Glenella One Pty Limited v Duncan

The transfer application must be refused

1. Mr Duncan became a paraplegic in 2001. His case is that he and Ms Duncan had acquired a property at Surry Hills, as tenants in common in equal shares, in 1994. He paid the deposit out of his own savings, as well as some $50,000 in other costs, on acquisition. The mortgage was then paid out of income received from tenants for many years, although he also made some mortgage repayments and met other costs and outgoings.
2. Mr Duncan claims that, in 2004, he agreed with Ms Duncan and Mr Weaver to exchange his interest in the Surry Hills property, for White Turtle's interest in the Manly property. He then moved to the Manly property and had it modified to accommodate his wheelchair. It was also then agreed that White Turtle would meet certain ongoing costs in relation to that property, as well as the lease payment due to be made to the Catholic Church every 17 years and that he would meet other expenses. It was also agreed that White Turtle's interest would later be transferred to him, but despite his repeated requests, the lease was never transferred into his name.
3. In 2008 the Surry Hills property was sold and Mr Weaver and Ms Duncan kept the proceeds of some $1,070,000, as they were entitled to do under the agreement.
4. Contrary to his rights under the agreement, Mr Weaver took steps which resulted in the sale of the property to Glenella in December 2013, without Mr Duncan's knowledge or consent, including forging her signature on a document by which she purportedly resigned as a director of White Turtle. He did not learn of the sale until Ms Duncan informed him of it in May 2014. On 9 May, Glenella served him with an eviction notice, which he did not comply with. These proceedings were commenced on 30 May, the Family Court proceedings in July and the cross-claim was brought in August. Mr Duncan still resides in the property.
5. Unlike the case which she advances against Glenella in the Family Court proceedings, Ms Duncan has pressed no claim against Glenella in these proceedings. That was consistent with advice which her former solicitors gave Glenella in October 2014, that the claim she had brought under s 106B of the Family Law Act would not be pressed against it in the Family Court proceedings. That position altered, however, after the case guardian was appointed for Ms Duncan. He has informed Glenella that the s 106B claim will be pressed, but Ms Duncan is still not an active party in these proceedings.
6. On Glenella's case, the Family Court has no jurisdiction to make the orders sought against it under s 106B, nor does it have any jurisdiction to deal with the matters the subject of these proceedings, even though Ms Duncan is a party to them. That was initially in dispute.
7. Glenella has made an application to the Family Court that it be removed as a party to those proceedings. That application has not yet been heard. I am not satisfied that Glenella's submissions as to the Family Court's lack of jurisdiction have been made out, given the terms of s 106B and the evidence as to the circumstances in which Glenella acquired the Manly leasehold property from White Turtle and what White Turtle received in return.
8. There was no dispute between the parties as to the Court's power to make an order transferring these proceedings to the Family Court under the cross-vesting legislation, if the orders here sought were either within the jurisdiction of the Family Court under the Family Law Act, or within its accrued jurisdiction.
9. Both parties relied on Brereton J's consideration of these matters in Valceski v Valceski [2007] NSWSC 440 at [19] - [24], where his Honour observed, amongst other things, that such a transfer may not be appropriate, if it was seriously arguable that the court to which the proceedings were sought to be transferred, does not have jurisdiction to deal with the matter, when this Court undoubtedly does have jurisdiction.
10. While commonsense plainly suggests that, given the common factual underpinnings of the parties' respective cases in the two sets of proceedings, the one court should deal with the entire controversy surrounding the ownership and fraudulent disposal of the interest in the Manly property, the transfer order which Mr Duncan sought cannot be made.
11. That follows from a concession made on his behalf at the hearing, that there was force in Glenella's case that the Family Court does not have jurisdiction to deal with the claims which Mr Duncan advances against it in these proceedings, they both being third parties to the relationship between Ms Duncan and Ms Weaver.
12. That concession was consistent with the view taken by Brereton J in Valceski. The position would be different if Ms Duncan was actively seeking relief in these proceedings against Glenella. She is not. In the result, I cannot see that the Family Court has jurisdiction over the dispute between third parties to the relationship between Ms Duncan and Mr Weaver, which is the subject of the Family Court proceedings.
13. Accordingly, the transfer application must be refused.

