Super Vision Resources Ltd BVI Registered No 1810534 v AC Holdings Co Pty Ltd

339 Lo Pilato (Trustee) v Kamy Saeedi Lawyers Pty Ltd Re Adzic (Bankrupt) (2017) 249 FCR 69; [2017] FCA 34 Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 30 Nguyen v Corbett [2017] NSWSC 1689 PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515 at 522; 107 ALR 199 Re Hyams; Official Receiver v Hyams (1971) 19 FCR 232 Re Kelly; ex parte Young (1932) 4 ABC 258 Rolle v Ryall (1749) 26 ER 107; 1 Atk 165 Ross v Vaughan [2016] NSWCA 188 Silvera v Savic (1999) 46 NSWLR 124; [1999] NSWSC 83 Taylor v Coenen (1876) 1 Ch D 636 The English and Scottish Mercantile Investment Co Ltd v Brunton [1892] 2 QB 700 Wentworth v Rogers [2004] NSWCA 340 Texts Cited: Halsbury's Laws of England (1st ed, London: Butterworth, 1911) May and Worthington, A treatise on the statutes of Elizabeth against fraudulent conveyances (2nd ed, London: Stevens and Haynes, 1887) Category: Principal judgment Parties: Super Vision Resources Ltd BVI Registered No 1810534 (Appellant) AC Holdings Co Pty Ltd (First Respondent) Qiao Wang (Second Respondent) Lawrence Xu (Third Respondent) Representation: Counsel: A Leopold SC with J P Knackstredt (Appellant) D Pritchard SC with B M Zipser (First and Second Respondents)

Solicitors: Ashurst Australia (Appellant) Zhang Shijing Lawyers (First and Second Respondents) File Number(s): 2020/57328 Publication restriction: Nil Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Citation: [2020] NSWSC 65 Date of Decision: 14 February 2020 Before: Stevenson J File Number(s): 2019/76024

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

HEADNOTE [This headnote is not to be read as part of the judgment] Mr Lawrence Xu and Ms Qiao Wang were close business associates involved in a property development project in Hurstville undertaken by a company, Hua Cheng International Holdings Group Ltd (Hua Cheng), of which Mr Xu was the sole shareholder and director. Ms Wang was the sole shareholder and director of the company with responsibility for the construction works. From time to time she provided funds (typically sourced from other family members in China) to assist the development project, described as loans to Mr Xu. In July 2014 the appellant, Super Vision, made a loan of $52 million to Hua Cheng, which Mr Xu guaranteed. The loan facility was not repaid, and in December 2017 Super Vision commenced recovery proceedings against Mr Xu as guarantor for in excess of $28 million. In July 2018, the proceedings were fixed for hearing in early 2019. At that point in time, Mr Xu's only assets in Australia of any significant value were two properties at Milsons Point and Sandringham. The first respondent, ACH, was incorporated on 29 May 2018, with Ms Wang as the sole shareholder and director. By contracts for sale dated 31 August 2018, Mr Xu agreed to sell his two properties to ACH for a sum of $8.8 million (a sum now agreed to be $1.1 million below their market value at the relevant time). ACH borrowed $7.21 million to fund the purchases, described as 70% of the lender's valuation. The balance of the purchase price and additional expenses involved in the transaction, including stamp duty and borrowing fees, were treated as deposits already paid and set off against the debt owing by Mr Xu to Ms Wang. On settlement none of the purchase money was paid to Mr Xu. $400,000 was paid to a creditor of a company owned and controlled by Ms Wang and over $1 million was paid to Mr Xu's father. Super Vision commenced proceedings to avoid the transfers under s 37A of the Conveyancing Act 1919 (NSW), contending that the transfers had been made by Mr Xu with intent to defraud his creditors, that Super Vision was prejudiced by them, and that ACH had notice of Mr Xu's fraudulent intention. The primary judge found that Mr Xu had intended to defraud his creditors on the basis that Mr Xu's failure to respond to a notice to admit facts served by Super Vision was a formal admission binding on ACH and Ms Wang. However, his Honour held that Super Vision had not been prejudiced by the transfers. In so concluding his Honour assumed, contrary to the facts, that each of NAB and ANZ had security over both properties so that Ms Wang, who had a registered mortgage over the Milsons Point property which his Honour held secured a debt of $5 million, could have compelled the banks to marshal their securities. It followed, on his Honour's reasoning, that both of the properties were fully encumbered and Super Vision was not prejudiced by their alienation. His Honour also found that ACH (through Ms Wang) did not have notice of Mr Xu's intent to defraud his creditors. Super Vision appealed. The principal issues on appeal were:

Judgment

1. BASTEN JA: I agree with Meagher JA.
2. MEAGHER JA: This appeal is concerned with the application of Conveyancing Act 1919 (NSW), s 37A, the relatively modern equivalent of the Elizabethan statute enacted in 1571 for the protection of creditors against fraudulent conveyances and dispositions of property (13 Eliz I c 5). That statute provided that any conveyance of property was void if made with intent to defeat, hinder or delay creditors. The operation of the statute was subject to a proviso that nothing therein contained should extend to any estate or interest conveyed on good consideration and bona fide to any person not having at the time of conveyance "any manner of notice or knowledge" of such fraud.
3. Section 37A, enacted in 1930, follows the text of the Law of Property Act 1925 (UK), s 172, which ultimately replaced the Elizabethan statute in the UK. It 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.
4. Like s 172, which was said not to alter the law established by decisions under 13 Eliz I c 5 (Re Kelly; ex parte Young (1932) 4 ABC 258 at 261), s 37A reproduces "the substance of the Elizabethan statute": PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515 at 522; 107 ALR 199 at 205. The legislative history of the UK successors to the Elizabethan statute, considered in Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 30 at [13]-[20], demonstrates that they were intended to "re-express", but not to "alter", the latter. Thus, "the term 'defraud' was designed to reproduce the meaning of the expression 'delay, hinder or defraud' in the Elizabethan Statute. That statute was understood as if it read 'delay, hinder or [otherwise] defraud'": Marcolongo at [19].
5. The primary judge (Stevenson J) held that the transfers of the relevant properties were made with "intent to defraud creditors", but that the principal unsecured creditor was not a person "thereby prejudiced" so as to be entitled to avoid them. His Honour was also satisfied that the purchaser of the two properties acted in good faith, not having notice of that "intent to defraud": Super Vision Resources Ltd v AC Holdings Co Pty Ltd [2020] NSWSC 65. Each of these conclusions is challenged. In relation to the third, there is no longer a question as to whether "notice" includes constructive or imputed notice.

