)

15 It is now necessary to refer to the relief which the plaintiff claimed, and now claims in the proceedings presently before me. The plaintiff has shifted ground in relation to the relief it claims. In the motion filed on 8 March 2002, an injunction was sought to restrain the second defendant from dealing with the Allenby Road property. Then this was amended by filing a new chamber summons on 4 April 2002, seeking a mareva order to restrain the second defendant from dealing with any of her property until the trial of the action.

16 Then during the hearing on 5 April 2002, submissions concentrated on the allegations that the first defendant alienated the three lots of property referred to above, namely the alienation of the half-interest in the Allenby Road property, the alienation of money, being half the proceeds of the sale of the Tyrell Street property, and the alienation of money constituted by the transfer of money to the second defendant following the sale of the West Perth unit. It was then said that half the proceeds from Tyrell Street were transferred by the second defendant (after receipt from the first defendant) to the fourth defendant. A mareva order is claimed against the fourth defendant to restrain it from dealing with any of its property until trial.

17 On the resumption of the hearing on 16 April 2002, counsel for the plaintiff appeared to agree that the proceedings were not for a mareva order but for an injunction under O 52 for the preservation of property which is the subject matter of the proceedings. At the conclusion of the hearing, counsel for the plaintiff stated that a mareva order was still sought against the second and fourth defendants.

18 The orders finally sought by the plaintiff at the conclusion of the proceedings were as follows:

(a) Until the final determination of these proceedings or until further order, the second defendant be restrained and an injunction be granted restraining her whether by herself, her agents or otherwise, from selling, encumbrancing or otherwise disposing of any more than a half share of any right or interest in the property at 14 Allenby Road.

(b) "Until the final determination of these proceedings or until further order, ... the Second and Fourth Defendants be restrained and an injunction be granted restraining her whether by herself, her agents or otherwise, from removing from the jurisdiction, disposing of, transferring, selling encumbering, mortgaging, assigning, charging or otherwise dealing with any of their assets wheresoever situated including, but not limited to:

(i) Any freehold property except the property referred to in 1 above;

(ii) Any other property whether real or personal;

(iii) Any money held in any bank accounts; and

(iv) Any shares."

19 When I asked counsel for the plaintiff whether they were the only orders sought and whether an injunction of the kind ordinarily decreed in the court's equitable jurisdiction should be granted with respect to any particular property (other than the Allenby Road property), I was told that no such order was sought, although an alternative order was then proposed in the following terms:

"Until the final determination of these proceedings or until further order, the Second Defendant be further restrained and an injunction be granted restraining her whether by herself, her agents or otherwise, from removing from the jurisdiction, disposing of, transferring, selling, encumbering, mortgaging, assigning, charging or otherwise dealing with any of her assets wheresoever situated up to the value of $183,072.00."

20 It was explained to me that the sum of $183,072.00 was calculated by reference to the following amounts:

(a) $143,080.75, being half of the proceeds of the sale of 35 Tyrell Street, Nedlands;

(b) $28,728.00, being the net proceeds of the sale of the West Perth unit; and

(c) $11,000.00, being the transfer of moneys by the first defendant to the second defendant as a result of the receipt by the first defendant of tax refund (this being the claim which I have said above could not be sustained on the pleadings).

21 This alternative claim is therefore a claim for a mareva order.

22 Recently the High Court has explained that the word "injunction" should not be used when a court exercises its inherent powers to prevent its processes being abused or to protect the integrity of those processes once set in motion. This is the order which is now called a "mareva order" or an "asset preservation order". The reason for suggesting that the term "injunction" not be used in relation to mareva orders is because the exercise of the inherent powers of the court to make mareva orders, differs in nature and juridical foundation from interlocutory injunctions administered by courts of equity, and that the use of the term "injunction" in relation to a "mareva order", may lead to confusion. See Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 393-394, and 401.

