Hayes (in his capacity as the Court Appointed Receiver of Maria Fayad’s Property) v I Properties Pty Ltd

Catchwords: LAND LAW ­­— Conveyancing ­­— Alienation of property ­­— Intent to defraud
CIVIL PROCEDURE ­­— Interim preservation ­­— Detention, custody or preservation of property

Legislation Cited: Conveyancing Act 1919 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited: Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26; (2012) 16 BPR 30,397
Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18
CEG Direct Securities Pty Ltd v Wang [2021] NSWCA 76; (2021) 390 ALR 772
Grapple Pay Pty Ltd v Conroy [2025] NSWSC 64
Hall v Poolman (2007) 215 FLR 243; [2007] NSWSC 1330
Ingram v Y Twelve Pty Ltd [2013] NSWSC 1777
Jaken Properties Pty Australia Ltd v Naaman (2023) 112 NSWLR 318; [2023] NSWCA 214
Khattar v Hills Shoppingtown Pty Ltd (subject to a deed of company arrangement) [2024] NSWSC 1552
Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 3
Newcastle City Council v Caverstock Group Pty Ltd [2008] NSWCA 249; (2008) 163 LGERA 83

Category: Procedural rulings

Parties: Joseph Hayes (in his capacity as the Court Appointed Receiver of Maria Fayad’s Property) (First Applicant)
Carol Lourdes Khattar (Second Applicant)
I Properties Pty Ltd (ACN 640 595 606) (First Respondent)
Maria Fayad (Second Respondent)
Frank Lo Pilato (as trustee in bankruptcy of Sam Fayad) (Third Respondent)
59 Constitution Pty Ltd (ACN 685 036 962) (Fourth Respondent)
61 Constitution Pty Ltd (ACN 685 073 536) (Fifth Respondent)
Westpac Banking Corporation (Sixth Respondent)

Representation: Counsel:
B Dziubinski (First Applicant)
D S Weinberger (First Defendant)
Solicitors:
L Gerges (Second Defendant)
V Caroino (Third Defendant)

File Number(s): 2025/239627

Publication restriction: Nil

JUDGMENT (EX TEMPORE REVISED)

1. Before the court is the plaintiff’s notice of motion dated 22 July 2025.

2. On 29 November 2024 the court appointed the plaintiff as the receiver of the interest of Maria Fayad, the second defendant, in 59 Constitution Road and 61 Constitution Road, Constitution Hill, NSW (the p****roperties): see Khattar v Hills Shoppingtown Pty Ltd (subject to a deed of company arrangement) [2024] NSWSC 1552. Each property is owned by Maria and her husband, Sam Fayad, who is bankrupt, as joint tenants. For convenience and without intending any disrespect I will refer to each of them by their first names.

3. Each property is subject to a registered mortgage in favour of I Properties Pty Ltd (I Properties), the first defendant. I Properties took a transfer of a registered mortgage over each property from Westpac Banking Corporation (Westpac) in December 2021. The transfer was made pursuant to a deed of assignment between Westpac as assignor and I Properties as assignee (deed of assignment) which is undated, but I infer was entered into on or shortly before 24 December 2024. That is the date each transfer of Westpac’s mortgages to I Properties was registered.

4. Cl 2.1 of the deed of assignment provides that with effect from the date of the deed, Westpac, in consideration for the obligation of I Properties set out in the deed, ‘assign absolutely to [I Properties] all of its right, title and interest in the Debt and the Mortgages, including the right to receive payment for all and any amounts due and owing by the Borrowers under the respective Facilities’. The term ‘Borrowers’ is defined to mean Maria and Sam and the ‘Facilities’ are the Westpac facilities identified in schedule 1 to the deed which were secured by the mortgages. Under cl 3.1, I Properties agreed to pay to Westpac the amount of the Debt (being ‘the debt owing from time to time pursuant to the Facilities’) as at the date of the deed.

5. The transfer of each mortgage states the consideration paid by I Properties to Westpac for each transfer to be: (a) for the mortgage of 59 Constitution Road, $1,267,000.76; and (b) for the mortgage of 61 Constitution Road, $662,954.33.

