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[1979] FCA 75
Federal Court of Australia
1973-07-30
Fisher JJ, Brennan J
Original judgment source is linked above.
Execution - Judgnent debt - Registration of judgment
in Norfolk Island ~ Application to set aside transfer of shares py debtor to his wife - Summons not served on company or wife - Whether transfer voluntary and fraudulent - Whether void - Rights of creditors - Validity
IN «THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION No. VG 15 of 1978 )
(1) deleting Paragrephs 3, 5, 6 and 7(b) of che sald order; (it) deleting paragraph 4 of the said order and by
the 9,991 shares in the capital of Transworld Trading Limited from the second defendant to his wife Sheilagh Julia Noakes 1s frauduzent and void es against the creditors of che plaantiff."; and
? (221) deleting ~he number and letter "7(a)" and inserting in i1eu thereof the words: "Ané 1t is further
rs '
. . ° wet 0 ,
BRENNAN J: a The respondent, judgment creditor of the
a firm of stockbrokers, 1s the appellant. It sued the
the appellant's oral promise to pay, or guarantee of
appellant's son. The writ of summons was issued against
the appellant, his son and another defendant on 3 August
On 11 December 1975, the respondent applied to have the judgment registered 1n the Supreme Court
of Norfolk Island and it was so registered, pursuant
judgment as if it were a judgment of the Supreme Court
appellant applied to the Supreme Court of Queensland
dismissed, except in relation to the appellant's son,
application 1s not unimportant: it was 9 December 1976.
The appellant instituted an appeal to the Full Court of the Supreme Court of Queenslan? against the dismissal cf his appiication to set aside the gudgmeat, but the Full Court dismissed the anpeal for want of prosecutionon 28 March 1977. On 20 May 1977 the appellant applied to the Supreme Court of Norfolk Island to set aside the registration of the judgment. On 27 May, that application was dismissea. Although an appeal against the dismissal was instituted the appeal was not pursued.
So the gudgment was not set aside; it remained registered in the Supreme Court of Norto lk Island: 1%t was not satisfied. The respondent set about enforciug it. it set 1ts sights upon the appellant's holding of shares in Transworld Treding Ltd., A comoany with consicerable assets, whicn was registered and which carried on business 1n Norfolk Island. f search was made in tine office of the Registrar of Companies on S Decerbper 1977 by Mr. McIntyre, solicitor for the respondent. He examined the latest return by the company, made up to 6 December 1976, which showed the appellant to be the holder of 9,993 of the 10,000 shares issued by the company. The search confirmed some advice which Mr. McIntyre had
received on 12 October 1976. On that day, che appellant
had sent Mr. McIntyre a cable from New Zealand, reading "No intention now or in the future to sell Transworld be advised accordingly. Noakes." On 9 December 1977,
Mr. McIntyre caused a summons to be issued out of the Supreme Court of Norfolk Island directed to the appellant and to the company seeking the appointment of a receiver of the appellant's property in Norfolk Island "for the purpose of obtaining equitable execution against the assets of [the appellant] in satisfaction of the judgment...", and seeking an order that "the 9,993 shares shown in the annual return as at 6th December 1976 as standing in
[the appellant's] name be vested in the said receiver forthwith by virtue of the Order of this Court."
Mr. McIntyre swore an affidavit in support showing that the shares were the appellant's only asset of net worth in Norfolk Island against which the judgment might be
The application came on for hearing before the Supreme Court of Norfolk Island (Joske J.) on 12 December 1977. There were other applications connected with the judgment heard simultaneously, but they were dismissed and are of no present relevance. The respondent was represented by Mr. McIntyre, and the appellant by his solicitor, Mr. Skinner. The company did not appear; indeed, it had not been served. Mr. McIntyre called Mr. Adams,
an accouncant, to give evidence and to produce some
documents. Mr. Adams gave evidence that until 13 December 1976 the appellant held 9,993 shares in the company, Mrs. S.J. Noakes (the appellant's wife) held 2 shares, and the remaining five shares were held by trustees for the appellant and Mrs. Noakes or one of them. However, it appeared from Mr. Adams' evidence and from certain documents which he produced that on 13 December 1976, four days after the dismissal of the appellant's application to set aside the judgment, the appellant transferred to Mrs. Noakes 9,991 of the shares which he held in the company. At 10.30am on that day the appellant chaired a meeting of the directors of the company on Norfolk Island, and it had then been resolved that the transfer "be approved". So it appeared that the appellant had disposed of most of the shares in respect of which the application was made. Mrs. Noakes had acquired them. The court adjourned the further hearing of the
application shortly before noon on 12 December 1977. Mrs. Noakes was on Norfolk Island at that time, having arrived from New Zealand the day before. However, she left the island on the afternoon flight to Sydney on 12 December. The a1rrline booking centre on the zsland told Mr. McIntyre, as he deposed, that:
1977 the said Sheilagh Julie Noakes arrived at that
office witnout prior notice, and purchased a ticket
from Norfolk Island to Sydney on East West A1rlines
on the flight departing at 2.15 p.m. that day and travelled on that flight to Sydney at that time."