The parties and the challenged transactions

1. In July 2014 the appellant (SV) as financier entered into a HKD$ Loan Agreement with Hua Cheng International Holdings Group Ltd (Hua Cheng) to fund a mixed residential and commercial strata building development undertaken by the latter in Hurstville. The third respondent (Mr Xu), the sole shareholder and director of Hua Cheng, guaranteed the repayment of that loan, which was drawn down in three tranches totalling A$52.08 million. Responsibility for the construction works was undertaken by DJ Royal Plaza Constructions Pty Ltd (DJ Royal). From July 2007 until 3 June 2017, the second respondent (Ms Wang) was the sole shareholder and director of that company, which she described as having entered into "an agreement with a subcontractor who... acted as project manager and arranged for completion of various construction works for the development" (Judgment [122]). The development was completed in late 2016. On 14 January 2017, the facility - principal, interest and fees - fell due for repayment. As at 21 April 2017, an amount of HKD 194.83 million (then approximately A$35.4 million) remained due and unpaid. On that day, SV appointed a receiver and manager to Hua Cheng. On 1 December 2017 SV commenced recovery proceedings against Mr Xu as guarantor. In July 2018 those proceedings were fixed for hearing in March 2019. In October 2018, Mr Xu's solicitors filed a notice of ceasing to act. Unbeknownst to SV at that time, the challenged transactions had been completed on 17 September 2018.
2. The primary judge described the undoubtedly close business relationship between Ms Wang and Mr Xu as "complex" and as having "unusual aspects" to which it will be necessary to return. At all relevant times Mr Xu's only real property assets in Australia were residential dwellings in Milsons Point and Sandringham, suburbs of Sydney. In mid-2018, each of those properties was subject to registered mortgages - the Milsons Point property to the National Australia Bank as first mortgagee and Ms Wang as second mortgagee, and the Sandringham property to the Australia and New Zealand Banking Group as first mortgagee and a Mr Song as second mortgagee.
3. On 29 May 2018, the first respondent (ACH) was incorporated, with Ms Wang the sole shareholder and director. By contracts for sale dated 31 August 2018, Mr Xu agreed to sell the Milsons Point and Sandringham properties to ACH, the former for $3.9 million and the latter for $4.9 million. The purchases were funded by a secured loan of $7.21 million, being 70% of the lender's valuation of the properties. The lender was Golden J Wealth Pty Ltd (Golden Wealth). Ms Wang described the balance of the purchase price ($1.59 million) as having been "deducted from the debt that Lawrence Xu owed me". In fact, the amount deducted from the total purchase price ($8.8 million) was $2.34 million, which was treated as the sum of deposits paid by ACH. The benefit of a set-off in that amount allowed ACH to pay from the gross amount of the loan ($7,210,000) the first instalment of prepaid interest and loan application fee, the balance of the purchase price, its legal costs and stamp duty on each of the transfers (totalling $7,179,812) leaving, after other small allowances, a balance of $16,551 which was paid to Ms Wang. On settlement, each of the four registered mortgages was discharged. There was no payment to Ms Wang beyond the $16,551 and the set-off, and no evidence of any monies being paid to Mr Song. Out of the proceeds of sale, $400,000 was paid to Aojia Investment Pty Ltd (Aojia), which was not a creditor of Mr Xu or Ms Wang but was a creditor of a company owned and controlled by Ms Wang, and $1,135,687 was paid to Mr Xu's father, Mr Buyuan Xu. There is a question as to whether that payment was made to him as a creditor of Mr Xu.

The issues in the appeal

1. There are three questions in the appeal. The first is whether the primary judge erred in holding that Mr Xu sold and transferred the properties with intent to defraud his creditors (Judgment [299]). His Honour made this finding by reference to formal admissions made by Mr Xu. Those formal admissions were of facts in two notices to admit facts to which Mr Xu did not respond by serving a notice disputing them. In consequence each of those facts was taken, by Uniform Civil Procedure Rules 2005, r 17.3(2), "to have been admitted by the admitting party in favour of the requesting party only" (at Judgment [294]-[299]). A notice seeking the admission of similar facts by ACH was disputed.
2. By ground 1 of their notice of contention, ACH and Ms Wang challenge that finding. They say that any admission made by Mr Xu was not an admission by, or binding on, ACH or Ms Wang. Accordingly, a finding as to Mr Xu's intent could not be made as against them on the basis of those admissions. They also contend that the admitted facts and Mr Xu's conduct in agreeing to a sale at under market value did not involve an intent to defraud creditors or justify such a finding.
3. The second principal question is whether the primary judge erred in holding that SV was not a person "thereby prejudiced" and accordingly not entitled to set aside the transfers or seek orders achieving that effect (see Silvera v Savic (1999) 46 NSWLR 124; [1999] NSWSC 83 at [72] per Hodgson CJ in Eq). His Honour held that the disposal of the properties was not of assets which would have been available to Mr Xu's unsecured creditors following their sale at market value, with the result that SV was not prejudiced (Judgment [312], [313]).
4. In doing so the primary judge proceeded on the basis that each of NAB and ANZ had security over both properties (Judgment [308]). His Honour then reasoned that as the Milsons Point property was also encumbered by the registered "May 2017 Mortgage" in favour of Ms Wang, under which $5 million plus interest was secured (Judgment [305]), the doctrine of marshalling entitled Ms Wang to compel the banks first to have resort to the property over which each had security but Ms Wang did not, namely Sandringham (Judgment [309]). Assuming that the properties had been sold at their market value (agreed between the parties to be $9.9 million) and that the banks first had recourse to the net proceeds of sale of that property (about $5 million), their combined debts totalling some $4.7 million would have been discharged, leaving Ms Wang's secured debt, in the order of $5.8 million, to be satisfied from the proceeds of sale of the Milsons Point property (about $4.9 million).

The "time of the alienation"

1. Where the alienation is of Real Property Act land and by a transfer under a contract for sale, there is a question, which does not appear to have been answered in the authorities, as to whether the intention of the vendor, and the purchaser's notice of that intention, is to be assessed at the time of contract or of transfer. The text of s 37A(1) and (3) provides that these questions are to be determined "at the time of the alienation" of property sought to be avoided. The language of "alienation", which replaced that of "conveyance or assurance" in the Elizabethan statute, is more naturally understood as referring to the transfer than to the entry into the contract pursuant to which that transfer is to occur.
2. The attraction of the contrary view depends primarily on the fact that a purchaser under an executory contract of sale has an equitable interest in the property the subject of the contract. But such an analysis is awkward. The equitable interest acquired by a purchaser was never held, and hence not alienated, by a vendor with unqualified legal title: DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431 at 463-464 (Aickin J); [1982] HCA 14. (That is not to say that a declaration of trust would not be an "alienation" of the property the subject of the trust.) The equitable interest of the purchaser is, moreover, not fixed: it "reflects the extent to which equitable remedies are available to protect his contractual rights" and "can be viewed as passing to the buyer in stages, as title is made and accepted and as the purchase price is paid in full": see Kern Corp Ltd v Walker Reid Trading Pty Ltd (1987) 163 CLR 164 at 191-192 (Deane J); [1987] HCA 20; and Jerome v Kelly (Inspector of Taxes) [2004] 1 WLR 1409 at [32] (Lord Walker). The accretion of the purchaser's beneficial interest is not readily described as an "alienation" of the property the subject of the contract.
3. On one view, "alienation" is apt to refer to both the contract and subsequent transfer, taken together; in Marcolongo v Chen, the High Court reinstated orders setting aside both a contract of sale and a transfer made pursuant to it, albeit that contract and transfer took place at the same time. There may be a question whether it is strictly necessary to set aside a contract which has been 'spent' by performance when avoiding a transfer made under it. What is, however, tolerably clear is that "the time of the alienation" is not the time of contract alone, and it will suffice for the relevant intention, and notice thereof, to have been present at the time of transfer. A similar view has been taken in relation to the construction of "the time of the transfer" in Bankruptcy Act 1996 (Cth), s 121: Lo Pilato (Trustee) v Kamy Saeedi Lawyers Pty Ltd Re Adzic (Bankrupt) (2017) 249 FCR 69; [2017] FCA 34 at [184]-[185] (Katzmann J); Camm v Linke Nominees Pty Ltd (2010) 190 FCR 193; [2010] FCA 1148 at [40]-[43] (Tracey J).