6. I infer from cl 3.1 of the deed of assignment that the amount paid by I Properties to Westpac was equal to the amount of the debt then owing by Maria and Sam to Westpac at the date of the assignment under the facilities secured by each mortgage.

7. It appears that the deed of assignment forms part of a wider transaction including a loan facility agreement entered into on 3 December 2021 between Maria and Sam as borrowers and I Properties as lender (loan facility agreement). This provides for a facility of up to $8 Million to be provided by I Properties to the borrowers at a fixed interest rate of 25% per annum. Schedule B to that loan facility agreement contains a statement by the borrowers ‘confirming’ the assignment of the Westpac mortgages to I Properties. Under cl 5.1 of the loan facility agreement, they agreed to repay all advances made under the agreement together with all obligations forming part of the ‘obligations’, which includes the amount paid by I Properties under the assignment of the Debt and the Mortgages under the deed of assignment.

8. I Properties as mortgagee in possession has entered into contracts to sell each property (s****ale c****ontracts). Under the sale contracts, the purchase price for 59 Constitution Road is $3,750,000 and the purchase price for 61 Constitution Road is $2,200,000. The purchaser under each sale contract is a company controlled by Miryam Fayad, who is the daughter-in-law of Maria and Sam. In accordance with an undertaking given to the court, settlement of each contract is not to occur before 28 July 2025.

9. By orders made by Kunc J on 23 June 2025 as subsequently varied by orders made on 3 July 2025, I Properties is required to pay the proceeds of sale of the properties into court subject to the deduction of certain amounts including relevantly ‘all monies owing to I Properties as mortgagee of that property’. By the notice of motion the plaintiff seeks the variation of those orders to remove this paragraph so that this will not be a permissible deduction from the sale proceeds paid into court. I Properties has stated in correspondence to the plaintiff that there will be no net proceeds of sale to be paid into court after completion of each sale contract and the deduction of the amounts permitted under the current orders, including the amounts owing to I Properties as mortgagee.

10. The plaintiff filed his statement of claim on 22 July 2025, seeking final relief including orders setting aside the transfer of the mortgages to I Properties and the sale contracts and a declaration that the mortgages were discharged at the time of their transfer to I Properties. In essence, the claim is that the transaction by which I Properties took the transfer of the mortgages from Westpac over each property is voidable under section 37A of the Conveyancing Act 1919 (NSW) or alternatively is a sham. The statement of claim was filed in accordance with orders made by Kunc J on 18 July 2025. This was before plaintiff had been provided with copies of the deed of assignment and the loan facility agreement which were only provided to the plaintiff shortly before the hearing of the notice of motion.

11. The practical effect of making the orders sought in the notice of motion will be that the net sale proceeds of sale before any deduction of any amount said to be owing to I Properties will be paid into court, pending the resolution of the dispute between the plaintiff and I Properties as to the entitlement of I Properties to those amounts under its mortgages.

12. It is not in dispute that the court should not make an order requiring I Properties to pay the net sale proceeds into court before deduction of the amounts allegedly owing to it unless the plaintiff establishes that there is a serious question to be tried for final relief and that the balance of convenience favours the making of the order.

13. Section 37A(1) the Conveyancing Act provides relevantly that:

(1) … every alienation of property …, with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced.

14. The person invoking the provision (the plaintiff in this case) needs to identify the ‘alienation of property’ and establish that this alienation was made ‘with intent to defraud creditors’.

15. In relation to the first requirement, while s 37A is to be construed liberally, it is necessary to identify carefully the alienation property which is attacked under the provision: see Jaken Properties Pty Australia Ltd v Naaman (2023) 112 NSWLR 318; [2023] NSWCA 214 at [207], [210]. At [208] Leeming JA noted the following observations regarding this requirement in the joint judgment of the High Court in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18 at [65]–[68] (internal citations omitted):

… [I]t has been held that, for the purpose of s 37A and its equivalents, ‘alienation’ is a parting with property and includes a parting with some interest in the property.

