Zahos v Michael [2012] NSWSC 1110 | Case summary

Summary judgment 35UCPR 13.4(1) provides that the Court may dismiss proceedings generally, or in relation to any claim for relief, in three circumstances. These are, if the proceedings are frivolous or vexatious, or if no reasonable cause of action is disclosed, or if the proceedings are an abuse of the process of the court. UCPR 13.4(2) provides that the court may receive evidence on the hearing of an application for an order under subrule (1). 36UCPR 14.28(1) provides that the Court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading, firstly, discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading or, secondly, has a tendency to cause prejudice, embarrassment or delay in the proceedings or, thirdly, is otherwise an abuse of the process of the court. UCPR 14.28(2) provides that the court may receive evidence on the hearing of an application for an order under subrule (1). 37In Commonwealth of Australia v Griffiths [2007] NSWCA 370; (2007) 70 NSWLR 268 Beazley JA (with whom Mason P agreed) said: "11The general principles relating to the summary disposal of proceedings are well-known: see General Steel Industries Inc v Commissioner for Railways (NSW) & Ors [1964] HCA 69; (1964) 112 CLR 125 at 129. If it is demonstrated that there is a real question to be tried, the matter is inappropriate for the entry of summary judgment: Dey v Victorian Railway Commissioners [1949] HCA 1; (1949) 78 CLR 62. The tests stated in the authorities as to whether it is appropriate that a case be disposed of by the entry of summary judgment include statements such as that the matter is "so obviously untenable that it cannot possibly succeed"; "manifestly groundless" or "would involve useless expense": see General Steel Industries at 129. 12The summary disposal of proceedings or part thereof deprives a party of the right to a contested hearing. For that reason it is said that the requirement for establishing that there is no triable issue is demanding: Air Services Australia v Zarb (Court of Appeal, 26 August 1998, unreported). In Webster & Anor v Lampard [1993] HCA 57; (1993) 177 CLR 598, Mason CJ, Deane and Dawson JJ said at 602: '... the issue before the learned Master on the application for summary judgment was not whether [the plaintiffs] would probably succeed in their action against [the defendant]. It was whether the material before the Master demonstrated that that action should not be permitted to go to trial in the ordinary way because it was apparent that it must fail. The power to order summary judgment must be exercised with 'exceptional caution' and 'should never be exercised unless it is clear that there is no real question to be tried.' (Citations omitted)" 38The third defendant relies particularly on the allegation that the amended statement of claim does not disclose a reasonable cause of action and is an abuse of process. 39Counsel for Tass Michael submits that the solicitor for Terry Zahos, Ms Van Wyk-Kiranov, deposed in affidavit evidence and during cross examination before R A Hulme J stated, in effect that in the absence of preliminary discovery the allegation of intent to defraud creditors could not be satisfied. Preliminary discovery was then refused. Counsel for Tass Michael submits that, in the absence of any new facts or evidence deposed to by the plaintiff or his solicitor, the amended statement of claim should be struck out or dismissed. 40At the hearing of this motion, counsel for Tass Michael also relied on senior counsel, Mr Habib's, submissions. Mr Habib represented Poppy Michael. His submissions were to the effect that the claim against Tass Michael is not properly pleaded, discloses no reasonable cause of action and therefore it should be dismissed. The three other defendants supported Tass Michael's application that the case against him be dismissed as it is in their interests that this occur. 41So far as counsel for Tass Michael's submission that there has been no explanation as to why the plaintiff is now in a position to plead a s 37A case against him, Mr Jacobs, counsel for Terry Zahos referred to a letter between their respective solicitors dated 11 May 2012 where Ms Van Wyk-Kiranov provides an explanation for her change in view as to whether Terry Zahos could plead a case against Tass Michael. It is: "The significance of one line of the letter from ITSA dated 19 February 2009 to Lucas Kanakis, one of your Client's previous solicitors, was only appreciated after the hearing before Justice Hulme. That line, tucked away in the letter, in itself one of many documents in the cases against Messrs Michael and Hatzistergos, notes that your Client's wife "has previously advised" that her "brother", Mr Harry Hatzistergos, paid the debt owed to Tom & Anna Zahos." [solicitor's emphasis added] 42Counsel for Terry Zahos submits that this assertion made by an ITSA officer that Poppy Michael's brother Harry paid Tom and Anna's fees is evidence that rebuts Tass Michael's assertion that he paid those fees in accordance with the contractual agreement he had with his wife Poppy. This, according to counsel for Terry Zahos, constitutes sufficient evidence to plead a case of s 37A of the Conveyancing Act against Tass Michael. 