Mr. McIntyre caused a further summons to be issued that afternoon, seeking the setting aside of the transfer of the shares to Mrs. Noakes "as a conveyance to defeat creditors". The summons was directed to the appellant, the company, and Mrs. Noakes. That afternoon, Mr. McIntyre obtained ex parte from his Honour an order that the summons issued on 12 December be returnable at 9.30am the following morning, 13 December, and that in the alternative to personal service of that summons and related documents on Mrs. Noakes service of those documents on her pe effected by serving them on Mr. Skinner. Mr. McIntyre served them on Mr. Skinner. Notwithstanding the making of the order for substituted service,1& may be doubted whether Mrs. Noakes was or became subject to the jurisdiction of the Supreme Court of Norfolk Island, for she had left the island when the summons was issued on 12 December, and the summons was not available for service out of the jurisdiction. (See Laurie v. Carroll (1958) 98 C.L.R.310). She did not apply to set aside the order for substituted service of the summons, but neither did she appear to submit to the Court's jurisdiction. She does not appeal to this Court, whether against the order for substituted service or against any other order. She is not a party to this appeal, and the determination of this appeal leaves her rights - for goo@ or 111 - precisely as they were when
the orders appealed from were made. What is material to
this appeal 1s that the appellant, a narty to the proceecings
in which the order for substituted service was mece, di
seek the setting aside of the order for substituted c
rvice. though he had the standing to do so for reasons to which
Gillard J. referred in Bradvica v. Radulovic /1975/ V.R. 434 at
p. 440. Although Mrs. Noakes' interests are unaffected by the appellant's appeal, for the purposes of that appeal the proceedings for the setting aside of the transfer of shsres to Mrs. Noakes 2znstituted by the summons of 12 December stand as proceedings between the judgment creditor on the one hand, and the trensferor anc transferee on the other. The hearing of those proceedings comnenced on 13 December 197 accordance with the order for srort service. Mr. Mec and Mr. Skinner appearea respective. y tor the responaent anc the appellant. Again, the company was not served and was unrepresented, though the evidence ziven by Mr. Adams on the previous day showed that Mr. and Mrs. MNcakes were the only directors of the company anc between them held the heneficiel interest 1n its issued shares.
His Honour adjourned the further hearing of the proceedings to Melbourne on 23 December 1977, in order to furnish an opportunity to the appellant to deal with the case which had been made by the responcent. The opvortunity was not availed of to adduce any evidence. After hearing submissicns, his Honour mace several orders, one of whicn was mede upon the summons issued or. 1? Tecember 3977. 'That order vas that the transfer of the 9,991 shares shoula
conveyance made with intent to defraud creditors". Other orders were also made, consequential upon the setting aside of the transfer, the consequential orders being made "pursuant to the summons issued by the plaintiff datcd
9th December 1977 for the appointment of a receiver to the shares of [the appellant] in the capital of Transworld Trading Ltd." The consequential orders included the appointment of a receiver of the shares, and orders empowering the receiver to sell the shares, to be manager of the company and to apply the company's funds, inter alia, by satisfying the judgment debt and interest thereon. The appellant appeals against both the order setting aside the transfer and against the consequential orders.