Mayo J in In re Symon: Public Trustee v Symon said of the meaning to be given to the word ‘alienation’ as used in the Crown Lands Act 1929 (SA):

‘“Alienation” denotes the act, or series of acts, of alienating, and takes place whenever the owner of land, or of an interest therein, so acts as to divest himself of his interest or some lesser interest, and to vest the same in another person. Not every agreement that relates to property is necessarily an alienation or an undertaking to alienate. If all that is to be made over is a mere personal right, and not in the nature of property, there will, I apprehend, be no alienation.’

Alienation is the transfer of value from one person to another. It is usually understood as applying only to a transfer of property effected by the action of the transferor, as distinct from a transfer by involuntary operation of law.

Money, as property, is clearly susceptible of transfer or alienation as is any other property. The declarations of the dividends (which appear to have been final not interim dividends) gave rise to debts payable by the company to the shareholders. The alienation of property was made by the company in discharging its indebtedness to the shareholders.

16. In Hall v Poolman [2007] NSWSC 1330; (2007) 215 FLR 243 at [550], Palmer J made the following comments about the concept of ‘alienation’ as used in s 37A:

The purpose of s 37A is to defeat fraud no matter by what device it is implemented. The reach of the section is not foreshortened by technical obstructions placed in the way of recovery proceedings in furtherance of the original fraudulent intent. The words of the section are of the widest possible application; they focus on the effect of what is done, not on the means by which it is done. The word “alienation” encompasses every conceivable means whereby property might be removed from the reach of a person’s creditors.

17. The statement of claim at paragraphs 45-46 identifies the relevant alienation of property in two alternative ways:

18. the transfer of each mortgage was the alienation of (a) the interest of Maria and Sam in each property, or the value of their interests in each property, or (b) their rights to redeem each mortgage as against Westpac, or the value of their rights to redeem each mortgage as against Westpac; or

19. the sale contract for each property will if completed constitute an alienation of the proceeds of sale of the interest of Maria and Sam in each property.

20. In the case of (1), the relevant alienation identified is the transfer of the mortgages by Westpac to I Properties rather than their redemption, and in the case of (2), the alienation is the sale contract for each property entered into by I Properties in exercise of its power of sale.

21. In relation to the second requirement being that the relevant alienation is made ‘with intent to defraud creditors’, the word ‘defraud’ has the meaning of ‘delay, hinder or defraud’. Hence, the question is whether the relevant alienation of property was made with the intention to hinder, delay or defraud creditors: Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 3 at [19]-[20]. The conclusion that this requirement is satisfied may be reached because the effect of the relevant alienation of property is to delay, hinder or defraud creditors; conversely, it may be possible for this requirement to be satisfied where the alienation does not have that effect because the focus of the provision is on the intent to defraud creditors: Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26; (2012) 16 BPR 30,397 at [105]. The statement of claim pleads that each alienation was made with the intent to delay or hinder Maria’s creditors, including pleading that in entering into the assignment transaction with Westpac I Properties was not an unrelated party of Maria and Sam; rather, it was acting on their behalf.

22. Mr Weinberger, appearing for I Properties, submitted that there was no serious question to be tried in relation to s 37A for essentially two reasons. First, there was no alienation of property by the transfer of each mortgage from Westpac to I Properties. Secondly, even if there was, the transfer of the mortgages cannot be said to be with the intent to defraud creditors because the creditors of Maria and Sam were placed in a better position, or at least in no worse position, from the discharge of the debt owing to Westpac. There was no prejudice to creditors because the debtor was not putting an amount beyond the reach of creditors, and there would be no increase in the assets available for the benefit of creditors if the transfer were to be avoided: cf Ingram v Y Twelve Pty Ltd [2013] NSWSC 1777 at [115]. It was submitted that a transaction which is merely advantageous to one creditor over other creditors as a whole does not attract s 37A, referring to Grapple Pay Pty Ltd v Conroy [2025] NSWSC 64 at [126], [173]. Further, it was submitted that the statement of claim fails to plead the essential elements for s 37A to apply.

23. It is clear that the transfer of the mortgages to I Properties was a transfer of an interest in land: CEG D**irect S**ecurities Pty Ltd v Wang [2021] NSWCA 76; (2021) 390 ALR 772 at [3]. Given the terms of the loan facility agreement referred to at [7], it may be inferred that the transfer was part of a tripartite transaction between Westpac, I Properties and the borrowers, Maria and Sam.

