Royal v El Ali; In the Matter of the Bankrupt Estate of El Ali

Consideration 41 The issues to be determined by these Reasons for Judgment are all connected. I propose to deal with them together and to address the substance of the matter. 42 The initial claims made by the applicants in this proceeding were confined to the Saracen share transfer and the Voyager Point transfer. Those claims were resolved on an interlocutory basis by the orders made by Yates J in September 2013. The evidence before his Honour established that, after the transfer of the Voyager Point property from Saracen to Mahmoud Zreika, Mahmoud Zreika sold the property to Pronto Properties for $1,700,000. It would appear that the net proceeds of the sale of the Voyager Point property are in the hands of Mahmoud Zreika. 43 The new causes of action sought to be added by the applicants to their Originating Application and Statement of Claim are described at [13] above. I shall put to one side for the moment the proposed challenges to any actions effected by Nathan El Ali to remove and/or replace the trustee of either the OIUT or the SEAFT. There are real difficulties with the case which the applicants seek to make in respect of the actions allegedly taken by Nathan El Ali in this regard. 44 The applicants' case in respect of the balance of the transactions is quite simple: They argue that Nathan El Ali transferred all of the issued capital in Ottoman Investments to Mahmoud El Ali in August 2011 thereby causing ownership and control of Ottoman Investments to pass to Mahmoud El Ali. This transfer took place after Nathan El Ali had caused Ottoman Investments to transfer the Taren Point property to Mahmoud Zreika for $1.00 and after Nathan El Ali had caused Ottoman Investments to transfer Kogarah Unit 2 to Mr Stojanovski for $1.00 on 16 December 2010. It also took place after the Supreme Court had awarded judgment in favour of the Royals against Nathan El Ali and in the shadow of Nathan El Ali's impending bankruptcy. 45 The applicants point to the fact that each of those properties apparently was worth significantly more than the nominal consideration paid for them at the time when each transfer took place. 46 Counsel for Mahmoud El Ali, Mahmoud Zreika, Saracen and Ottoman Investments (the relevant respondents) opposed all of the relief sought by the applicants in their Interim Application. 47 At the heart of those parties' opposition was the proposition that Ottoman Investments did not acquire any of Kogarah Unit 1, Kogarah Unit 2, Kogarah Unit 3 or the Taren Point property in its own right but rather did so as trustee of the OIUT. It was then submitted on behalf of those parties that the sole unit holder in and thus the sole beneficiary of that Unit Trust is and has always been Isaac & Jacob. It was then submitted that Isaac & Jacob holds and has always held all of the issued units in the OIUT in its capacity as the trustee of the SEAFT which is a discretionary trust established under the SEAFT Trust Deed. That being so, so it was submitted, the Court must look to the terms of the SEAFT Trust Deed in order to ascertain whether Nathan El Ali ever had an interest in the property the subject of the SEAFT (viz the units held by Isaac & Jacob in the OIUT) of a kind which constituted divisible property of Nathan El Ali under s 58(1) of the Bankruptcy Act. 48 It was submitted on behalf of the relevant respondents that, whatever interest Nathan El Ali may have had under the SEAFT Trust Deed, he never had any relevant proprietary interest in the property of the SEAFT with the consequence that the transactions affecting that property about which complaint is now made in the present proceeding did not concern the property of Nathan El Ali. 49 The primary submission made on behalf of the relevant respondents was that, prior to his bankruptcy, Nathan El Ali was merely the object of a discretionary trust (viz the SEAFT) and had no interest in the property the subject of that Trust. They also submitted that, in any event, once Nathan El Ali became a bankrupt, he became an Excluded Person within the definition of that expression under the SEAFT Trust Deed. For that reason, he ceased to fall within the class of eligible beneficiaries provided for under that Deed. 50 By way of contrast with the submissions made on behalf of the relevant respondents, the applicants regard the case as a simple one. It is no part of their case to involve themselves in the intricacies of the trust arrangements put in place by Nathan El Ali. For the relevant respondents, however, it is critical to all of their arguments that I accept for present purposes that Ottoman Investments acquired the Kogarah Units and the Taren Point property in its capacity as trustee of the OIUT. 51 In support of that ultimate contention, the relevant respondents tendered in evidence before me a copy of the OIUT Trust Deed and a copy of the SEAFT Trust Deed. They also pointed to the circumstance