His Honour ordered that the transfer of shares be set aside because he found that the transfer was voluntary and in fraud of the judgment creditor and that it fell accordingly within 13 EFliz.I.,c.5 the provisions of which were extended to Norfolk Island by a proclamation of Governor Strickland of 23 December 1913, and kept on foot
by the Norfolk Island Act 1913, s.4 and the Norfolk Islard
His Honour's findings were challenged. It was said that the weight of evidence showed that the transfer was not voluntary, but for valuable consideration, and that there was no evidence of fraudulent intent. The appellant placed
rellance upon the instrument of transfer itself, which had
been tendered in evicence as part of the respondent's case. The instrument w2s partly prirled, partly writcren and it reads as follows (the writing 2s undcerlinec):
"IT, Reymond Brian Noases of Norfolk Island (tle transferor) in consiceration of the sun of Consideration Received paid to me by Sheilagh Julia Noakes Of Norfolk Islend (the transferee) do hereby transfer to the said transferee 9991 Shares numbered 1 to 999% inclusive in the undertaking called Transworld Trading Limited..."
Consider the appellant's position on 123 December 1#75 when he executed this transfer: the gudgment nad been entered 34 years earlier; it was unsatisfied; it had been registered in the Supreme Court of Norfolk Islan¢e since
principel shareholder and a cirector of a trading concern on the icliand, he had done nothing to satisfy 12s i1iability under the jgudgment; feur Gays carller his attempt to have the gudgmen:s set aside had fulled; he vac no cther available esseTs on the island asainst wh2cn execution would be effectzve, and he trans*erred the shares to his wife without specifying the consiaderetion which the instrument of transfer asserts was peid to him. It ves,
of course, open to the apnellant to show what consideration was paid to hin, but he chose not to @o so. He evictently hoped to convince his Honour that the respondent hac not proved its case. The hove was misplaced, and his Honour's finding that the transfer was voluntary followed the approach of Lord Hardwick, L.C. in Walker v. Burrows /
1 4tk. 94; 26 E.R. 61. In that case, the terms of a
conveyance to trustees "in consideration of five shillings and other valuable considerations" in trust for the settlor for life, to his wife for life, then to his eldest son, etc. was relied on to show valuable consideration when the deed was challenged as a conveyance not for valuable consideration, falling within 1 Jac.1, c.15, but the Lord Chancellor said (at 1 Atk. p.94):
the deed in 1718 to be for a valuable consideration,
valuable considerations. " Nor did it suffice to point to the matrimonial relationship of the parties to the transfer, for a transfer by a husband to a
wife made not in discharge of legal obligation but merely for
natural love and affection or to make provision for a family, is yet a voluntary transfer for the purposes of 13 Elaz.l., ¢.5
(Taylor v. Jones [1743] 2 Atk.600; 26 E.R.758; Tweddle v.
Atkinson [1861] 1 B.& S.393 at p.399; 121 E.R.762 at 9.764). Consequently, there was nothing to show that the appellant had received any consideration for the transfer of the only asset against which the unsatisfied judgment creditor might execute. We were pressed with some observations in
Williams v. Lloyd; In re Williams (1934) 50 C.L.R.341 where the
Court affirmed that the burden of proof that a transfer was made with a real intent to defeat or delay creditors 1S upon the party who so alleges. But that was a case where, at the time of the challenged disposition of property by a husband to his wife, he was in a sound financial position, and it was held that subsequent conduct and events were insufficient to show that the husband had at that time an intent to defraud crealtors (see the judyment of Dixon J. at p.372). In the present case, the inevitable result of the transfer of shares on 13 December 1976 was to defeat or delay any attempt to execute the judgment in Norfolk Island. The case falls squarely within the line of authorities of which Freeman v. Pope ([1870] L.R.5 Ch.538) 1s the leading example, where Lord Hatherley,L.C. said (at p.541):
"But it is established by the authorities that in the absence of any such direct proof of intention, 1f a person owing debts makes a settlement which subtracts from the property which 1s the proper fund for the payment of those debts, an amount with- out which the debts cannot be pald, then, since it 1s the necessary consequence of the settlement (supposing 1t effectual) that some creditors must remain unpaid, it would be the duty of the Judge to direct the jury that they must infer the intent of the settlor to have been to dafeat or delay nis creditors, and that the case is within the statute."
That proposition does not trespass upon the rule as to
onus of proof; it 1s a particular illustration of the
discharge of the onus by inference from the known facts
(cf. In re Holland; Gregg v. Holland [1902] 2 Ch.360 at p.381).