Did Mr Xu transfer his properties to ACH with intent to defraud creditors? (contention grounds 1 and 2(c))

The effect of formal admissions

1. There is a difficulty with the primary judge's finding as against ACH of an intent by Mr Xu to defraud on the basis of formal admissions made by Mr Xu in favour of SV as plaintiff. In their response to the amended commercial list statement ACH and Ms Wang did not admit that fact, which accordingly had to be proved not only against Mr Xu but also against ACH as purchaser and a necessary party to the proceedings seeking to set aside the contracts and transfers. Likewise, it would not have been sufficient for SV in its case against ACH to rely on the pleaded admission of such a fact by Mr Xu, if the matter remained in issue on the pleadings as between SV and ACH and Ms Wang, as it did.
2. By the terms of UCPR r 17.3(2), the formal admission made by the failure to dispute the notice to admit facts is made only in favour of the requesting party, and then only by the admitting party. It follows that there is no admission as in favour of the requesting party by any other party. UCPR r 17.6 also restricts the effect of that admission to the proceedings in which it is made. UCPR r 17.7 proceeds on the basis that the Court may give judgment on admissions made by a party, whether by pleadings or the application of the rules, but only against that party and in favour of the party entitled to the benefit of the admissions.
3. SV makes two responses to this contention. First, it says that because the notice to admit was in the court book, which in turn was received into evidence without objection, "the admissions were in evidence for all purposes". That does not follow. The tender of the notice to admit does no more than prove the terms of the notice, the efficacy of which depends on the application of the UCPR. SV's second response is that the evidence justified the primary judge's conclusion, not a surprising submission in the light of the respondents' acceptance before the primary judge that his Honour "may well find Mr Xu did have an intention" to defraud. This second submission should be accepted, for the reasons which follow.

The circumstances at the time of the challenged transactions

1. It is necessary to consider the position as was known to Mr Xu at the time the contracts for sale were made and subsequent transfers occurred between late August and mid-September 2018. At that time, Mr Xu's only assets of value were the Milsons Point and Sandringham properties. It is not likely that his shareholdings in Hua Cheng, DBI or Hua Cheng Property Pty Ltd had any significant value. There were two registered mortgages over each property. It should be inferred that Mr Xu was aware of the true position concerning the amounts secured and owing to each of the banks and the identity of the property over which each had security; after all, he was the owner of the properties and the borrower of the funds secured by the mortgages. It should also be inferred that he knew, or confidently believed, that he could obtain the discharge of the second registered mortgage over the Sandringham property in favour of Mr Song without making any payment. Eventually that undated discharge was signed by Cai Wei Xu as Mr Song's attorney. She was the daughter of Mr Xu's younger brother, and was also the witness to Mr Xu's signature on the May 2017 Mortgage.
2. At the time the contracts were exchanged, SV had commenced recovery proceedings under the guarantee. As at December 2017, the amount claimed was HK $161,376,296 (approximately A$28 million). As at 29 May 2018, when ACH was incorporated, Pancific Legal was acting for Mr Xu in those proceedings. On 5 June 2018, Herald Legal commenced to act in their stead. In late 2018, when notices of ceasing to act were filed, the two properties had been sold and Mr Xu had no assets of any value in Australia.

The market value of the two properties

1. The evidence was that on 15 August 2018 both properties were inspected and valued for mortgage purposes by a registered valuer at $10.3 million. Those valuations formed the basis of AIG Capital Mortgages Pty Ltd's (AIG Capital) offer to Ms Wang, dated 28 August 2018, to arrange mortgage finance of $7.21 million, which was described on the first page of the loan offer as being "70% of valuation". For the reasons which follow, it is most likely that by 31 August 2018, the date of the contracts for sale, Mr Xu was aware of those valuations and believed that he was selling the properties to ACH for substantially less than their combined market value.
2. Ms Wang's evidence was that Mr Xu had been offering the properties for sale from at least December 2017. In that context he would have had to form a view as to their market value based in part on information provided by selling agents. More significantly, in July 2018 an application for a loan secured by mortgages over the two properties was made to Prime Capital Securities Pty Ltd (Prime Capital). Ms Wang denied any knowledge of that application (Judgment [253]). The only other person who could have made it was Mr Xu. As a result of doing so, he would have become aware that Prime Capital was prepared to advance $7.9 million to ACH, secured by mortgages over the properties. Significantly for present purposes, that loan approval and offer recorded that the "owner's estimate" of their value was $6,800,000 (Sandringham) and $5,400,000 (Milsons Point). Mr Xu answered that description.
3. At some stage before contracts were exchanged Mr Xu became aware that ACH had secured finance of $7.21 million. Ms Wang's evidence was that the agreement as to the amount of the set-off was made when the combined purchase price ($8.8 million) and gross loan amount ($7.21 million) were known. In her final affidavit she said that the position in relation to the set-off amount was negotiated after the "further expenses associated with the purchase" were also known. Those expenses and the net amount which would be available on settlement were set out in the AIG Capital loan offer, each page of which was signed by Ms Wang. It is more probable than not that Mr Xu was shown or provided with a copy of that loan offer at the time those negotiations were occurring; and understood the basis on which AIG Capital were "only" prepared to advance $7.21 million.