that, in the case of each of the transfers of Kogarah Unit 2 and the Taren Point property which are now sought to be attacked in the present proceeding, the Chief Commissioner of State Revenue (NSW) had apparently accepted that those transfers were transfers from one trustee to a replacement trustee within the meaning of s 54(3) of the Duties Act. 52 In order for the Chief Commissioner of State Revenue (NSW) to have been satisfied about that matter, the parties to the transfer would need to have submitted to the Chief Commissioner satisfactory evidence (usually in the form of Statutory Declarations) to the effect that the properties had been originally acquired by Ottoman Investments in its capacity as trustee of the OIUT and that the transfers now sought to be stamped were merely transfers upon the appointment of a new trustee. 53 The relevant respondents did not tender in evidence before me the material which had been submitted to the Chief Commissioner of State Revenue (NSW) in order to persuade him to assess the relevant transfers to nominal duty. 54 Nor did they tender banking records, minutes of resolutions and executed Deeds of Retirement and Appointment of New Trustee in order to substantiate their assertions that Ottoman Investments had acquired the relevant properties in its capacity as trustee and that it had been replaced as trustee by Mahmoud Zreika and/or Mr Stojanovski. It was contended on behalf of the relevant respondents that Mahmoud Zreika had replaced Ottoman Investments as the trustee of the OIUT on 21 April 2011, at about the time when the Taren Point property was transferred to Mahmoud Zreika. But, curiously, five months before 21 April 2011, on 16 December 2010, Ottoman Investments had transferred Kogarah Unit 2 to Mr Stojanovski, also, so it seems, as a consequence of his having replaced Ottoman Investments as the trustee of the OIUT or perhaps as a consequence of his being appointed as an additional trustee of that Trust. Yet, it was only Ottoman Investments which purported to appoint Mahmoud Zreika as trustee of the OIUT in April 2011. The alleged appointments of two new trustees were not the subject of any direct evidence from any of the respondents and no primary documentary evidence as to what occurred was produced at the hearing before me. All of the difficulties which I have outlined above remained unexplained at the conclusion of the hearing. For the reasons explained above, I am not satisfied that Ottoman Investments ever ceased to be a trustee of the OIUT nor am I satisfied that either Mahmoud Zreika or Mr Stojanovski was ever appointed a trustee of that Trust. After all, these matters were easily capable of proof. Furthermore, none of the respondents gave evidence which addressed this matter directly. 55 In reality, the only evidence tendered by the respondents which was directed to the question of whether Ottoman Investments had acquired Kogarah Unit 2 and the Taren Point property as trustee of the OIUT was a copy of the OIUT Trust Deed, a copy of the SEAFT Trust Deed and, in some cases, the relevant transfers. Upon the basis of that material alone, I was asked to infer that the properties had been acquired by Ottoman Investments as trustee. 56 No explanation was offered by the relevant respondents as to why more cogent proof and comprehensive evidence was not brought forward by them directed to this critical matter. 57 In light of the state of the evidence at present, I am satisfied that the applicants have established a prima facie case in respect of the challenges which they seek to make to the transfers of Kogarah Unit 2 and the Taren Point property for nominal value. 58 As an independent matter, and in light of the state of the evidence, I am also satisfied that the applicants have established a prima facie case or a serious question to be tried in respect of the transfer of 100 shares in Ottoman Investments from Nathan El Ali to Mahmoud El Ali in August 2011. 59 The applicants relied upon r 7.35(4)(b)(ii) and r 7.35 of the Federal Court Rules 2011 (FCR). They then submitted that they had a good arguable case on an accrued or prospective cause of action justiciable in this Court within the meaning of r 7.35(1)(b)(i) FCR. They relied upon the following statements made by Edmonds J in Curtis v NID Pty Limited [2010] FCA 1072 at [6]: … The threshold is a very low one: in Ninemia Maritime Corp v Trave Schiffahrtsgesselschaft mbH und Co KG (The Niedersachsen) [1983] Com LR 234 at 235 (affirmed on appeal: [1983] 1 WLR 1412), Mustill J (as his Lordship then was) said that a good arguable case is one 'which is more than barely capable of serious argument, and yet not necessarily one the judge considers would have better than a fifty per cent chance of success'. This test has since been applied in numerous domestic cases: Errigal Ltd v Equatorial Mining Ltd [2006] NSWSC 953 (White J); Pure Logistics Pty Ltd v Scott [2007] NSWSC 595 (McDougall J); Westpac Banking Corporation v McArthur [2007] NSWSC 1347 (Barrett J). 