In this case, the inference is strengthened by the proximity an time of the failure to have the judgment set aside and the execution of the transfer of the shares. The challenge to his Honour's finding that the transfer fell within the Statute of Elizabeth therefore fails.
It does not follow, however, that the transfer of the shares was ineffective. The transfer of shares was completed, of course, before any attempt was made by a creditor to impeach the transfer; and the transfer was not then void, but voidable. As Dixon C.J. and Fullagar J.
pointed out in Brady v. Stapleton (1952) 88 C.L.R.322 at
" The truth seems to be that, although the statute uses, and most emphatically uses, the word 'yoid', the courts have always treated a fraudulent assignment as effective unless and until a creditor or creditors intervene by levying execution or taking legal proceedings. "
So Mrs. Noakes became both the legal and beneficial owner of the shares. The avoidance of the transfer did not revest either the beneficial or legal ownership of the shares in the appvellant. As between Mr. and Mrs. Noakes, the transfer is of unchanged validity. The banefit of the statute enures for the benefit of the
creditors, not for the benefit of the debtor. In Ex parte
Butters. In Re Harrison [1880] L.R.14 Ch.D.265 at p.267, Jamcs
"The bankruptcy law puts the trustee in the position of the representative of all] the creditors of the bankrupt, and under the statute of Hlizabeth creditors have a right to impeach transactions which the bankrupt himself could not impeach. The trustee, therefore, in seeking to set aside a transaction as fraudulent under the statute of Elizabeth 1s claiming by a higher and better title than the bankrupt himself, for the bankrupt is a party to the fraud."
The court will make such orders consequential upon the avoidance of a transfer of property as are necessary to give effect to the superior title of the creditors claiming the benefit of the statute against the party whose title was acquired under the impeached transfer. The statute enures for the benefit of unsecured creditors generally; and not only existing but subsequent creditors
are let in to participate rateably in the property which
becomes available (May on Fraudulent Conveyances, 3rd edn.,
p.39). Thus in a successful sult to declare a transfer void under the statute, the transfer 1s declared to he
void aS against all the creditors (Adames v. Hallett
(1868) L.R.6 Eq.468 at p.473; and see Seton "Judgments and Orders" 6th ed., p.2345). Indeed a creditor's claim is properly to be made on behalf of himselt and the other
creditors (Reese River Silver Mining Co. v. Atwell [1869]
L.R.7 Eq.347). It may be made by a trustee in bankruptcy who represents the general body of creditors, as in
The statute 1s not for the benefit soiely of the unsecured creditor who sues, and he cannot obtain an order which secures the avallabie property to him alors, or inceed,
The title of the person claiming under the impeached disposition stands until the disp2sition is avoided. It is that title which the creditors nust attack, and it will not avail them tc pursue the debtor in litigation if they leave the assignee of the assets out of the suit. The issue falls to be Ceterminedc between
the creditors ard the assignee, as Stirling J. noted in
In re Mouat; Kingston Cotton Miils Company v. Mouet £18997
"According to the law which has been laid down in the cases I have gust cited, the assignments became vo1d the moment the creditors claimed c9 treat them es such; and thereupon the property which was comprised in those cassignmerts ceasec, as against the creditors, to be the property of the assignee, and became assets for tre payment of the creditors in such a way that they had a legal right to be paid out of those assets."
The specific relief which may be given to creditors depends, no doubt, upon the nature of the asset in the hands of the assignee, and orders may be moulded to zive appropriate effect to the creditors! rights as against the assignee.
Thus in Brady v. Stapleton, supra, transferees of shares
under an impeached transfer who had mixed thos2 shares
witnh other shares of an indistinguishable kind held by them
were ordered to transfer to the trustce in bankruptcy
the same number of shares as they had respectively received (see 88 C.L.R.at pp.339,346). But the creditors gust seek their relief against the person whose title
the creditors would supersede. They cannot claim relief against the debtor who, ex hypothesi, has parted with his title to the assets which the creditors would pursue. When the transferee of property 1s sued by a trustee in bankruptcy, it will often be appropriate and sufficient to direct the defendant to transfer the property to the trustee, but 1f creditors seek execution against property, a guestion may arise as to the precise entitlement of the creditors to the property in the defendant's hands (see
Smith v. Hurst (1852) 10 llare 30 at pp.48,49; 68 E.R.826).