The negotiation of the set-off amount

1. The exchanged contracts did not provide for the payment of any deposit in the case of either property, and required completion within 6 weeks. Curiously, the contracts adopt different editions of the Law Society standard form of contract, for Sandringham the 2017 edition and for Milsons Point the 2005 edition, consistent with their having been prepared at different times and by different solicitors. The latter contract in its typewritten form names Ms Wang as purchaser, suggesting that it may have been prepared before ACH was incorporated and for an earlier proposed transaction. That last speculation is consistent with the date of the NAB Discharge of Mortgage, which although produced at a settlement on 17 September 2018 is dated 25 May 2018.
2. According to Ms Wang's evidence, at the time the purchase prices were negotiated it was also agreed that the $2.34 million set-off would be applied as to $1.59 million in reduction of a deposit for the purchase of the Milsons Point property and as to $750,000 in reduction of a deposit for the purchase of the Sandringham property. The latter was not a property over which Ms Wang had security. A declaration signed by Mr Xu and dated 13 September 2018 recorded that he had "received" the full amount of the total deposit payment of $2.34 million, which had been "deducted from the business" between Ms Wang and him.
3. The negotiations between Ms Wang and Mr Xu, as to the purchase prices and the amount of that set-off, apparently took place between Jolina (or Juliana) Jiang on Ms Wang's behalf and Mr Yang Ming, a solicitor, on behalf of Mr Xu. Ms Jiang worked in Mr Xu's office in Forest Road, Hurstville, doing work for Ms Wang as well as for Mr Xu. Those negotiations must have been concluded by 31 August 2018, the date of each contract. ACH's expenses included the loan application fee ($144,200), lender's legal fees ($11,000), pre-paid interest ($66,091) as well as stamp duty on the acquisition of each property (totalling $497,020) and ACH's legal fees ($3,100).
4. One outcome of the set-off arrangement was that Mr Xu's debt to Ms Wang was reduced by $2.34 million. Another was that ACH was treated as having paid deposits totalling the same amount. Ms Wang also 'agreed' to give a discharge of her registered second mortgage over the Milsons Point property, apparently remaining an unsecured creditor of Mr Xu for the balance of the "business" between them. Thus, as between Mr Xu and Ms Wang it was agreed that in consideration of Mr Xu treating the two deposit amounts as paid by ACH under the contracts for sale, Ms Wang would treat payments in the same amounts as having been made by Mr Xu in reduction of his liability to Ms Wang, and discharge the May 2017 Mortgage. There is no evidence of any express arrangement between Ms Wang and ACH in relation to the set-off.

The payments made on settlement of the contracts

1. The sale and transfer of the two properties resulted in the distribution of the whole of the proceeds of sale of Mr Xu's only substantial assets in Australia. That the market value of those properties at that time was at least $9.9 million was not disputed (Judgment [4], [256], [257]). The contemporaneous valuations obtained by Golden Wealth as lender to ACH suggested their value for mortgage purposes was $10.3 million.
2. On settlement of the Milsons Point property, after 'payment' of the deposit of $1.59 million, the balance due from ACH was $2,313,545. At the direction of Mr Xu, the payments made from that amount included $750,000 to NAB as first mortgagee, $400,000 to Aojia, $1,099,550 to Mr Buyuan Xu, and $43,240 to Pancific Legal, acting for the outgoing second mortgagees of the properties, Mr Song and Ms Wang. If the full amount owing to NAB ($2,319,512) had been paid out of the proceeds of sale of Milsons Point, the payments to Mr Xu's father and Aojia (totalling $1,499,550) could not have been made. Furthermore, assuming that both of the debts in fact secured over that property were paid out of those proceeds of sale, there would have been no funds remaining to make the payments to Mr Xu's father and Aojia. On the settlement of the Sandringham property, after 'payment' of the deposit of $750,000, the balance due was $4,154,923. At the direction of Mr Xu the payments made included $2,542,225 to ANZ as first mortgagee, $1,569,512 to NAB as first mortgagee of Milsons Point, and $36,136 to Mr Buyuan Xu.
3. Aojia was not a creditor, secured or unsecured, of Mr Xu. Ms Wang's evidence was that Aojia was a design company which sued "Oceania Construction Company", a reference to Oceania Industrial Pty Ltd, of which Ms Wang was sole shareholder and director, rather than Oceania Construction Group Pty Ltd, of which Mr Xu was sole shareholder and director. The former was in some way jointly involved with Hua Cheng in a development project in Melbourne. When the project did not proceed Aojia sued for unpaid fees. Mr Xu's declaration of 13 September 2018 that he "personally" had an outstanding debt to Aojia which he "accepted responsibility for" (cf Judgment [284]-[287]) is to be understood in that context. The payment benefitted Ms Wang by discharging a liability owed to Aojia by a company she owned and controlled.

Conclusion

1. By way of summary, from Mr Xu's perspective the significant features of the transaction relevantly included: (1) the purchase price was $1.5 million less than the lender's valuation of the properties for mortgage purposes and $3.4 million less than his estimate of the combined value of the properties; (2) the transaction was undertaken at a time when SV was prosecuting debt recovery proceedings against Mr Xu as guarantor claiming in excess of A$28 million; (3) the purchaser was a newly acquired shelf company owned and controlled by Mr Xu's close business associate, who had a registered second mortgage over one of the properties securing an amount in excess of $5 million; (4) neither contract for sale provided for the payment of any deposit; (5) Mr Xu agreed to a set-off arrangement which ensured that ACH and Ms Wang would not have to pay any money from their own funds to undertake the purchases; (6) the treatment and allocation of the set-off amount as a "deposit" paid, as to part under each contract, and the payments made on settlement in discharge of the bank mortgages, did not have regard to the fact that each bank had security over only one of the properties and that Ms Wang's registered security was over the Milsons Point property; (7) on settlement payments were made to persons or entities having family or commercial associations with Mr Xu or Ms Wang, but not to them as creditors of Mr Xu; and (8) all of the proceeds of sale were to be paid away, leaving no monies or other assets in Australia available to SV or any other unsecured creditors.
2. It was submitted by ACH and Ms Wang that there was no evidence that Mr Xu knew the market value of the properties, and that his agreement to a sale price that was about 11% under market value was not otherwise "inherently suspicious". That submission is answered by the findings I consider should be made, namely that Mr Xu saw and was aware of the loan offer made to Ms Wang and ACH by AIG Capital; and that his estimate of the combined value of the properties exceeded $12 million.
3. It is also submitted that the payment to Mr Buyuan Xu and the benefits conferred on Ms Wang were intended to prefer them as creditors, which intention would not be contrary to s 37A (Re Hyams; Official Receiver v Hyams (1971) 19 FCR 232 at 260-261 per Gibbs J). However, the fact that a transaction has the incidental effect of conferring a preference does not show its object was not to defraud, hinder or delay creditors: In re Fasey [1923] 2 Ch 1 at 14 (Lord Sterndale MR). While part of the $2.34 million "deposit" (see above at [37] and [39]) could perhaps be analysed as a preference to Ms Wang (to the extent that sum exceeded the amount which might have been recovered under her registered second mortgage), that cannot be said of her receipt of the properties at an undervalue or the payment to Aojia. And the evidence does not support the conclusion that the payments to Mr Buyuan Xu were made in repayment of a debt owed by Mr Xu.

Was SV "thereby prejudiced"? (appeal grounds 1 to 7; contention grounds 2(a), (b) and 3)

1. To be entitled to relief under s 37A, the applicant for relief must establish at the final hearing that he or she was "prejudiced" by the alienation sought to be avoided. None of that is controversial in this appeal.
2. For the reasons which follow, SV was "prejudiced" by the alienation of the two properties in accordance with Mr Xu's intent to defeat his creditors, and principally SV.

