Ozem Kassem and Jason Tang as Liquidators of and agents for Amflo Holdings Pty Limited (in liquidation) ACN 002 001 649 v Crystal Car Wash Pty Limited ACN 101 595 493
[2015] NSWSC 973
Supreme Court of NSW|2015-02-26|Before: Brereton J
Solicitors:
ERA Legal (plaintiff)
Trinity Legal (defendant)
File Number(s): 2015/57763
[2]
Judgment (ex tempore)
HIS HONOUR: The plaintiffs are the liquidators appointed on 25 June 2014 of the company Amflo Holdings Pty Ltd in a creditors' voluntary winding up consequent upon their earlier appointment as voluntary administrators on 27 May 2014. On 13 January 2014, the company transferred to Crystal Car Wash Pty Ltd a property at 186-188 Parramatta Road, Ashfield, being lot 1 in deposited plan 963236 and lot 2 in deposited plan 668831, for a consideration of $1 in respect of each transfer.
On 23 December 2014, the liquidators lodged a caveat in respect of the land, claiming an interest described as follows:
"legal interest in the land by virtue of the voidable transfer of the land and/or equitable interest in the land by virtue of the facts set out below".
The facts set out below referred to the circumstance that a director of the transferee, Crystal Car Wash, the defendant in these proceedings, is the son-in-law of the former director of the company and that the consideration for the transfer was $2 and took place at a time when the company was insolvent or became insolvent and was an uncommercial transaction, an insolvent transaction and a voidable transaction which was liable to be set aside pursuant to (Cth) Corporations Act 2001, s 588FF, alternatively was voidable in equity as being in breach of Mr Khouri's fiduciary duties to Amflo, the benefit of which was received voluntarily by Crystal.
On 6 February 2015, the defendant, Crystal, served on the liquidators a lapsing notice and by summons filed on 24 February 2015, returnable by leave and pursuant to an abridgment of time today, the liquidators seek an order extending until further order the operation of the caveat. The summons fails to claim any final relief and, if the matter is to proceed, will require amendment to specify the final relief claimed, but it may reasonably be inferred that that will include orders avoiding or setting aside the transfers and for reconveyance to the company of the land in question. As I have said, the summons is first returnable today, on which occasion the defendant has opposed an order continuing the caveat even on an interim basis. The lapsing notice expires on or about tomorrow unless an order extending the caveat is made.
The defendant's case is that it provided the purchase money with which the property was originally acquired in the name of the plaintiff and has tendered evidence which, as things stand, provides strong support for that contention. In addition, it has tendered an apparent purchaser agreement apparently made shortly before the purchase, although not stamped until January 2014, more or less contemporaneously with the transfers that the plaintiff impugns. On its own, the material tendered by the defendant would go a long way to establishing that it has always been the beneficial owner of the properties and on that basis that the caveat should not be extended. Prima facie the defendant seems to have a strong case in that respect.
On an application such as the present, however, the question is not whether the defendant has a strong case, but, as stated, for example, in Martyn v Glennan [1979] 2 NSWLR 234, the Court's approach is analogous to that adopted on an application for an interlocutory injunction, in that a party seeking the extension of a caveat must demonstrate that it has a seriously arguable claim for final relief, in which case the caveat will be extended unless the balance of convenience points in the other direction. Moreover, in caveat cases the fact that interests in land and priorities are likely to be affected if a caveat is removed, weighs considerably in considerations of the balance of convenience.
There is little doubt that, unless the defendant is the beneficial owner of the property, the transaction would be liable to be impugned as an uncommercial transaction given that the transfer was at a price of $2 only and occurred only a few months before the company went into voluntary administration. The real issue is whether the plaintiff has a seriously arguable case that the defendant was not the beneficial owner despite the apparent strength of the defendant's evidence to that effect.
In this respect the plaintiff points to a number of matters. The first is that in the plaintiff's financial statements for the years from 2008 through to 2013, the property is recorded as an asset of the company. For the defendant, Mr Sahade of counsel rightly points out that that is no evidence that the defendant acceded to that position, but it does apparently falsify an assertion propounded by the defendant's solicitors on 17 February 2015 to the effect that, "at all times the property…was not shown as an asset of the nominee company". In addition, when the company at an earlier time went into voluntary administration in 2009, the property was treated, and disclosed, as an asset of the company in the administrator's report.
Although the defendant's solicitors asserted in their letter of 17 February 2015 that, "at all times the property was recorded in the books of the trust", being a reference to the JS Trust of which the defendant, Crystal, is the trustee, the only books of the trust that have been produced are those for the year ended 30 June 2012 and, while those financial statements certainly show the property as an asset of the trust, it is apparent that they were prepared only on or about 9 January 2014.
It does not appear to be controversial and there is plainly evidence that the company occupied the property. There is evidence that it paid land tax in respect of the property which is not inexplicable given that it was the legal owner, but if the defendant, whether or not as trustee, was in truth the beneficial owner, then it would be curious that the company did not pay rent, and while some rental expenses appear under the heading "Direct Expenses" in the trading profit and loss statement, it does not appear to be in the order of the rent that one would expect to be associated with a $1.6 million property.
Further evidence might well explain away these matters, but it seems to me that it can be said that at the moment there are, in terminology which might be borrowed from a slightly different field, plausible contentions requiring investigation as to where the beneficial ownership of this property resided.
So far as the balance of convenience is concerned, nothing has been advanced as to why continuation of the caveat would operate to the prejudice of the defendant. It may well be that such material could be advanced on a further hearing, but it has not at this stage. Against that, the prejudice of losing such priority position as it may have or of equity in the property being eroded by further encumbrances is a potentially significant prejudice to the plaintiff. In that respect, it is true that the Court has available other remedies than a re-transfer of the property, but their viability necessarily depends on the capacity of the defendant and are almost always inferior to a re-transfer of the property.
Although it was suggested that a right to avoid the transfer under the insolvent transaction provisions did not found a caveatable interest, it seems to me that such a right involves an assertion that the plaintiff is entitled to be the registered proprietor of the land and amounts to an interest in land, as does the alternative allegation that the defendant holds the property on a constructive trust for the plaintiff.
It therefore seems to me that the plaintiff has a sufficiently arguable case for final relief as having regard to the balance of convenience to justify the extension of the caveat, at least at this stage. I therefore propose to make an order upon the plaintiff's undertaking as to damages to that effect. I will hear the parties as to whether they wish to proceed to a more elaborate interlocutory hearing or an early final hearing or what other course might be taken.
Upon the plaintiffs, by their counsel, giving to the Court the usual undertakings to damages, the Court orders that:
1. The operation of caveat AJ138430 in respect of the land comprised in folio identifiers 1/963236 and 2/668831 be extended until further order.
2. The plaintiff file and serve an amended summons in the form of an originating process and its supporting evidence by 9 March 2015.
3. The proceedings be adjourned to 16 March 2015 at 10am in the corporation judge directions list.
4. The costs of the interlocutory proceedings today be costs in the proceedings.
5. The parties have leave to adduce expert evidence if so advised as to
1. the solvency of the company, and
2. the value of the subject land.
These orders are to be entered forthwith.
[3]
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Decision last updated: 20 July 2015
Parties
Applicant/Plaintiff:
Ozem Kassem and Jason Tang as Liquidators of and agents for Amflo Holdings Pty Limited (in liquidation) ACN 002 001 649