60 They also relied upon Bhushan Steel Ltd v Severstal Export GmbH [2012] NSWSC 583 at [102] and MG Corrosion Consultants Pty Ltd v Gilmour (2012) 202 FCR 354 at 363-364 [47] per Barker J. 61 The particular rules invoked by the applicants essentially embody the general law concepts applicable to the grant of a Mareva injunction. As I said in Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2012] FCA 746 at [31]-[36]: 31 It is well established that this Court has jurisdiction to grant Freezing Orders in an appropriate case. However, the grant of such orders is an exceptional interlocutory remedy and must be granted only when the circumstances of the case justify such a significant interference in the personal affairs of a citizen. As was said by the New South Wales Court of Appeal in Frigo v Culhaci [1998] NSWCA 88 (BC9803225) at 9-10 in the BC report: Its function is to minimise the possibility of an unscrupulous defendant seeking to render himself or herself "Judgment proof" by taking steps to ensure that no assets within the jurisdiction can be found on the day of judgment: see generally Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 622. However it is a drastic remedy which should not be granted lightly. We agree with the comment in Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 3rd ed s [2188] that: "It is obvious that by obtaining a Mareva injunction even an innocent plaintiff can wreak havoc with the defendant's business, and an unscrupulous plaintiff can ruin his opponent ...." A mareva injunction is an interlocutory order which, if granted, imposes a severe restriction upon a defendant's right to deal with his or her assets. It is granted at the suit of a plaintiff whose status as a creditor is in dispute and who need not be a secured creditor. Its purpose is to preserve the status quo, not to change it in favour of the plaintiff. The function of the order is not to "provide a plaintiff with security in advance for a judgment that he hopes to obtain and that he fears might not be satisfied; nor is it to improve the position of the plaintiff in the event of the defendant's insolvency." (Abella v Anderson (1987) 12 Qd R 1 at 2-3 per McPherson J) 32 In Frigo, the Court went on to observe that the point of the exercise is not to create additional rights in favour of a putative judgment creditor, but rather to enable a court to protect its process from abuse in relation to the enforcement of its orders. A Mareva injunction is not a species of anticipatory execution nor does it provide a form of security for any judgment which may ultimately be awarded. 33 In New South Wales, the leading case in which the principles upon which this extraordinary remedy will be granted were explained, is Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319. In that case, Gleeson CJ (when he was Chief Justice of New South Wales) at 321-322 said: The remedy is discretionary, but it has been held that, in addition to any other considerations that may be relevant in the circumstances of a particular case, as a general rule a plaintiff will need to establish, first, a prima facie cause of action against the defendant, and secondly, a danger that, by reason of the defendant's absconding, or of assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with in some fashion, the plaintiff, if he succeeds, will not be able to have his judgment satisfied. 34 At 323, the Chief Justice went on to explain what was meant by the element requiring a risk to the assets. In that passage, his Honour referred to a number of cases where different expressions such as "a 'real risk'", "a 'risk demonstrated by solid evidence'" and "a real cause to apprehend" were used to describe the necessary degree of risk. The phrases chosen by the Chief Justice suggest that the risk must be palpable and demonstrated by evidence, not reside, only as a suspicion, in the mind of an overly anxious plaintiff. 35 In Frigo, the Court of Appeal looked at a number of aspects of what had occurred in the District Court of New South Wales when a judge of that Court had granted a Mareva injunction in circumstances which the Court of Appeal ultimately held did not justify the grant of such relief. In Frigo, there was a suggestion that, from the mere fact that a parcel of real property had been put on the market, the Court should infer that the defendant was moving to dispose of his assets in order to render himself judgment proof. In dealing with that point, the Court said the following: A plaintiff must establish, by evidence and not assertion, that there is a real danger that, by reason of the defendant absconding or removing assets out of the jurisdiction or disposing of assets within the jurisdiction, the plaintiff will not be able to have the judgment satisfied if successful in the proceedings. There has been much debate as to the precise degree of risk which must be shown: see