Were the two properties "fully encumbered to secured creditors"?

1. The primary judge held that as an unsecured creditor of Mr Xu, SV was not prejudiced because there were three secured creditors - the two banks and Ms Wang - altogether owed $10.5 million. Assuming that the market value of the properties was $9.9 million, neither of the properties would have been available to unsecured creditors in the event that the transfers did not proceed. That was because the two banks had security over both properties, whereas Ms Wang had a mortgage security only over the Milsons Point property. It followed, his Honour reasoned, that Ms Wang was entitled to have the banks have resort first to the Sandringham property to satisfy their secured debts (Judgment [308], [309]). His Honour treated their doing so as likely both to satisfy their debts from and exhaust that security, leaving Ms Wang entitled to the proceeds of sale of the Milsons Point property, which were less than the amount of her secured debt.
2. On appeal, and accepting that the primary judge's marshalling analysis was correct, SV says that his Honour's calculation as to the value of the equity remaining in the Sandringham property and available to unsecured creditors was incorrect, and that the amount available would have been about $300,000. The respondents suggests that amount would have been as little as $38,262. The differences are explained by disputes as to the net proceeds that would have been available to the secured creditors ($5 million or $4.9 million) and as to the total amount owed to the banks ($4.7 million or $4.861 million).
3. It is not necessary to resolve these disputes because the more fundamental problem with his Honour's analysis is that its underlying premise - that NAB and ANZ had security over both properties - is not correct. It follows, ANZ having the first mortgage security over the Sandringham property, that after discharge of Mr Song's mortgage the amount available to unsecured creditors would have been in excess of $2.358 million.
4. There are three further matters raised by the arguments on appeal which might affect this analysis, either favourably or unfavourably to SV. First, SV contends that the prejudice to unsecured creditors is greater because the primary judge erred in concluding that Ms Wang was a secured creditor under the May 2017 Mortgage (Judgment [305]). As well as taking issue with that argument, the respondents raise a second matter, contending that Ms Wang was also a secured creditor in relation to the CNY 20 million advanced in 2015 from funds provided by her sister. Whether or not that loan was secured depends on the construction of the July 2015 IOU. That advance, as has already been observed, was made in two tranches, which correspond with the advances recorded in the 2016 deed of loan as having been made almost a year earlier by Mr Xu's father to Hua Cheng and DJ Royal. The third matter is ACH and Ms Wang's submission (made in support of contention grounds 2(a) and (b)) that any prejudice resulting from the distribution of the proceeds of sale, or from the sale of the Milsons Point property at under market value, did not arise by reason of the alienation of the properties. In relation to the former it is said to have arisen from Mr Xu's decision as to what to do with the proceeds; and as to the latter from the fact that the debts secured by mortgages over the Milsons Point property exceeded its market value.

(1) Did the July 2015 IOU confer an enforceable right to security over the properties? (contention ground 3)

1. The primary judge found that in July 2015 Ms Wang borrowed CNY 20 million from her sister, who at Ms Wang's direction paid specified amounts into various bank accounts in China nominated by Mr Xu (Judgment [85], [86]). The funds were said to be required to enable the completion of the Hurstville development. Ms Wang's sister lived in China. That made it necessary for the transfer of money out of China, which was to be achieved by first transferring the money to a bank account or bank accounts of nominated third parties in China. Mr Xu nominated those accounts by providing two lists of bank accounts to which specified amounts should be paid. In the result, amounts were transferred to such accounts in two tranches - CNY 8.5 million on 30 September 2015 and CNY 11.5 million on 8 October 2015 (Judgment [86]-[88]). In the face of that evidence the primary judge was justified in being satisfied that those funds were thereby "lent" by Ms Wang to Mr Xu (Judgment [90], [324], [337]). On their transfer to the nominated accounts the monies were under the control of Mr Xu. The evidence did not permit any finding as to what he did with the funds (see [42] above).
2. The remaining issue is whether there was an agreement that this loan be secured. SV takes issue with the respondent's contention ground 3 that by the terms of the July 2015 IOU Ms Wang had a "specifically enforceable right" to security over the two properties. Whether Ms Wang had such a right is said to be relevant to the question of "prejudice" and the relief to which SV might be entitled.
3. The relevant part of the July 2015 IOU, as translated, read (Judgment [75]): I, Lawrence Xu … In order to maintain working capital for the construction of the Royal Plaza Project in Hurstville, am borrowing CNY 20 million from [Ms Wang] for a period of nine months from the date the loan is made … The loan has a fixed interest rate of 15% and a penalty interest rate of 25% p.a. … The principal and interest shall be paid back upon the maturity of the loan … I own two Australian properties whose respective addresses are [the Sandringham property] and [the Milsons Point property]. I am willing to refer [Ms Wang] to a lawyer to secure the loan with the two properties. This IOU is hereby established to acknowledge the above details. (emphasis added)

(2) Was Ms Wang a secured creditor under the May 2017 Mortgage?

1. The primary judge addressed the making of this loan between Judgment [143] and [240]. It is convenient to start by summarising the position as it emerges from the documentary evidence and his Honour's findings.

(a) The movements of money between 5 and 19 May 2017

1. By April 2017, Hua Cheng was in default under the loan facility. On 24 April, Mr Xu met with representatives of SV's parent company, China Orient Asset Management (International) Holdings Ltd (China Orient), in Hong Kong. It was agreed that Hua Cheng would make a payment of HK$30 million to SV by 9 May 2017. That was roughly equivalent to A$5.15 million. Mr Xu spoke to Ms Wang about her lending all or part of that amount (Judgment [140]-[143]). In late April or early May 2017, Ms Wang agreed to lend A$5 million, with "security" over the two properties (Judgment [147]-[149]). On 7 May 2017, WeChat messages were exchanged referring to the proposed transfer of $5 million to Mr Xu on the following day (Judgment [151]). On the same day, a caveat was lodged on the title of the Milsons Point property on behalf of Ms Wang, describing her as a lender of a sum equivalent to A$5 million. The caveat was endorsed with Mr Xu's consent, he having earlier indicated to Ms Wang that he would "get my lawyer to arrange the security". The caveat referred to a deed of loan dated 1 May 2017. It was accepted that there was no such document. The primary judge concluded in relation to this that Ms Wang understood "no more than that the caveat provided her with some form of security" (Judgment [160]-[169]).
2. The loan was found to have been made as follows. On 5 May 2017, the equivalent of CNY 25.969 million (A$4,997,865) was transferred from a Chinese bank to Ms Wang's Westpac bank account. On 8 May 2017 that amount was transferred to an account styled DJ Royal Investment Account, opened with the Commonwealth Bank on that day, presumably with the involvement of Mr Xu, and according to the evidence without the knowledge of Ms Wang. Ms Wang gave conflicting versions of how that transfer occurred. The first was by the acquisition and delivery of a bank cheque. The second was by means of a telegraphic transfer intended for the DJ Royal cheque account. Ms Wang's evidence was that once that money was transferred into that account, Ms Jiang was to arrange for it to be paid to Mr Xu by the drawing of a cheque (Judgment [178]).
3. On 9 May 2017, a further amount of $1,305,167 was transferred into the DJ Royal Investment Account. The source of those funds is not identified by the primary judge, although on the previous day $1,305,145 was withdrawn from Hua Cheng's cheque account at the same branch of the Commonwealth Bank. From the funds then in that Investment Account, four withdrawals were made, including an amount of $5.7 million which was transferred to an account of Mr Xu in Hong Kong (Judgment [187], [188]). On Ms Wang's case, the loan to Mr Xu was made when the monies became available to Mr Xu in the DJ Royal Investment Account on 8 May 2017. SV disputes that, and also says that what followed involved or included the repayment in full of any loan.

