Morse v Riley

ex tempore Judgment 1This matter was listed before me today for hearing of the plaintiffs' claim for damages against the first defendant and against the second defendant contending that the transfer by the first defendant of his interest in his matrimonial home to the second defendant was voidable under s 37A of the Conveyancing Act 1919 (NSW) and, at the election of the plaintiffs, should be declared void. 2The Court was advised in the days leading up to today that the first defendant has filed a debtors petition. As a consequence, s 58(3) of the Bankruptcy Act 1966 (Cth) imposes significant limits upon the plaintiffs taking any further step in proceedings against him. 3In relation to the second defendant it appeared that she was, in effect, willing to consent to execute whatever documents and agree to whatever form of relief was necessary to effect a re-transfer of the relevant interest in the matrimonial home to her husband's trustee in bankruptcy. To that end, the plaintiffs arranged for the second defendant and the first defendant's trustee in bankruptcy to execute a memorandum of transfer re-transferring that interest in the matrimonial home. 4However, a difficulty arose concerning the possibility of the levying of stamp duty upon that transfer. Today, the parties provided to the Court an order by consent in which the Court was asked to declare that the transfer was void. The reason why an order was put forward in those terms was that s 65(24) of the Duties Act 1997 (NSW) provides for an exemption from stamp duty if the Chief Commissioner is satisfied of various matters, as well as there having been a declaration by a Court that a transfer was void or voidable. 5There are, of course, however significant difficulties with the Court making declarations, as opposed to orders by consent. I brought this to the attention of Counsel for the plaintiffs who immediately read various affidavits from the first plaintiff and her instructing solicitor, designed to demonstrate the underlying veracity of the claim under s 37A. In light of the fact that the second defendant consents to the declaration, I considered it appropriate to proceed to consider the plaintiffs' application. 6Further, without undertaking any exegesis of the case law concerning s 58(3) of the Bankruptcy Act, I am satisfied that the fact that leave has not been obtained from either the Federal Court or the Federal Circuit Court of Australia does not present an obstacle to the Court determining this aspect of the matter. This part of the case does not involve any claim for relief against the first defendant. Further, it does not involve the taking of any step that is capable of compromising the first defendant's bankruptcy affairs in any way. Its only outcome will be to facilitate the retransfer to the first defendant's trustee of a further asset for the benefit of his creditors 7The first plaintiff was a former client of the first defendant. The first defendant practised as a solicitor on the New South Wales Central Coast. Many years ago the first plaintiff was catastrophically injured in a motor vehicle accident and received a very substantial payment in damages in the order of $1.5 million. The first defendant assumed control of that sum on her behalf. Over subsequent years those funds were dissipated by the first defendant in various transactions. The first plaintiff's evidence, which is uncontested, is that that was done without her knowledge or consent. On any view most of the transactions upon which the money was dissipated were extremely imprudent. 8In 2011 the plaintiffs commenced these proceedings against the first defendant seeking damages. In broad terms they sought recovery of the entire sum that was under the control of the first defendant. 9The proceedings meandered along somewhat, principally because the first defendant was attempting to obtain insurance cover via the relevant professional indemnity arrangements that are in effect for solicitors. Some time around late January 2014 the first defendant's attempts to obtain insurance cover were exhausted. He advised the plaintiffs he was seeking to withdraw a defence that he had earlier filed denying the plaintiffs' claim. Instead he proposed to submit a submitting appearance in respect of the plaintiffs' claims. 10On 28 January 2014 the plaintiffs filed a notice of motion seeking an asset preservation order against the first defendant. 11On 3 February the first defendant filed his submitting appearance. 12The application for an asset preservation order was returnable before Button J on 12 February 2014. After some to-ing and fro-ing concerning the state of representation of the first defendant, his Honour granted the asset preservation order (Morse v Michael Thomas Riley (Supreme Court (NSW), Button J, 12 February 2014, unrep). 13On 26 February 2014 the plaintiffs' solicitor received a letter by facsimile from a solicitor acting on behalf of the defendant advising that the first defendant had transferred his share of his interest in property at Endeavour Drive, Avoca, to his wife, the second defendant. This notification was given because that solicitor was concerned that that circumstance may have been inconsistent with what he had advised this Court on 12 February 2014. 14The transfer bore the date 1 January 2014. The consideration for the transfer is recorded as "$1". The transfer was registered on 11 February 2014, that is, the day before the return of the plaintiffs' notice of motion seeking the asset preservation order. 15Subsequent to that time, the plaintiffs joined the second defendant and sought an order under s 37A of the Conveyancing Act. Otherwise there have been a number of applications in the proceedings that are unnecessary to describe (see Morse v Riley [2014] NSWSC 212; Morse v Riley (No 3) [2014] NSWSC 236; Morse v Riley (No 4) [2014] NSWSC 299). 16Ultimately, as I have stated, the proceedings were set down for hearing today. 17Section 37A provides: "37A Voluntary alienation to defraud creditors voidable (1) Save as provided in this section, every alienation of property, made whether before or after the commencement of the Conveyancing (Amendment) Act 1930, with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced. (2) This section does not affect the law of bankruptcy for the time being in force. (3) This section does not extend to any estate or interest in property alienated to a purchaser in good faith not having, at the time of the alienation, notice of the intent to defraud creditors. 18Two matters should be noted. First, in Marcolongo v Chen [2011] HCA 3; 242 CLR 546, the High Court held that the expression "intent to defraud" in s 37A(1) includes an intention to delay or hinder creditors. 19Second, s 37A(1) provides that the transaction shall be "voidable at the instance of any person thereby prejudiced". The effect of this provision is not to automatically void any transfer, but to instead at least require some application at the instance of a person with relevant standing (see Griffiths v Falck [2008] NSWSC 998). 20In this case there is no doubt that the first plaintiff at least is a person who is "thereby prejudiced". She is undoubtedly a creditor of the first defendant's estate. 21Further, in my view, the inference that the first defendant engaged in the transfer with an intent to defraud creditors is overwhelming. As I have stated the consideration for the transfer was the paltry sum of $1. Most importantly, the circumstances of the transfer were that it was only made after the first defendant indicated that he could no longer defend the plaintiff's claim and was registered in the period between his having notice of an application for an asset preservation order and the return date of that application. 22Otherwise, there has simply been no material brought forward at any point in the proceedings capable of giving any explanation for the transfer other than the fact that the first defendant transferred his share in the matrimonial home in an attempt to, at the very least, delay or hinder, and in my view to remove from the purview of, any claim by the plaintiffs as a result of his conduct. 23Accordingly, I will grant a declaration in a form similar to the form that has been handed to me by counsel for the plaintiffs. I will indicate I will also grant liberty to apply. The orders I make will be similar to orders 1, 2 and 3 made by Lindsay J in Bowden v Weldon [2014] NSWSC 109. 24Accordingly, the Court makes the following declarations and orders: (1)Declare that the transfer by the first defendant to the second defendant on or about 11 February 2014 of his interest in the land comprised in Folio Identifier 484/9406 was made with an intention to defraud his creditors. (2)Declare that the transfer by the first defendant to the second defendant on or about 11 February 2014 of his interest in the land comprised in Folio Identifier 484/9406 is void pursuant to s 37A of the Conveyancing Act 1919. (3)Order that the said transfer be set aside. (4)Grant the parties liberty to apply on 24 hours' notice.