The stay application

1. Following upon the concession as to the Family Court's jurisdiction, an application for a stay of these proceedings was pressed for Mr Duncan and opposed by Glenella. For the following reasons, I have come to the view that the stay sought should be granted on terms.
2. There was no question as to the Court's power to order a stay. Such an order was not sought in Mr Duncan's motion, but his application was not opposed on that basis.
3. The onus fell on Mr Duncan to demonstrate a proper basis for a stay, one that will be fair to both parties, if granted. The balance of convenience and the competing rights of the parties have to be considered.
4. If there is a risk that the case will be abortive if the applicant eventually succeeds, but the stay is not granted, that is a factor in favour of the grant of a stay. While a court will not generally speculate about an applicant's prospects of success, a preliminary assessment as to whether the applicant has an arguable case, is relevant. Terms which may be appropriate, to fairly adjust the interests of the parties upon the grant of the stay, must also be considered.
5. To support the stay application, Mr Duncan relied on the obvious commonality of the facts and matters in issue in the two proceedings, in relation to the transaction by which Glenella acquired the leasehold interest in the property. There was obvious force in his submission, that if the orders sought by Ms Duncan in the Family Court proceedings against Glenella are made, it will no longer have any basis upon which it could seek possession of the property from him.
6. The stay was opposed in the light of the course which the Family Court proceedings have taken and Glenella's right to have its application to this Court heard, given the evidence as to what is in issue in these proceedings, its rights under the Real Property Act and the potential consequences to it, of further delay.
7. On Mr Ted Manny's evidence, he being a "corporate adviser" to Glenella and the husband of Ms Weston, one of its directors, he has appeared at 15 direction hearings in the Family Court proceedings. Often there has been no appearance for Ms Duncan. Even though a case guardian has now been appointed for her, the resolution of the Family Court proceedings is not imminent. In the result, Glenella's case was that the hearing of these proceedings ought not to be further delayed.
8. The Court's powers must be exercised in accordance with the overriding purpose specified in s 56 of the Civil Procedure Act 2005 (NSW): the just, quick and cheap resolution of the real issues in the proceedings.
9. The Court must act in accordance with what the dictates of justice require in the circumstances which have arisen (s 58). It must also have regard to the requirements of s 57, which provides: 57 Objects of case management "(1) For the purpose of furthering the overriding purpose referred to in section 56 (1), proceedings in any court are to be managed having regard to the following objects: (a) the just determination of the proceedings, (b) the efficient disposal of the business of the court, (c) the efficient use of available judicial and administrative resources, (d) the timely disposal of the proceedings, and all other proceedings in the court, at a cost affordable by the respective parties. (2) This Act and any rules of court are to be so construed and applied, and the practice and procedure of the courts are to be so regulated, as best to ensure the attainment of the objects referred to in subsection (1)."
10. The need to eliminate delay must also be borne in mind (s 59), as must proportionality of costs (s 60) and what is provided in s 58(2), as to the requirements of the dictates of justice: "(2) For the purpose of determining what are the dictates of justice in a particular case, the court: (a) must have regard to the provisions of sections 56 and 57, and (b) may have regard to the following matters to the extent to which it considers them relevant: (i) the degree of difficulty or complexity to which the issues in the proceedings give rise, (ii) the degree of expedition with which the respective parties have approached the proceedings, including the degree to which they have been timely in their interlocutory activities, (iii) the degree to which any lack of expedition in approaching the proceedings has arisen from circumstances beyond the control of the respective parties, (iv) the degree to which the respective parties have fulfilled their duties under section 56 (3), (v) the use that any party has made, or could have made, of any opportunity that has been available to the party in the course of the proceedings, whether under rules of court, the practice of the court or any direction of a procedural nature given in the proceedings, (vi) the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction, (vii) such other matters as the court considers relevant in the circumstances of the case."
11. Glenella's resistance of the stay rested on the evidence of Mr Manny. He deposed that Glenella had been established in 2012, with start up capital derived from the transfer of superannuation funds from Ms Weston's mother, from the net proceeds of the sale of her family home, from Ms Weston's self-managed super funds and from borrowings. Those funds were used to purchase a property at Mackay, which Mr Manny believed could be redeveloped for residential housing.
12. Glenella's shareholders include Ms Weston, her mother, Mr Manny's two children, his ex-wife and Ralpot Pty Ltd, a company directed by a friend, Mr Potter. Ms Weston is the only A class shareholder with voting rights. All other shares on issue are D class shares with non-voting rights issued at $2 per share, but part paid to $1. Mr Manny's evidence was that should Glenella require development funds, it would ordinarily make a call on shareholders to pay up the balance of their unpaid shares.