(b) Was a loan of $5 million made by Ms Wang to Mr Xu? (appeal grounds 4 and 5)

1. By grounds of appeal 4 and 5 SV maintains that his Honour erred in finding that a loan was made by the transfers of money to the DJ Royal Investment Account. It points to unsatisfactory aspects of Ms Wang's evidence concerning the making of the loan, respects in which the contemporaneous documents do not accord with her version of the events by which the loan was made, and Ms Wang's later conduct in relation to the enforcement of the mortgage, which is said to call into question that she believed there was a mortgage debt that had not been repaid. It is submitted that these matters justify the conclusion that the primary judge's finding that a $5 million loan was made, and intended by Mr Xu and Ms Wang to be secured by the May 2017 Mortgage, was "glaringly improbable" and "contrary to compelling inferences"; thus satisfying the language of the plurality in Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [29] as to circumstances in which an appellate court might overturn factual findings influenced by assessments of a witness' credibility.
2. The authorities are not entirely uniform on the question of when appellate restraint founded on a trial judge's advantage in assessing credibility should apply. The reasons of the plurality in Fox v Percy refer to findings which "appear to be, or are stated to be, based on credibility findings" (at [28]) or which were "expressly or implicitly... influenced by an opinion concerning the credibility of witnesses" (at [29]). In CSR Ltd v Maddalena [2006] HCA 1; (2006) 80 ALJR 458 at [23], Kirby J (with whom Gleeson CJ agreed) took that decision to have disapproved of the exercise of restraint against the possibility of some "subtle influence of demeanour" in cases where "no express reference was made to such consideration". So, for instance, this Court has reviewed findings resolving a conflict of evidence between witnesses without any "impediment of the kind stated in Fox v Percy" where the finding that one witness' evidence was more "reliable" was, read properly, merely a finding that it better corresponded with "other evidence in the trial": Ross v Vaughan [2016] NSWCA 188 at [41]-[42] (Simpson JA, Beazley P agreeing).
3. However, just how readily it follows from the absence of express reliance on demeanour or credibility that those considerations "played no part" in a trial judge's findings of fact is not wholly clear: cf Abalos v Australian Postal Commission (1990) 171 CLR 167 at 179 (McHugh J, Mason CJ, Deane, Dawson and Gaudron JJ agreeing); [1990] HCA 47; CSR Ltd v Maddalena at [180] (Callinan and Heydon JJ). At a minimum, implicit or likely reliance will suffice: most recently, in Lee v Lee (2019) 266 CLR 129; [2019] HCA 28 at [55], Bell, Gageler, Nettle and Edelman JJ said that appellate restraint "is as to factual findings which are likely to have been affected by impressions about the credibility and reliability of witnesses formed by the trial judge".

(c) Was the loan of $5 million secured by the mortgage, or repaid on 16 May 2017? (appeal grounds 6 and 7)

1. SV contends by ground 6 that the money lent to Mr Xu on 8 May 2017 was not secured by the May 2017 Mortgage. Two arguments are made. First, it is said that cl 2(1)(a) of the mortgage, which provides that "the Mortgagee agrees to advance to the Mortgagor the sum of 5 million Australian dollars" is not apt to refer to a loan that had already been made, as distinct from one which it had been agreed would be made. Secondly, it is submitted that there was no "advance", in circumstances where Mr Xu had tricked Ms Wang into transferring the money to be advanced into account B when she believed she was transferring the money into account A.
2. The mortgage describes the "Principal Sum" and "Secured Money" as the sum of A$5 million. Clause 2(1)(a) records the mortgagee's agreement to advance that sum to the mortgagor. It is silent as to whether the amount has been paid, and cl 2(1)(b) assumes that it will have been advanced by the Commencement Date, or date of the mortgage. By cl 2(1)(c), the mortgagor "conveys" the Milsons Point property by way of mortgage to secure the payment of the sum advanced. In its terms the mortgage is capable of applying to an advance made before its Commencement Date. In that event there might arise a question as to whether the mortgagee is entitled to interest at the rate provided in the mortgage before that date. However, that question is not raised here. SV's first argument should be rejected. The fact that the amount intended to be advanced was paid into the account nominated by Mr Xu was sufficient to constitute performance of the loan agreement, which required only that payment be made "to the Mortgagor".
3. By ground 7, SV contends that the transfer of $5.442 million by Mr Xu to the DJ Royal cheque account on 16 May 2017 was a payment to Ms Wang in repayment of her loan. That is said to be so because the payment was made into a bank account of a company which she owned and controlled. It does not follow that it was a payment to Ms Wang, especially when regard is had to the other circumstances in which the deposit was made. First, the deposit was not identified as a repayment of Ms Wang's loan, and was not paid into an account of Ms Wang. Secondly, the amount of the deposit ($5.442 million) did not match the loan amount ($4.997 million). Thirdly, the description of the transfer from Mr Xu as "lending" does not mark the transfer as a loan repayment, as distinct from a "lending" made by Mr Xu to DJ Royal or Hua Cheng. Finally, on the following day Mr Xu made five withdrawals from the account which totalled the amount of the transfer, conduct inconsistent with the money being a repayment of Ms Wang's loan.

(3) The cause of the prejudice to SV (contention grounds 2(a) and (b))

1. By contention ground 2(a), ACH and Ms Wang argue that the cause of any prejudice to SV was ultimately Mr Xu's direction to pay the balance of the proceeds of sale to his father and Aojia, and not the alienation of either property. There are three difficulties with this contention. The first is that the distinction between the transfers of the properties to ACH and the transaction of which the transfers were the essential part is artificial and unwarranted. As the analysis at [39] above shows, the sale and transfer of the properties together, in the context of the set-off agreement, enabled the payments to Mr Xu's father and Aojia to be made. The second is that the payment directions were given before settlement. As such they formed part of the means by which the purpose of defeating the unsecured creditors was achieved. Finally, even if Mr Buyuan Xu had not received any part of the proceeds of sale, SV would have been prejudiced in part by the alienation of Sandringham at an undervalue and in part by the set-off of the deposit against the discharge of a mortgage which was not over that property.
2. In support of contention ground 2(b), it is submitted that there could be no prejudice from the sale of Milsons Point, which was fully encumbered to NAB and Ms Wang. This contention ignores the fact that, as is noted at [39] above, the payment of the NAB mortgage from the proceeds of the Sandringham sale, and the set-off arrangement with respect to the deposits, enabled moneys to be paid from the proceeds of the Milsons Point property. The overall result was that moneys which otherwise would have been available from the Sandringham property were not, in part because of the interrelated sale and transfer of the Milsons Point property.