generally Patterson. What is clear is that mere assertions that the defendant is likely to put assets beyond the plaintiffs reach will not be enough: Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH & Co KG [1984] 1 All ER 398; Patterson. The evidence relied upon at the contested hearing fell far short. The admissions in the "without prejudice" correspondence should have been ignored. The sale of an encumbered home unit at a figure above market value does not, standing alone, imply disposal of assets in order to defeat a prospective judgment, even where the purchaser is a close relative. Even if, which is doubtful, the appellant's suspension of work in the building contract could have been regarded as evidence of financial difficulties, it was not argued below that it had such effect. More importantly, that alone is not enough. A mareva injunction is not designed to stop a person from sliding into insolvency. 36 Another element in Frigo which attracted strong criticism from the Court of Appeal was the form of orders which had been sought by the plaintiff and granted by the District Court Judge. The orders did not recognise the long-held view that Mareva orders should be expressed by reference to the amounts claimed in the substantive proceedings and should allow a person affected by them to keep specified amounts in order to meet reasonable expenses, both for living purposes and in order to enable him to defend the proceedings. It is not appropriate, and never has been appropriate, for blanket orders restricting the disposition of assets to be made under these principles. The constraints on the litigant's freedom to deal with his assets imposed by such orders must not exceed those which are reasonably necessary to protect the applicant's legitimate claims. 62 I have already concluded that the applicants have established a prima facie case or serious question to be tried in respect of the transactions which they now seek to attack. 63 The many transactions which I have catalogued at [18]-[40] above indicate a willingness on the part of Nathan El Ali and his associates to take steps to put valuable assets beyond the reach of Nathan El Ali's bankruptcy trustee. There is more than enough evidence to demonstrate that, if left unrestrained, Nathan El Ali, Ottoman Investments, Mahmoud Zreika and Mr Stojanovski might take further steps to place those assets beyond the reach of Nathan El Ali's bankruptcy trustee. 64 For these reasons, I am satisfied that the applicants should have leave to join Ottoman Investments and Mr Stojanovski as sixth and seventh respondents respectively and that, in addition, they should have leave to amend their Originating Application and Statement of Claim in accordance with the proposed Amended Originating Application and Amended Statement of Claim attached to their Interim Application. 65 This leaves the question of whether the balance of convenience and justice favours the grant of freezing orders along the lines of those sought by the applicants in their Interim Application. 66 The relevant respondents oppose the grant of any additional injunctive relief or freezing orders upon the basis that the applicants have failed to demonstrate a prima facie case or a serious question to be tried and also upon the basis that the applicants have failed to demonstrate a threat to the assets sought to be protected by the freezing orders (viz the shares in Ottoman Investments, Kogarah Unit 2 and the Taren Point property). They also oppose the grant of such relief on discretionary grounds, mainly to do with delay. 67 I am satisfied that the evidence establishes a sufficient threat to the relevant assets. In addition, I do not think that the applicants have been guilty of delay. They appear generally to have moved as quickly as was reasonably possible having regard to their state of knowledge at various points in time. 68 In the circumstances, I am satisfied that I should grant freezing orders broadly along the lines of those sought by the applicants. The amount to be protected should be the larger amount now sought by them. As a corollary of that fact, the undertaking as to damages which I will require will need to be given by all three applicants. 69 I propose to direct the applicants to bring in Short Minutes of Order giving effect to these Reasons for Judgment. In the meantime, I will enquire of the relevant respondents and of the legal representative of Mr Stojanovski as to whether the undertakings currently in place will be continued until I have finalised the form of orders to be made consequent upon delivery of these Reasons for Judgment. In the event that those undertakings are not continued, I will consider making interlocutory injunctions in the terms of those undertakings pending finalisation of appropriate orders. I certify that the preceding sixty-nine (69) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster.

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