Principles concerning s 37A
95Relevantly, s 37A(1) of the Conveyancing Act provides that:
"... every alienation of property... with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced."
96With one exception, there was no controversy before me as to the principles to be applied.
97The following summary is drawn largely from Mr Curtin's submissions.
98The High Court has determined that s 37A is not limited to common law or equity notions of fraud.
99In Marcolongo v Chen [2011] HCA 3; (2011) 242 CLR 546, French CJ, Gummow, Crennan and Bell JJ cited, with approval, statements made by Blanchard and Wilson JJ, when considering the comparable New Zealand legislation in Regal Castings Ltd v Lightbody [2009] 2 NZLR 433 and said (at [32]):
"Their Honours said that it was unnecessary to show that the debtor wanted creditors to suffer a loss or that the debtor had a purpose of causing loss: it was necessary to show the existence of an intention to hinder, delay or defeat creditors and in that sense to show that accordingly the debtor had acted dishonestly." (emphasis in original).
100Their Honours also cited with approval the observations of Russell LJ in Lloyds Bank Ltd v Marcan [1973] 1 WLR 1387 at 1390 - 1391:
"I am not sure what is meant by a perfectly innocent defeat, hindrance or delay. It must be remembered that in every case under this section the debtor has done something which in law he has power and is entitled to do: otherwise it would never reach the section. If he disposes of an asset which would be available to his creditors with the intention of prejudicing them by putting it, or its worth, beyond their reach, he is in the ordinary case acting in a fashion not honest in the context of the relationship of debtor and creditor."
101Russell LJ referred to assets "which would be available" to creditors.
102Similarly in Cannane v J Cannane Pty Ltd (in liq) [1998] HCA 26; 192 CLR 557, Brennan CJ and McHugh J referred to the necessity to show a deprivation of assets against which creditors "would otherwise be entitled to prove their debts" (at [14]).
103In the decision of the Court of Appeal in Chen v Marcolongo; Chen v Lym International Pty Ltd [2009] NSWCA 326, Young JA said (at [214]):
"The intention must be to deprive the creditors of something to which they would otherwise be entitled."
104Mr Fernon relied upon those statements in support of the proposition that there could not be the requisite intention under s 37A if, as a matter of fact, the assets transferred would not have been available to the relevant creditor in any event (because, for example, it was certain that a secured creditor would have a superior claim to such assets).
105I do not read the authorities as leading to this conclusion. In my opinion, reference to assets "which would be available" to creditors is a reference to assets which, as a matter of law, would be available to creditors so as to exclude only assets which would not be available to any creditor from the insolvent estate of the party who has disposed of the asset (for example, property of the kind referred to in s 116(2) of the Bankruptcy Act 1966 (Cth)).
106I accept that, as Mr Curtin submitted, the other critical aspects of s 37A are as follows (they were recently succinctly summarised by Kunc J in Chan v Acres [2013] NSWSC 1597 at [72]).
107First, the reference to "creditor" in s 37A extends to future creditors, and to prospective or contingent creditors: Trustees of Cummins v Cummins (2006) 227 CLR 278 at 291 (referring to s 121 of the Bankruptcy Act but equally applicable to s 37A).
108Second, the relevant intent of hindering, delaying or defeating creditors will be made out where that is an intention of the transferor. It is not necessary to demonstrate that the proscribed intention is the sole intention or even a predominant or substantial intention: Marcolongo at [57].
109Third, the relevant intention may be established by inference. In Cannane, Brennan CJ and McHugh J held (at [12]):
"Although the party impugning the disposition of property must show an actual intent to defraud creditors at the time of the disposition, the intent may be inferred from the making of a disposition which, to adopt the words of Lord Hatherley LC in Freeman v Pope [(1870) 5 Ch App 538 at 541], 'subtracts from the property which is the proper fund for the payment of [the] debts, an amount without which the debts cannot be paid'."
110Similarly, in Bell Group Ltd (In liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 70 ACSR 1, Owen J held "that an intention to defraud creditors may be inferred where this is a necessary consequence of a disposition" (at [9109]; emphasis in original).
111Fourth, whenever the circumstances are such that the transferor knew that they were exposing creditors to a significantly enhanced risk of not recovering amounts owing, the Court will infer that the transferor acted with the relevant intent.
112In Cannane, Kirby J explained (at [92]):
"Proof of the intention of a person presents notorious difficulties in every area of the law where it is encountered. Even when the distinction between intention and motive is kept in mind, knowledge of subjective intention will ordinarily, or often, be reserved to the person whose interests may be so affected that an assertion, one way or the other, cannot necessarily be accepted at face value. That is why, at least in a provision such as s 121, it is not necessary to establish that the transferor of the property in question actually had in mind an intention to defraud creditors if the effect of what that person did would reasonably be expected to have such a consequence. Courts will therefore infer the intention in issue, deciding it as a question of fact. This does not mean that the intention so derived is one imputed by the law. It is not a fiction. It is the real intention of the transferor decided objectively rather than upon protestations of innocence on the part of the debtor or outraged accusations on the part of suspicious creditors." (citations omitted).
113In Langdon v Gruber [2001] NSWSC 276, Austin J held (at [54]):
"But in Australia, at least, it is not necessary for the plaintiff to bring actual proof that the debtor had in his or her mind an intention to defraud creditors; if it appears from evidence of all the circumstances that the transfer might be expected to have that effect, and has had that effect, the Court will attribute fraudulent intention to the debtor ...".
114In Regal Castings, in the passage immediately following the one referred to by the High Court in Marcolongo at [32], Blanchard and Wilson JJ explained (at [54]):
"Whenever the circumstances are such that the debtor must have known that in alienating property, and thereby hindering, delaying or defeating creditors' recourse to that property, he or she was exposing them to a significantly enhanced risk of not recovering the amounts owing to them, then the debtor must be taken to have intended this consequence, even if it was not actually the debtor's wish to cause them loss."
115Fifth, all that is required for creditors to establish prejudice is that:
(a)the debtor is "putting [an asset], or its worth, beyond their reach" (per Russell LJ when considering s 172 of the 1925 Act in Lloyds Bank Ltd at 1390 - 1391 and approved by French CJ, Gummow, Crennan and Bell JJ in Marcolongo at [32]); or
(b)there would be "an increase in the assets available for the benefit of creditors" (Griffiths v Falck [2008] NSWSC 998 at [16] - [17] per Young CJ in Eq (as his Honour then was)) if the transfer were to be avoided.