Was ACH a purchaser in good faith not having notice of Mr Xu's intention to defraud creditors? (grounds 8 to 15 of appeal)

1. Two matters as to the operation of the proviso to s 37A are not in dispute. First, although the consideration moving from ACH was less than the market value of the properties, ACH was a "purchaser" within the meaning of s 37A(3). Secondly, the onus is on a person relying on the proviso to prove that they come within its operation (Wentworth v Rogers [2004] NSWCA 340 at [62]-[68]), as was the position under the Elizabethan statute: Marcolongo at [12], citing Glegg v Bromley [1912] 3 KB 474 at 492 (Parker J). Accordingly, it was for ACH to establish both that it lacked "notice" of Mr Xu's fraudulent intent (as to which see [47] above) and that it was a purchaser "in good faith". The focus of the argument in this Court was on whether ACH had made good the first of those propositions. It is not necessary to consider the latter separately.

The meaning of notice in s 37A(3) (appeal grounds 10 and 11)

1. Although in its written submissions the appellant contended for a construction of "notice" in s 37A(3) which included constructive notice, that contention was not pressed in oral argument. Also abandoned was any argument that notice or knowledge of Ms Wang's conveyancing solicitor as to Mr Xu's fraud could in this context be imputed to her. Ultimately, the appellant contended that actual notice included wilful blindness in the sense described by Lord Esher MR in The English and Scottish Mercantile Investment Co Ltd v Brunton [1892] 2 QB 700 at 707-708: The doctrine of constructive notice is wholly equitable; it is not known to the common law. There is an inference of fact known to common lawyers which comes somewhat near to it. When a man has statements made to him, or has knowledge of facts, which do not expressly tell him of something which is against him, and he abstains from making further inquiry because he knows what the result would be - or, as the phrase is, he "wilfully shuts his eyes" - then judges are in the habit of telling juries that they may infer that he did know what was against him... There is no question of constructive notice or constructive knowledge involved in that inference; it is actual - knowledge which is inferred.
2. That is to say no more than that a failure to inquire may justify a finding of knowledge. As a factual matter, that must be right. It is therefore not necessary to decide whether constructive notice is sufficient to deprive a purchaser of the protection of s 37A(3). It may, however, be doubted that it is.
3. Section 164 of the Conveyancing Act 1919 (NSW), on which some reliance was initially placed, restricts the meaning of constructive notice when that doctrine is applicable. As s 164(3) makes clear, the section does not extend the meaning of "notice" to include constructive notice in circumstances where the latter doctrine otherwise has no application. The question remains simply how to construe s 37A(3).
4. The superficially broad words of the proviso to 13 Eliz I c 5, which referred to "any manner of notice or knowledge", were given a restrictive construction by the English authorities. The effect of those authorities was "summed up" in Marcolongo by a passage which stated that it was necessary to show "that the grantee was privy to the intent" of the fraudulent grantor: Marcolongo at [24], quoting Halsbury's Laws of England (1st ed, London: Butterworth, 1911) (emphasis added). In re Fasey; ex parte Trustees [1923] 2 Ch 1, decided shortly before the replacement of the Elizabethan statute by the Law of Property (Amendment) Act 1924 (UK), is illustrative. Lawrence J held, citing In re Johnson; Golden v Gillam (1881) 20 Ch D 389, that in order to set aside a transaction for valuable consideration under the Elizabethan statute it was "essential" for the purchaser to have "concurred in" the vendor's fraud, in the sense that they accepted the conveyance with "full knowledge" of the fraudulent intention. Other decisions referred to transferees being "party or privy to the fraud", to ultimately similar effect: see eg In re Reis; ex parte Clough [1904] 2 KB 769 at 776 (Cozens-Hardy LJ), using language which suggests the possibility of proof by indirect evidence.

The primary judge's reasoning

1. His Honour made the following findings in support of his conclusion that ACH had established that it acquired the properties in good faith, not having notice of Mr Xu's intent to defraud his creditors (Judgment [319]): (1) that Ms Wang negotiated the purchase price without knowing that "as a matter of valuation fact" the agreed price for the properties was less than their actual value; (2) that she was aware that Hua Cheng was in financial difficulty, and that receivers had been appointed by the lender, SV; (3) that she did not agree that she knew Mr Xu might be personally liable for Hua Cheng's debts; (4) that she negotiated the deduction of $2.34 million from the agreed price on account of the much larger amount that she genuinely believed Mr Xu owed her; (5) that Ms Wang believed that she was a substantial creditor of Mr Xu; and (6) that her focus in entering into the transaction "was entirely directed to endeavouring to recover from Mr Xu all or part of what she believed he owed her", that amount including $7.185 million due under the July 2015 IOU.
2. The primary judge made no findings as to Ms Wang's knowledge of how the proceeds of sale of each property were to be paid away or as to whether any part of those proceeds would remain available for Mr Xu's unsecured creditors, principally SV. Nor did his Honour make any finding as to whether Mr Xu had any other substantial assets, real property or otherwise, in Australia.
3. The appellant challenges most of these findings in support of its contention that the primary judge erred in being satisfied that ACH had proved it was a purchaser in good faith not having notice of Mr Xu's intention to defraud his creditors. That makes it necessary to deal with those challenges before addressing the substantial issue raised by ground 8.
4. The finding that Ms Wang negotiated the purchase price for the properties without knowing that the agreed price was less than the market value of the properties (Judgment [325]): There are three respects in which the evidence suggested that Ms Wang was aware at the relevant time that the properties had been valued for lending purposes at $10.3 million. The first emerges from her affidavit evidence. At this point it is to be noted that Ms Wang migrated to Australia in 2009, aged 39, and described herself as having "limited ability to read and speak in English". No doubt for that reason, her affidavits were prepared and her evidence was given with the assistance of an interpreter. In cross-examination she also described herself as "very experienced" in the construction industry in China, having completed a "lot of projects".