13. As to the Manly property, Mr Manny deposed that Glenella had acquired it for valuable consideration, intending that it be used as a home office where his family would reside. It presently leases a home for them at Castlecrag, which will not much longer be available for lease.
14. On 25 July, Glenella granted a mortgage over the Manly property to a private lender for a term of 12 months, it being unable to obtain a bank mortgage, without gaining access to the property and the lease being rolled over. On Mr Manny's evidence, that mortgage cannot be rolled over without Glenella obtaining possession of the property and without possession, Glenella will not be able to refinance with another lender. The result will be that the mortgagee will take possession and commence proceedings against Glenella and Ms Weston, as guarantor, for any shortfall.
15. Under the lease, Glenella is required to indicate to the Catholic Church by 30 September, whether it intends to renew the lease to September 2048. That will require payment of 20% of the value of the property, estimated by Mr Manny to amount to $300,000, given its current value of between $1.2 to $1.5 million.
16. In the Family Court Ms Duncan alleges fraud on the part of Mr Weaver, in her removal as a director of White Turtle and his disposal of that property as its sole remaining director, in the agreement reached with Glenella. Her case against Glenella raises questions as to whether Glenella knew, or ought to have known, or deliberately refrained from making inquiries, as to that fraud.
17. In this case Mr Duncan contends that his interests and Mr Weaver's fraud were either known to Mr Manny and Glenella, or they deliberately refrained from making inquiries, because of the risk of discovering that fraud and his interests. He alleges that Mr Manny and Mr Weaver colluded, in a course designed to deprive him of his interest in the property.
18. On Mr Manny's evidence there is no question that it was as the result of his dealings with Mr Weaver that Glenella came to acquire its interest in the property. His evidence was that Mr Weaver never informed him that White Turtle held the property on trust for Mr Duncan, or that Ms Duncan might have any claim to the property.
19. Ms Duncan and Mr Weaver separated in January 2014. She claims in the Family Court proceedings that without her knowledge or consent, she was removed as a director of White Turtle. Shortly after their separation, White Turtle transferred the lease of the Manly property to Glenella, in return for redeemable, not fully paid shares in Glenella.
20. She claims that the Family Court will exercise its power to set the agreement aside under s 106B. They include that the agreement was not evidenced by any written contract; that its terms are not clear; that it was a transfer either for no value or an undervalue; that it was the result of fraud on Mr Weaver's part; that almost immediately after the Family Court proceedings were commenced in July 2014, Glenella, knowing that the proceedings had been brought, mortgaged the property to third parties, but failed to disclose the existence of that mortgage, until 9 February 2015; and that Mr Weaver pursued actions designed to impede the proceedings, by applying to wind White Turtle up and resigning as a director.
21. Mr Manny's evidence was that he had first met Mr Weaver on 11 November 2013 at a meeting at a liquidator's office. They had a coffee afterwards and discussed investing and losses they had experienced. Mr Manny told Mr Weaver about Glenella's investment in Mackay. They arranged to meet again a few days later, when Mr Weaver expressed an interest in investing in Glenella. Mr Weaver then told him about the Manly property owned by White Turtle and that he was in the process of having his brother-in-law, who made no contribution to it, removed, so that the leasehold could be sold. Mr Manny expressed interest in acquiring the leasehold, in return for shares in Glenella.
22. Mr Weaver then provided Mr Manny with details of the lease, which he investigated. He took advice from Glenella's accountant, that there was no problem issuing D class non-voting shares in Glenella, in return for the transfer of the lease, if the shares were for real value and the correct stamp duty was paid. Mr Weaver then met with Mr Weaver and told him he could have access to Glenella's books through its accountants, but that he would have to pay stamp duty on the shares and have Mr Duncan removed.
23. Mr Manny had understood from Mr Weaver that Mr Duncan had agreed to vacate in 90 days. On 16 December 2013, Mr Weaver confirmed in writing that Glenella would be given vacant possession within 90 days and provided a copy of a notice to quit addressed to Mr Duncan. He obtained a search of White Turtle which confirmed that Mr Weaver was a director. He claimed he had no notice of Ms Duncan's interest in the property.
24. Mr Manny acted on behalf of Glenella and Bull, Son & Schmidt for Mr Weaver. They obtained a valuation of $1,050,000 for the property. White Turtle was issued 1,050,00 $2 D class shares of which $1 was paid and the leasehold was transferred to Glenella. It paid $43,240 stamp duty on a dutiable amount of $1,050,000. White Turtle and Glenella then entered a deed of acknowledgement of assignment of the lease with the Trustees of the Roman Catholic Church of the Archdiocese of Sydney.
25. It was only in July 2014 that Glenella obtained borrowings which required monthly repayments of $10,000 under a 12 month fixed term mortgage over the Manly property, from a private lender. The purpose for that loan was not disclosed, nor the reason why it could not be repaid.