24. The plaintiff’s allegation is that the source of the funds used by I Properties to pay the consideration to Westpac for the transfer of the properties was a payment of an amount of $5.3 million received by Kingland Holdings Pty Ltd (the company of which Sam was a director and a shareholder) described as ‘compensation payment to directors’ in the relevant business record. The plaintiff relies on bank statements from which it may be inferred that these funds will ultimately be paid to I Properties and used by I Properties to pay Westpac. It also relies on evidence from which it is alleged that Mr Rami Ayoub, the sole director of I Properties, acted throughout at the direction of Sam. The alleged mischief of the transaction, given the source of the funds used to fund the payment made to Westpac for the transfer of each mortgage, is that instead of each mortgage being discharged, the relevant property became encumbered by indebtedness owed by Maria and Sam to I Properties on the terms of the loan facility agreement, including the obligation to pay interest at the rate of 25% per annum.

25. In relation to the sale of the properties under the sale contracts, the plaintiff points to the connection between the purchaser under each contract and Maria and Sam and the failure of I Properties to respond adequately to the plaintiff’s requests for information from I Properties as to the manner in which the properties were marketed in the sale process.

26. In my view, the transfer of each mortgage to I Properties was an alienation of property in the broad sense referred to earlier: the interest of Westpac in the land as mortgagee was transferred to I Properties by a transaction which subjected each property to a mortgage in favour of I Properties to secure indebtedness owing under the loan facility agreement at an interest rate of 25% per annum. Similarly, each sale contract is an alienation of property, being the interest of Maria and Sam as registered proprietors of each property.

27. There is also an arguable case that the transfer of each mortgage by Westpac to I Properties was made with the intention, on the part of Maria and Sam, to delay, hinder or defraud creditors because rather than redeeming each mortgage they arranged a transaction in which each mortgage would be transferred to I Properties for a payment sourced from funds under their control, in order to secure indebtedness at a much greater interest rate than that applicable under the facilities owing to Westpac. There is also an arguable case, based on the connection of each purchaser to Maria and Sam and the failure, to date, of I Properties to show that each sale contract was entered into after an open and competitive sale process, that each sale was made with the intention to delay, hinder or defraud creditors because each sale was at an undervalue.

28. I also reject Mr Weinberger’s submission that the statement of claim does not plead the necessary elements of s 37A. The statement of claim focuses carefully on identifying the relevant alienation of property, put in various alternative ways, and the basis for the allegation that each such alienation of property was made with the intention to defraud creditors.

29. For these reasons I am satisfied that there is a serious question to be tried for final relief as against I Properties based on s 37A. In light of that conclusion I do not need to address the plaintiff’s case regarding sham.

30. In so far as the balance of convenience is concerned, I am satisfied that the payment into court of the net sale proceeds without any deduction for the amount allegedly payable to I Properties will best maintain the status quo and achieve justice between the parties. The only potential prejudice to I Properties which was raised related to its lack of liquid funds to defend itself in these proceedings. However, there is no evidence before the court as to I Properties’ financial position or the quantum of any allowance which would need to be made for the legal costs of defending these proceedings. It is open to I Properties to bring a separate application to vary the orders regarding the payment of the net sale proceeds into court supported by evidence to justify the deduction for legal expenses which may be sought.

31. Mr Weinberger also submitted that the payment of the sale proceeds into court could not be justified under rule 25.3 of the Uniform Civil Procedure Rules 2005 (NSW) because there was no relevant ‘fund’ but only an underlying debt*:* Newcastle City Council v Caverstock Group Pty Ltd [2008] NSWCA 249; (2008) 163 LGERA 83 at [32]. I do not accept that submission. Rule 25.3(3) confers power on the court ‘in proceedings concerning the right of any party to a fund’ to order that the fund be paid into court or otherwise secured’. The net proceeds of sale of the properties under each sale contract when received by I Properties will clearly be a disputed fund and not a mere debt, which has a separate and distinct existence as an item of tangible property.

32. Accordingly, I will make the order sought in paragraph 1 of the notice of motion. As to costs, in all the circumstances I consider that the appropriate order is for costs to be in the cause.

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