23 It is well settled that in relation to interlocutory injunctions commonly decreed by the court in its equitable jurisdictions, the court must be satisfied that:

(a) there is a serious question to be tried or that the plaintiff has made out a prima facie case;

(b) that the plaintiff will suffer irreparable injury for which damages will not be an adequate compensation unless an injunction is granted; and

(c) the balance of convenience favours the granting of an injunction. See Castlemaine Tooheys Ltd v South Australia [1986] HCA 58; (1986) 161 CLR 148 at 153 and Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 76 ALJR 1.

24 A mareva order, on the other hand, requires a consideration of whether there is:

(b) A real risk that if the order is not granted the defendant would remove assets out of the jurisdiction or dispose of them within the jurisdiction or otherwise deal with them so that there is a danger that if the plaintiff gains judgment he will not be able to get it satisfied: Perth Mint v Mickelberg (No 2) [1985] WAR 117; Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319; and Jackson v Sterling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612 at 623.

25 The function of a mareva order is not to provide a plaintiff with security in advance for a judgment he hopes to obtain and that he fears might not be satisfied.

26 I conclude immediately that there was no evidence put before me suggesting that the second defendant intends to dissipate assets she has acquired from the first defendant. The plaintiff has therefore failed to satisfy me that a mareva order should be granted against the second defendant. There is no evidence that the fourth defendant intends to dissipate assets or to dispose of them in a way which might defeat a judgment which the plaintiff might obtain, and therefore the plaintiff has not established that it is entitled to a mareva order.

27 The form of the alternative order which the plaintiff is seeking, limiting the restraint to assets to the value of $183,072, is still a restraint concerning all of the second defendant's assets (but limited as to amount) and must therefore be a claim for a mareva order. I dismiss the claim for such an order.

28 That leaves me to deal with the claim to restrain any dealing with a half-share in the Allenby Road property.

29 There was also reference made to the two other sums of money (ie the Tyrell Street proceeds and the West Perth unit proceeds), and although no injunction is sought to restrain the dealing with those particular sums of money, a good deal of time was taken up discussing those transactions. I will therefore refer to them. Before dealing with these alienations of property, I will refer to the law which applies.

30 Section 89 is not to be narrowly construed: Langdon v Gruber [2001] NSWSC 276 at 52. An intention to defraud is satisfied by an intention to put the property beyond the reach of creditors, and includes an intention to defeat, hinder or delay, the process of making the property available for division among creditors: Electrical Enterprises Retail Pty Ltd v Rodgers (1989) 15 NSWLR 473 at 479 and PT Garuda Indonesia Ltd v Grellman [1992] FCA 188; (1992) 35 FCR 515 at 525. In the absence of direct proof of intention to defeat creditors, such intent may be inferred from all the circumstances, including the transferor's aims, the objective background circumstances existing at the time, and the consequences of the transfer: Cannane v J Cannane Pty Ltd (in liq) [1998] HCA 26; (1998) 192 CLR 557 at [12], [31] and [92]. It is not necessary to make a finding of "dishonesty" or "deceit", to be able to conclude that there was relevantly an intention to defraud creditors on the part of the alienator: Cannane (supra) at 96. Where a transfer of property is made without valuable consideration in circumstances where the transferor was experiencing financial difficulties, a heavy evidentiary onus is cast on any party seeking to rebut the inference that the transfer was made with an intention to defraud creditors: PT Garuda (supra) at 524 and Cannane (supra) at 12.

31 Alienations may fall within the section although there existed no creditors at the date of alienation, so long as the intent to defeat future creditors be made out and providing it is established that the alienator was aware of impending liability to creditors : Barton v Deputy Federal Commissioner of Taxation [1974] HCA 43; (1974) 131 CLR 370 at 374 and PT Garuda (supra) at 525-6. It may be difficult, or impossible, to infer the existence of such an intention if the alienator was solvent at the time the transaction occurred. Williams v Lloyd [1934] HCA 1; (1934) 50 CLR 341 at 372-378.