Lord Romilly, M.R. referred to an appropriate form of order in Reese River Silver Mining Co. v. Atwell, supra. In that case, a creditor, impeaching a voluntary settlement, sued the parties to and the beneficiaries under the settlement, and he obtained a finding that the settlement fell within the statute. He applied to amend so as to sue on behalf
of himself and all other creditors. The Master of the
"...as Soon as the Court finds that a deed has been executed for the purpose of delaying, hindering, or defrauding creditors, and that
1t comes within the statute, 1t sets the deed aside, but it goes no further; and the
if they wish to have execution against the property in this deed. I shall give leave
all creditors...I shall declare that the deed of the 13th of February, 1867, 15 fraudulent and void as against the creditors; and I direct the trustees to do and concur in all acts necessary for making the trust property available to the creditors;..."
In the present case the summons which sought the appointment of a receiver of the judgment debtor's property and other relief (1.c., the summons issued on 9 December 1977) was not directed to, and was not served upon, Mrs. Noakes - understandably, for the transfer of the shares to Mrs. Noakes was then unknown to Mr. McInt\re, and the summons was intended to deal with the property of Mr. Noakes, not the property of Mrs. Noakes. Yet it was upon this summons that his Ilonour made the consequential orders. They cannot stand so as to affect adversely the title of Mrs. Noakes, who was neither a party to the proceedings in which they were made, nor entitled to be heard on 12 December when part of the evidence on this summons was taken,
It may be argued that consequential orders could have been made pursuant to the summons of 12 December for which substituted service was ordered. Even if one allows effect to the order for substituted service and what
was done 1n conformity with its terms, the consequential
Orders could not be supported. The judgment creditor was
not shown to have such a titie to the shares as would entitle him co have 2 recelver acquire and dispose of those shares to satisfy the judgment creditor, and to nold the excess if any for the fraudulent debtor.
i should not wish to say what consequential orders might have bean made against Mrs. Noakes on the assumption that she was subject to the jurisdiction of the Court, except
to note the orders made in the Reese River cese and in
In re Mouat, supra (the latter being aa orcer for the
preservation of the property pendente lite). It 1s unéesirable to say more, for 1t may be a matter of future litigation between tne creditors and Mrs. Noakes to cetermine whet orders should be made, or even to determine whether Mrs. Noakes is bound by the declaration made.
That 1s not to say that the litigation and the making of the declaration have been barren exercises for the gudgment creditor. If Mrs. Noakes 1s bound by the funding made by Joske J. or by sone future judicial finding chat the transfer was voidable, the respondent has effectively elected to avoid 1t. In that event, Mrs. Noakes, with the knowledge of the creditors! election to avoid 'the transfer, 1s subgect to an equitable obligation not to deai with the shares in a manner which 1s inconsistent with the rights of the creditors.
So far as his own posicion ard rights are concerned, the appellant has entirei:y failed 1n this appeal. Even
though the consequential orders be set asice, no has fazrled to
uphold the valicity of his transfer of the shares. The setting aside of the consequential orders follows from the necessity to remove from the records of the court orders made adversely to the interests of e person who was not 2 party. It 1s not, in a relevant sense, in relief of the appellant. Subject to the variations to his Honour's order next to be mentioned, I would dismiss the appeal with costs.
In lieu of paragraph 4 of his Ecnour's oreer, 2 Geclaration should be made thet the transfer o* the 3,991 shares is frauduient and vo2zda as against the creditors of Raymona Brian 'oekes, and paragrephs 3, 5, 6 and 7(b) shovlé be
in paragraph 7(a) 1s, heving vegard to the circumstances before his Honour, explained by argunent on this appeél, an appropriate order which skouid
preceding pages are & true Reasons for J udgment herein
I certify that this is a true copy of the Reasons for Judgment herein of kis Honour Mr. Justice Deane.
ON APPEAL FROM TRE SUPREME COURT OF NORFOLK 1 SLAUD
anc I agree with his decision and the reasons he gives
i pRocedane -paresa-6 a t™1e sooy of the Reasons for Judgment herein of his Honou.