Ms Wang's understanding of Mr Xu's financial position and as to the disposition of the sale proceeds

1. There remain to be considered Ms Wang's belief as to Mr Xu's financial position and how the proceeds of sale were to be dealt with. The second of these matters is addressed in [42] above. As to that, Ms Wang was aware before settlement that significant payments were to be made to Mr Xu's father and to Aojia. As is explained in [39] above, she also understood that the payment to Aojia would benefit her by discharging a liability owed by a company she owned and controlled. As to the payments to Mr Xu's father, the evidence does not suggest that the cheques drawn in his favour were payable to him as a creditor of Mr Xu (see [40] and [41] above). Ms Wang's position was that she did not give much attention to the payments on settlement provided "no part of the proceeds was paid to Mr Xu himself" (Judgment [280], [282]). That evidence was by no means satisfactory, leaving open the possibility, indeed the likelihood, that the moneys paid to Mr Buyuan Xu would be at the disposal of Mr Xu, and accordingly for his benefit. Ms Wang gave no evidence of an assurance as to that not being the position; and her past experiences with Mr Xu could provide no confidence that the position was otherwise.
2. The primary judge made no specific findings as to Ms Wang's knowledge of Mr Xu's financial position. Nevertheless two matters were reasonably plain. The first was that from Ms Wang's perspective Mr Xu had been unable to repay liabilities of CNY 20 million incurred in September and October 2015 and of A$5 million incurred in May 2017, notwithstanding repeated and ongoing requests from her that he do so. He was clearly having difficulty paying his debts. Secondly, the only real property assets identified in the evidence as owned by Mr Xu were the Sandringham and Milsons Point properties and a property at Kyle Bay which at some stage in 2015 Mr Xu told Ms Wang was owned by him and his ex-wife. The property ownership evidence showed that last statement was not correct. An available inference from the evidence was that Ms Wang believed that those two properties were his only substantial assets in Australia. In the July 2015 IOU the "two Australian properties" owned by Mr Xu are described as the Sandringham and Milsons Point properties. In relation to the proposed mortgage security for the A$5 million loan, the discussions between Mr Xu and Ms Wang referred only to the Sandringham and Milsons Point properties. Notwithstanding that she engaged in lending transactions with him from mid-2010, and that they worked in the same small office between August 2014 and early 2017, Ms Wang gave no evidence that she believed Mr Xu had other substantial assets from which her debts might have been paid; and his affidavit was that he did not.

Did ACH prove that it had no notice of Mr Xu's intent to defraud?

1. Turning then to the question whether the primary judge erred in finding that ACH had proved that it did not have notice of Mr Xu's intent to defraud creditors, from Ms Wang's perspective (and accordingly the perspective of ACH) the significant features of the challenged transaction were: (1) the properties were being sold at an undervalue, the purchase price being about $1.5 million less than the lender's valuations; (2) the properties were Mr Xu's only substantial assets in Australia; (3) at the time of the transaction Mr Xu's company, Hua Cheng, was in "bankruptcy" and Mr Xu as guarantor was liable for repayment of its debt to SV, which in Australian dollars was claimed to be in the tens of millions; (4) to secure ACH's participation as purchaser, Mr Xu agreed to a "set off" arrangement which meant that Ms Wang and ACH would not be out of pocket, $2.34 million would be deducted from the "business" between her and Mr Wu, and in return her wholly owned company, ACH, would receive value equivalent to $2.34 million by the acknowledged "payment" of the deposits; (5) on settlement all of the proceeds of sale of each property (being the funds provided by the lender) were to be paid away, leaving Mr Xu with no assets available for SV or any other unsecured creditors; (6) the substantial payments from those funds, other than to Mr Xu's banks, were to be made to his father and to Aojia, neither of whom was being paid as a creditor of Mr Xu.
2. Each of these matters either was known to Ms Wang or was likely to be known to her in circumstances where she had given no evidence to the contrary.
3. It was apparent that the effect of the transaction, and its purpose, was to sell Mr Xu's only substantial assets at an undervalue and apply their proceeds of sale for the benefit of Mr Xu and Ms Wang, thereby denying Mr Xu's principal unsecured creditor, SV, recourse to them and the proceeds of their sale. In order to secure Ms Wang's involvement in the sale via ACH, Mr Xu agreed to a "set off" which meant that in addition to purchasing the properties at an undervalue, ACH and Ms Wang would not have to pay any of their own funds to complete the transaction.
4. In my view, in these circumstances the primary judge erred in finding that ACH did not have notice of Mr Xu's intent to defeat his creditors (see [47] and [48] above). It follows that appeal ground 8 is made out. As ACH has not established that it had the benefit of the proviso to s 37A, the transfers of the two properties were voidable at the instance of SV.

Conclusion and remedy

1. The appeal should be allowed, with the result that the appellant is entitled to a declaration that the transfers of the two properties were made by Mr Xu with intent to defraud his creditors, including SV, and that ACH is not entitled to the benefit of s 37A(3).
2. As is recorded in [13] above, the properties have been sold by Golden Wealth exercising its powers of sale. The proceeds of those sales, after satisfaction of its secured debt, are held in a controlled money account. Golden Wealth's interest as registered mortgagee of both properties was acquired without any notice of Mr Xu's intent to defraud creditors and before SV commenced the underlying proceedings to have the transfers declared void. As such the position of the purchasers from Golden Wealth is the same as would have been the position of bona fide purchasers for value from ACH before any steps had been taken against it to set the transfers aside.
3. Where the impugned transfer was for no consideration and the proceeds of sale can be identified in the hands of the transferee, the defrauded creditors, or the transferor's trustee in bankruptcy, are entitled to those proceeds of sale: Brady v Stapleton (1952) 85 CLR 322 at 331-332; [1952] HCA 62, citing In re Mouat; Kingston Cotton Mills v Mouat [1899] 1 Ch 831; and Halfey v Tait [1875] 1 VLR (E) 8 at 12. In either case those funds are available to meet the claims of Mr Xu's unsecured creditors.
4. Here consideration was given for the transfers. As between Mr Xu and ACH the consideration paid by ACH was $6.46 million. In addition, ACH was the beneficiary of the set-off arrangement between Mr Xu and Ms Wang, involving the satisfaction in equal amounts of liabilities owed to Mr Xu by ACH and by Mr Xu to Ms Wang, as well as the discharge of Mr Xu's second mortgage to Ms Wang.
5. The legal right of Mr Xu's unsecured creditors under s 37A (see In re Maddever; Three Towns Banking Company v Maddever (1884) 27 Ch 523 at 531, 532) is to treat the transfers of the two properties as void so as to have recourse to the properties or the proceeds of their sales. The exercise of that right does not require the setting aside of the agreements under which the four mortgages were discharged, which included the set-off arrangement to which ACH was a party. It follows that as between Mr Xu and Ms Wang, she remains an unsecured creditor for the balance of her loans after deduction of the set-off amount. It also follows that ACH does not have any claim against the net proceeds of sale as a creditor of Mr Xu. Those proceeds of sale are net of the liability incurred by ACH to fund the payment of $6.46 million. ACH paid no money away and retains the benefit of the set-off arrangement, which has not been set aside.

Amendments 10 December 2020 - Altered formatting of orders in cover sheet. 14 December 2020 - Removed "made" in [13]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 December 2020