43Counsel for Terry Zahos also drew the Court's attention to what he submitted was other evidence supporting allegations against Tass Michael. 44They are, firstly, a letter dated 16 June 2007 where Xenos Lawyers wrote to Tom and Anna's solicitors in the matter of Hatzistergos v Zahos forwarding cheques in the sums of $143,730.23 and $73,443.41, being settlement of "your client's claim against our client". This, Mr Jacobs, asserts is evidence that the moneys were paid by Mr Hatzistergos. 45Secondly Mr Jacobs referred to [8] of Ms Van Wyk-Kiranov's affidavit dated 23 February 2012 where she deposes to a conversation between herself and Terry Zahos in which Mr Zahos said to her the following: "I attended a meeting with the trustee in bankruptcy of Mr Hatzistergos, a Mr Wily and his assistant, Ms Fleur Evans. My counsel also attended. I asked Mr Wily and Ms Evans what the entry of $521,179 on Harry's Notice of Bankruptcy related to. Mr Wily said that as far as he could establish, it related to legal fees that Harry said he had incurred and Tass Michael either paid on his behalf or loan (sic) him money to pay." 46Terry Zahos confirms the contents of this conversation was relayed to him by Ms Wyk-Kirnov (his aff 23/2/2012 at [3]). 47Thirdly, counsel for Terry Zahos referred to a file note in ITSA's documents dated 25 June 2007, where Maryanne (the wife of Terry Zahos) states that: "Harry remitted a chq for the amount claimed. Chq was cleared. Maryanne doesn't know the exact amount." 48Fourthly, counsel for Terry Zahos referred to a handwritten notation from Harry Hatzistergos' bankruptcy proceedings. A listing sheet in the Federal Magistrates Court on 12 June 2007 records: "R prep'd to pay debt & int - needs time for bank chq R Need week - to get cheque costs" 49The notation is significant to the plaintiff because he asserts that this is evidence that Harry was to pay Anna and Tom's costs. 50In a letter dated 19 February 2009, ITSA wrote to Diamond Conway Lawyers in regard to Poppy Michael's bankrupt estate, stating: "Your client had previously advised that her brother 'Harry' had paid this debt just prior to the hearing of the Creditors' Petition against him in Court to avoid the sequestration of his estate. The Official Trustee understands that the debts were jointly owed by your client and her brother 'Harry'." 51Finally, counsel for Terry Zahos relied on a letter dated 20 August 2012 where ITSA wrote to Mr and Mrs Zahos (Ex 1) in relation to the bankrupt estate of Poppy Michael. It stated: "The trustee acknowledges receipt of documentation provided by you in relation to the conduct of the bankrupt and further investigations will be undertaken by the trustee in relation to same. A further report to creditors will be issued in relation to the trustee's investigations in this matter." 52It is my view that the file note of a purported conversation between Terry Zahos' wife with an unknown person in ITSA's office is an unreliable piece of evidence and its worth is negligible. Likewise the notation in Harry's bankruptcy proceedings says only "prepared to pay debt & int - needs time for bank chq". This notation is ambiguous. It does not assist Terry Zahos' case. So far as the recent letter by ITSA in relation to Poppy's estate where the conduct of Poppy Michael is to be investigated and a report to creditors will be issued, while the outcome of the investigation is not yet known, the trustee is of the view that the allegations need to be investigated. 53That leaves evidence of a reported conversation between the solicitor for Terry Zahos and the trustee of Harry Hatzistergos' estate in which the trustee is purported to have said words to the effect that the entry of the sum of $521,179 on Harry's bankruptcy notice related to legal fees that Harry said he had incurred and Tass Michael either paid on his behalf or lent him money to pay and a reference in a letter by ITSA dated 19 February 2009 that Poppy Michael had advised her trustee that Harry had paid the debt to avoid sequestration of his estate.

