Puglia v Basol & Ors

Nina Puglia - Plaintiff Seyit Basol - First Defendant PARTIES : Inci Basol - Second Defendant Changing Seasons Florist Pty Limited - Third Defendant

Mr S.P.W. Glascott - Plaintiff COUNSEL : Second Defendant in Person

Crichton-Brownes - Plaintiff SOLICITORS : Second Defendant in Person

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1 The plaintiff seeks relief under s.37A(1) of the Conveyancing Act 1919 in respect of three transactions entered into by the first defendant. Section 37A is in the following terms: " 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." 2 The first of the relevant transactions occurred on 4 February 2003 when the first defendant completed the sale of a property at Five Dock of which he was the sole registered proprietor. Upon such completion, he caused $147,645.79 out of the proceeds of sale to be applied to the benefit of the second defendant (his wife) - as to $85,127.01 by way of payment to the discharging mortgagee of the vendor of a property at Russell Lea purchased by the second defendant on the same day, as to $1,840.39 by way of payment of costs and disbursements of the solicitors acting for the second defendant on the purchase of the Russell Lea property and as to $60,678.39 by payment to the second defendant. 3 The second transaction occurred on or about 27 November 2004 when the first defendant transferred to the second defendant one share in the capital of a company called Changing Season Florist Pty Ltd, which is the third defendant. The second defendant was already the holder of the only other issued share in that company. The transfer was without consideration. 4 The third transaction is said to have occurred on or about 19 January 2005, when the second defendant became registered under the Business Names Act 1962 in respect of a business name "Changing Season Florist" which, on the evidence, related to a business which, up to that point, had been conducted by the first and second defendants together, rather than (as one might expect) by the third defendant. 5 On each of the dates I have mentioned, the first defendant was indebted to the plaintiff for principal and interest in respect of loans made by her to him. The evidence shows advances by the plaintiff to the first defendant at various times up to March 2001. Debt recovery proceedings were instituted by the plaintiff against the first defendant in the District Court on 20 July 2001. A defence was filed on 19 April 2002. An arbitration took place during 2003 and the proceedings were heard at various times between June and November 2004. Judgment in the sum of $138,706 was given in favour of the plaintiff and against the first defendant on 7 March 2005. 6 It is thus clear that, as a matter of simple chronology, the debt recovery proceedings were on foot at the time of each of the transactions to which the present claims relate. The first transaction was undertaken after the filing of a defence in those proceedings. The second transaction occurred either just before or just after the completion of the hearing in the District Court. The third transaction took place while judgment was reserved. 7 I proceed to consider the various elements of s.37A(1). The first thing that must be shown is that there has been an alienation of property. Mr Glascott of counsel, who appeared for the plaintiff, submitted, in respect of the first transaction, that a payment of money amounts to an alienation of property for these purposes. He referred, in that connection, to the following passage in the joint judgment of Gaudron J, McHugh J, Gummow J, Kirby J and Callinan J in Cardile v LED Builders Pty Ltd (1999) 198 CLR 300 at p.388: "[67] Alienation is the transfer of value from one person to another, Ord Forest Pty Ltd v Federal Commissioner of Taxation (1974) 130 CLR 124 at p.142. 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, Australian Trade Commission v Film Funding & Management Pty Ltd (1989) 24 FCR 595 at p.613.

[68] 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 shareholder, Industrial Equity Ltd v Blackburn (1977) 137 CLR 567 at p.572. The alienation of property was made by the company in discharging its indebtedness to the shareholders. Here, LED has to show a reasonably arguable case on legal as well as factual matters. This we think it does with respect to the application of s 37A to the dividends. This is subject to some qualifications as to amount, which we will consider shortly." 8 I am satisfied that the first transaction involved the alienation of property in the sense to which the High Court referred. 9 The second transaction, transfer of a share in a company, unarguably entailed an alienation of property. 10 As to the third transaction, I am not satisfied that a registered business name as such is "property", but I do accept that the goodwill and assets of the relevant business constitute "property", with the result that transfer of the business, as evidenced by the change in the proprietorship of the business name, involved an alienation of property. 11 It is then necessary to deal with the question whether each alienation was made "with intent to defraud creditors". The relevant intent in this case is, of course, that of the first defendant. He has not given evidence. Neither has the second defendant. There has been no appearance by or on behalf of the first or third defendant. The second defendant has appeared in person, assisted by a friend who has acted as interpreter for her. No defendant has sought to adduce any evidence relevant to the matters in issue. 12 The intent of the first defendant at each of the three relevant times, that is, at the times of the transactions, must be gathered from the surrounding circumstances as disclosed by the evidence adduced on behalf of the plaintiff. Resort to those circumstances for that purpose is permissible in a case of this kind: Cannane v J Cannane Pty Ltd (1998) 192 CLR 557 at p.566. It is not necessary to prove the actual content of the relevant person's mind. 13 The circumstances that the three transactions involved no consideration and that the defendants have not given evidence are material to the enquiry. I refer in that connection to the following observations by Austin J in Langdon v Gruber [2001] NSWSC 276: "54 It is not necessary to prove all of the ingredients of the tort of deceit. In Lloyds Bank v Marcan , at 760-1, Cairns LJ said that a dishonest intention must be shown, at any rate where the conveyance is for consideration. 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: Re Trautwein (1944) 14 ABC 61; P T Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515, 523-4; Cannane v J Cannane Pty Ltd (In Liq) (1998) 192 CLR 557, 566. However, the onus of proof of intent to defraud is on the plaintiff: Williams v Lloyd (1934) 50 CLR 341, 372.