Does Mr Duncan have an arguable case?

1. It was not submitted for Glenella that Mr Duncan's case was not arguable, but that it was important to consider that Mr Duncan had led no evidence as to Mr Manny's knowledge of his interest in the property, which Mr Manny had denied.
2. That submission must be considered in circumstances where Ms Duncan has filed a submitting appearance in these proceedings. She does not dispute Mr Duncan's claim as to what was agreed between she, Mr Weaver and Mr Duncan in relation to the Manly property. Nor have Mr Weaver or White Turtle appeared to dispute Mr Duncan's claims, or the allegation that Mr Weaver perpetuated a fraud in having White Turtle transfer the property to Glenella.
3. Glenella's defence of the cross-claim is that it had no knowledge of Mr Duncan's interest in the property, or knowledge or involvement in any fraud. Mr Manny was its corporate adviser and it was he who represented it in the negotiations with Mr Weaver. The agreement which Mr Weaver caused White Turtle to enter was made after only a short acquaintance with Mr Manny, without notice to, or the agreement of, either Ms Duncan or Mr Duncan.
4. There is no suggestion that White Turtle obtained either legal or financial advice about the transaction. Had such advice been sought, it appears that it would not have been entered, given Mr Duncan's rights and Ms Duncan's removal as a director.
5. Mr Manny conducted a search which disclosed that Mr Weaver was a director of White Turtle. That must have disclosed not only that he was the only director, but that Ms Duncan had ceased being a director only shortly beforehand. He was also on notice of Mr Duncan's occupation of the property although, on his evidence, unaware of his interest in the property, which has not been denied in these proceedings by either Mr Weaver or Ms Duncan.
6. On Mr Manny's evidence, it is difficult to see the commercial advantage flowing to White Turtle from the transfer of the leasehold interest to Glenella, on his estimate now worth up to $1.5 million, in return for partly paid non-voting shares in Glenella. It is a private company the value of which is unknown. The agreement was apparently entered on the basis of an offer that Mr Weaver could access Glenella's books, but there is no evidence that the offer was taken up, or what it revealed.
7. The agreement was plainly to the considerable commercial advantage of Glenella. Having paid nothing for the leasehold, shortly after the Family Court proceedings were commenced, it was used to secure very considerable borrowings by Glenella, the purpose of which has not been revealed. Mr Manny now claims that if Glenella does not obtain possession of the property, it will not be in a position either to repay or refinance those borrowings, with the result that the private lender will be able to seek possession of the property. That, too, raises obvious questions as to the value of the non-voting shares in Glenella which White Turtle acquired in return for the property.
8. Also relevant to consider is that, if the evidence led in the Family Court proceedings establishes a similar picture, Ms Duncan appears to have an arguable case against Glenella. If orders are made in her favour, it will have no basis upon which it can pursue its claim against Mr Duncan.

Balance of convenience

1. In the result, I have concluded that the balance of convenience favours the grant of a stay of these proceedings, at least until Glenella's pending application for its removal as a party to the Family Court proceedings is determined. That application is listed before the Family Court in March.
2. I have reached this conclusion having in mind what I have earlier discussed. In the circumstances, it is plainly in all of the parties' considerable interests for Glenella's application in the Family Court to be heard and determined expeditiously, given the mortgage over the property which becomes repayable in July and the need to renew the lease in September.
3. On the evidence, as it stands, it is difficult to see that the orders which Glenella seeks in the Family Court will be forthcoming. If they are, however, then these proceedings should plainly not be further stayed.
4. If Glenella's application is not ultimately pressed in the Family Court, or if it fails, because it is concluded on the evidence led in those proceedings that the Family Court does have jurisdiction to make orders against Glenella in favour of Ms Duncan, the question of the continuation of the stay of these proceedings can be considered further.

Orders

1. For the reasons given, I order that: 1. The application for transfer of these proceedings to the Family Court is refused. 2. The proceedings are stayed until further order, pending the Family Court's determination of Glenella's application to be removed as a party to those proceedings. 3. The parties have liberty to have the matter restored to the list on 3 days' notice. 4. Costs are reserved.

Amendments 10 April 2015 - typographical error in [53] - 'non-vesting' amended to 'non-voting' DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 10 April 2015