32 An intent to defraud creditors need not be the sole intention or motivation behind the transfers: Barton v Deputy Federal Commissioner of Taxation (supra), PT Garuda (supra) at 526-7 and Cannane (supra) at 593.

33 A gift of Torrens title land is only complete once the donor has done everything required on his or her part alone, to effect a transfer of the legal title beyond the recall or intervention of the donor: Motor Auctions Pty Ltd v John Joyce Wholesale Cars Pty Ltd (1997) 8 BPR [97661]. I should say at this point that this is critically important authority in relation to the plaintiff's claim, because the Allenby Road property was said to have been the subject of an intended gift from the first defendant to the second defendant in February 1999 but the gift was not perfected until 9 July 2001. If the latter date is when the alienation occurred, then there is a strong case under s 89(1) because the alienation then did have the effect of defeating creditors, the plaintiff being one of them. If the earlier date is when the alienation occurred, then it becomes arguable whether there was any intent on the first defendant's part to defeat creditors. The plaintiff was not a creditor then.

34 Although s 89 "emphatically" uses the word "void", this does not mean void ab initio but void sub modo. Brady v Stapleton [1952] HCA 62; (1952) 88 CLR 322 at 333-340. A fraudulent assignment is effective unless and until a creditor (or creditors) intervenes by taking legal proceedings. By commencing proceedings, there is an election to avoid the fraudulent conveyance. A person who receives property as a result of an alienation in contravention of s 89, has a defeasable title, but the recipient may deal with the property and dispose of it, and pass good title to it, until the creditor takes action under s 89: Brady v Stapleton (supra) and Official Trustee in Bankruptcy v Alvaro (1996) 138 ALR 341.

35 If the recipient of property alienated in contravention of s 89, transforms the property into some other form and continues to hold the property in its new form, it may be traced in the hands of the recipient and recovered by the creditors: In re Mouat, Kingston Cotton Mills Company v Mouat [1899] 1 Ch 831 and Richardson v Trautwein (1944) 14 ABC 61 at 75. Note the restriction on this tracing "technique" referred to in "Restitution, Past Present and Future", Ed Cornish & Ors, Hart Publishing, Oxford 1998 at p 83-84; and as to the description of tracing as a "process" rather than a remedy: see Boscawen v Bajwa [1995] EWCA Civ 15; [1996] 1 WLR 328 at 334.

36 The half-interest in the Allenby Road property was transferred to the second defendant by the first defendant, and the second defendant is still the registered proprietor of that property. If the plaintiff succeeds in securing a declaration that the alienation was void, then the plaintiff would be entitled to consequential relief, including an order that the half-interest be held in trust for the first defendant's creditors. The plaintiff's case is that this alienation of property occurred on 9 July 2001. The plaintiff contends that at that time, the plaintiff was a creditor and the effect of the transfer is prima facie a transfer made with intention to defraud creditors.

37 The issue which was raised by the second defendant was that the transfer which took place on 9 July 2001 was only the fulfilment of an intention to transfer the property which was formed in the first defendant's mind in February 1999, when he says arrangements were made to settle matrimonial differences, resulting in agreement by him to transfer his half-interest in the family home at Allenby Road to his wife. I observe, of course, that there is an issue between the parties about whether there was any matrimonial difference between the first defendant and the second defendant, and that will be resolved at trial. The more important point is, however, that the formation of the first defendant's intention to gift the property remained his intention until he had done everything required on his part to effect the transfer of the legal title beyond his recall or intervention. That did not happen until 2001, when he finally provided a transfer in registrable form. In my opinion, that is when the alienation occurred. At any time up until then, the imperfect gift was not enforceable by the second defendant. On that basis, the correct time to determine whether or not the circumstances were such as to lead to the inference that the first defendant had an intention to defraud creditors, was when he provided the registrable transfer. That occurred at a time after the plaintiff was a creditor of the first defendant. In my opinion, the plaintiff has established that there is a serious question to be tried about whether the alienation of the property was with the intention to defraud creditors.