55 If the conveyance is voluntary, it is easier to infer a dishonest intention than when it is made for consideration: Freeman v Pope (1870) 5 Ch App 538. And if the defendant chooses not to give evidence, the Court can be bold in drawing inferences along the lines considered in Jones v Dunkel (1959) 101 CLR 298: SS Pharmaceutical Co Ltd v Qantas Airways Ltd [1991] 1 Lloyd's Rep 288, 293.

56 There is Canadian authority for the proposition that, where the parties to the conveyance of property are related and the circumstances are suspicious, there is a presumption that the transfer is voidable: Laurentian Bank of Canada v Glover (Ontario High Court, unreported, 28 July 1998, p 9, citing Koop v Smith (1915) 25 DLR 355 (Supreme Court of Canada)). This probably means no more than that a transferor and transferee being related is a factor relevant to the court's decision on the transferor's intention." 14 The relevant circumstances here, apart from the voluntary nature of the transactions and the absence of evidence from disponor and disponee, are that the disponee was the wife of the disponor, that the debt recovery action was in progress at each relevant time and that, according to search material in evidence, the disponor owns no real property. In those circumstances, and in the absence of any other suggested reason, I am entitled to draw (and do draw) an inference that the intent of the first defendant, in effecting the three alienations, was to put the relevant property beyond the reach of the procedures that the plaintiff had put in train to recover moneys owing by the first defendant to her. She was, at all relevant times, a creditor of the first defendant, as the District Court judgment eventually confirmed. 15 I therefore find that each of the three alienations of property by the first defendant to the second defendant was made with the intent to which s.37A(1) refers, that is, "intent to defraud creditors", with "defraud" here connoting merely "defeat, hinder or delay": Electrical Enterprises Pty Ltd v Rogers (1988) 15 NSWLR 473 at p.497. 16 The final question is whether s.37A(3) operates to displace the operation of s.37A(1). That depends, in the first place, on whether the transferee, being the second defendant, was "a purchaser". That expression is defined by s.7 of the Conveyancing Act as meaning "a purchaser for valuable consideration". The expression, "valuable consideration" is itself defined by the same section in such a way as to exclude merely nominal consideration in money. Logically, there is no valuable consideration if there is no consideration at all, which, on the evidence before me, was the position in relation to each of the three alienations with which these proceedings are concerned. Because the second defendant, as transferee, was thus not "a purchaser", s.37A(3) cannot affect the operation of s.37A(1). 17 My conclusion, therefore, is that the plaintiff has made out an entitlement to relief by reference to s.37A(1) in respect of all three transactions. It remains to consider the form of the relief. 18 The plaintiff seeks, in the first place, declaratory relief in paragraphs 1 to 6 of the amended summons. This relief will be granted as it gives effect to the conclusion I have just stated. 19 There is then a question as to relief dealing with the relevant property. The plaintiff says that a receiver should be appointed, but I do not think that that is appropriate. What is necessary is orders calculated to restore the property to the ownership of the first defendant. Such an order is sought in paragraph 10 with respect to the sum of $147,645.79 and will be made. There should be equivalent orders in respect of the share in the company and the share in the business. 20 The plaintiff further seeks orders giving her an entitlement to the moneys to be restored. I do not consider that to be appropriate. Such an order would entail what amounts to a form of de facto security for or enforcement of the District Court judgment obtained by the plaintiff against the second defendant. The aim of s.37A is to redress depletion of the property of the person who has made the alienation caught by the section. The underlying intent involves restoration of the assets of that person for the benefit of all that person's creditors. It is no part of that design to give any one creditor a secured or preferred position. The relevant objective will be achieved by order 10 in the amended summons and the further order I have outlined, that is, equivalent orders in respect of the share in the company and the share in the business. 21 The position of the plaintiff is, however, deserving of some additional protection, although not to the extent the plaintiff seeks. Mareva orders have been in force for some time. Given the actions of the first defendant that have given rise to these proceedings and the fact that the first defendant has taken no part in them, it is reasonable to infer that the property to be restored to the first defendant will be in jeopardy of dissipation unless some measure is put in place to prevent that. The appropriate course is to make, as against the first defendant, an order of a Mareva kind with respect to the property to be restored by the second defendant to the first defendant. That order should be operative for a limited time only and the first defendant should have liberty to apply. 22 There is a place for the grant of Mareva relief after judgment and in support of a judgment, in appropriate circumstances, with a view to protecting that judgment against possibilities of stultification: see, for example, Babanaft International Company v Bassatne [1990] Ch 13; Commissioner of State Taxation v Mechold Pty Ltd (1995) 95 ATR 69.

[Counsel addressed] 23 I make the orders 1 to 6 in the amended summons. I also make orders 7 to 12 in the document which I now initial and date. 24 The plaintiff's costs of the proceedings will be paid by the defendants.

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