38 This is not a case where the plaintiff could claim damages as a remedy, and therefore I do not need to consider that aspect.

39 As to the balance of convenience, the second defendant informs the Court that she does not propose to transfer the title to Allenby Road (but I note is not prepared to give an undertaking to the Court not to transfer the property). In my opinion, the plaintiff has a strong arguable case in relation to the Allenby Road property, and the balance of convenience favours the grant of an injunction to restrain any sale or disposition of more than a half-interest in the property.

Half the proceeds of the sale of Tyrell Street Nedlands

40 As the table above shows, 35 Tyrell Street was owned by the first and second defendants. It was sold on 9 January 1999, and it is conceded that the first defendant's half-share of the proceeds was transferred to the second defendant. The proceeds were then said to have been "transferred" to the fourth defendant, which is the trustee of a family trust in which the second defendant and her children are the beneficiaries. Towards the end of the hearing, counsel for the second and fourth defendants informed me, and the evidence is, that, in fact, the moneys had been loaned by the second defendant to the fourth defendant. That means that the money was transformed into a chose in action owned by the second defendant. Up to that point, the plaintiff could trace the alienated property in the hands of the second defendant. However, the evidence also reveals that in due course this loan had been repaid by the fourth defendant to the second defendant, paid by her into a bank account, and the moneys then spent on general living expenses.

41 As a result, there is no property the hands of the second defendant in relation to which the Court could restrain any dealing. If the moneys repaid by the fourth defendant to the second defendant in repayment of the loan, had been paid into a bank account still standing in credit in an amount of the original alienation, then it might have been possible for the plaintiff to seek an injunction to restrain any dealing with that fund until trial. I say it might have been possible, because it would still be necessary to show that there was a serious question to be tried that on 9 January 1999, when the alienation of the property occurred, that there was intent to defraud creditors.

42 The plaintiff contends that I should look at the asset and liability position which is set out in the table above. In my view, that statement of position of the first defendant after the transfer of the Allenby Road property and after the borrowing of moneys from the plaintiff, tells me nothing about the first defendant's financial position on 9 January 1999. Certainly the plaintiff was not a creditor at the time. Evidence was led by the second defendant about the first defendant's bank's view of the first and second defendants and that may lead to the inference that the two were in a sound financial position in January 1999. On the other hand, the plaintiff points to what it says were the hazardous and speculative financial activities engaged in by the first defendant which should lead the court to infer that there was an intention to defeat future creditors. It is not necessary for me to consider this aspect any further. In my view, no injunction should be granted because there is no property which can be traced and identified as representing the moneys originally transferred.

43 The claim against the fourth defendant would fail because it obtained a loan and repaid it. There is no property which can be claimed from it by the plaintiff. (In any event, there was never any property which could be claimed from the fourth defendant, because the transfer of funds to it by the second defendant occurred before proceedings were commenced under s 89 against the first defendant).

Disposition of the net proceeds of sale of the West Perth unit

44 The first defendant owned a unit at Unit 2, 123A Colin Street, West Perth. It was sold on 12 March 1999, and all of the proceeds were transferred to the second defendant. This alienation of money is attacked by the plaintiff under s 89 of the Property Law Act. For the same reasons I have given in relation to the proceeds of Tyrell Street, I consider that there is no basis for an injunction in relation to this transaction. There is no property which has been identified with which the second defendant should be restrained from dealing.

45 It is not in dispute that on 30 April 1999, the first defendant, having received a tax refund cheque for just over $11,000, paid that money to the second defendant. It was paid into the second defendant's bank account. That bank account was operated, and eventually the bank account was closed. There has been no property identified which can now be made the subject of any order for an injunction. There is a far more important reason why no injunction can be granted in relation to any property concerning this amount. There is no claim attacking this transaction in the endorsement of claim.

46 I therefore grant an injunction, restraining the second defendant from any dealing with more than a half-share in the Allenby Road property in the terms requested by the plaintiff. I otherwise dismiss the plaintiff's application.