The fourth defendant's criticism of the pleadings 54Now it is necessary to determine whether the s 37A pleading against Tass Michael is adequate. 55Section 37A of the Conveyancing Act relevantly reads: "37A Voluntary alienation to defraud creditors voidable (1)Save as provided in this section, every alienation of property, made ... with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced. ... (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. 56Counsel for Terry Zahos referred to Patel v Lal [2011] NSWSC 603, where Biscoe AJ stated: [6]Section 37A should receive a liberal construction in effecting its purpose of suppressing fraud. The term "defraud" in s 37A means to delay, hinder or otherwise defraud: Marcolongo v Chen [2011] HCA 3 ; 85 ALJR 380 at [19], [20], [58]. It is unnecessary to show that the debtor wanted creditors to suffer a loss or that the debtor had a purpose of causing loss. It is necessary to show the existence of an intention to hinder, delay or defeat creditors and in that sense to show that accordingly the debtor had acted dishonestly. If the debtor disposes of an asset which would be available to creditors with the intention of prejudicing them by putting it, or its worth, beyond their reach, he is in the ordinary case acting in a fashion not honest in the context of the relationship of debtor and creditor. In cases of voluntary disposition that intention may be inferred: at [32]. A person may have acted dishonestly, Judged by the standards of ordinary, decent people, without appreciating that the act in question was dishonest: at [33]. The party seeking to avoid the disposition bears the onus of proving an intent to defraud. While the existence of the intent may be inferred from the evidence, it is to be found as a fact: at [34]. Sections 37A does not require the intent to defraud to be the sole or predominant intent: at [57]. [7]In Langdon v Gruber [2001] NSWSC 276 at [54]-[57] Austin J said (omitting most citations): 54... 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. However, the onus of proof of intent to defraud is on the plaintiff. 55If the conveyance is voluntary, it is easier to infer a dishonest intention than when it is made for consideration. 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. 56 is a presumption that the transfer is voidable. 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. 57As a matter of construction of the section, the relevant intention is the intention of the transferor, although the intention of the transferee is relevant to the defence in s 37A(3), because a transferee who shares the transferor's intention to defraud creditors cannot be a purchaser in good faith without notice." 57Mr Habib, senior counsel for Poppy Michael referred to Marcolongo v Yu Po Chen [2011] HCA 3, where the High Court at [28] to [34] stated: "The proper mental state for s 37A [28]The particular and specific course taken in the United States with the UFCA [Uniform Fraudulent Conveyance Act] and the UFTA [Uniform Fraudulent Transfer Act] as to the ground of constructive fraud did not represent the English case law upon the Elizabethan Statute as it stood in 1924. That case law is summed up in the passage from Glegg v Bromley set out earlier in these reasons. Consequently, the operation of s 37A of the Conveyancing Act was not qualified by a notion of constructive fraud. However, the reasoning of the Court of Appeal in the present case appears to proceed otherwise. It appears to have been assumed that in order to repel an interpretation of s 37A that would extend its scope to cases of equitable or constructive fraud, it was appropriate to fortify the requirement of an intention to defraud by some notion of dishonesty involving a desire to "cheat" or "swindle" those prejudiced. Hamilton J then was held to have erred in law in not considering that requirement for the operation of s 37 A. [29]In the Court of Appeal, Allsop P (with whom Giles JA agreed) began his analysis with the observation that there was a debate as to "the proper mental state for s 37A" and continued: The cases in the 19th and 20th centuries revealed a tension between those which stated that the fraud required to be proved was "real" or "actual" and those which provided for constructive fraud based upon the consequences of the acts undertaken and impugned. He went on to regard Ex parte Mercer; Re Wise as rejecting the proposition that a finding of intent for the Elizabethan Statute was a conclusion from the necessary effect of what was done, so that on this view "fraud may not involve deceit, but does involve dishonesty", and to treat Freeman v Pope as a decision which looked to the "necessary effect" of a disposition. [30]However, at trial Mrs Marcolongo had shouldered the burden of establishing in all the circumstances that the contract and transfer were made with intent to defraud creditors with the consequence that they were voidable at her instance as a person thereby prejudiced. She did not rely upon any adverse inference based upon the absence of consideration and the alleged natural consequence of the conveyance or transfer as being to defraud creditors. [31]Allsop P went on to identify the "central question", which Hamilton J had not addressed, as being whether Lym "had an actual and real intention" to defraud Mrs Marcolongo, and Young JA spoke of a requirement of "some element of dishonesty". In this court, Lym, in the first of its submissions supporting the decision of the Court of Appeal, treated this as requiring "an actual intent" in the sense of an animus shown by an "awareness" that the transaction would have an effect on the ability of creditors to recover from Lym. [32]However, in response Mrs Marcolongo correctly relies upon a statement by Blanchard and Wilson JJ when considering the comparable New Zealand legislation in Regal Castings Ltd v Lightbody. Their Honours said that it was unnecessary to show that the debtor wanted creditors to suffer a loss or that the debtor had a purpose of causing loss: it was necessary to show the existence of an intention to hinder, delay or defeat creditors and in that sense to show that accordingly the debtor had acted dishonestly. Mrs Marcolongo correctly relies also upon the observation by Russell LJ when considering s 172 of the 1925 Act in Lloyds Bank Ltd v Marcan. His Lordship said: I am not sure what is meant by a perfectly innocent defeat, hindrance or delay. It must be remembered that in every case under this section the debtor has done something which in law he has power and is entitled to do: otherwise it would never reach the section. If he disposes of an asset which would be available to his creditors with the intention of prejudicing them by putting it, or its worth, beyond their reach, he is in the ordinary case acting in a fashion not honest in the context of the relationship of debtor and creditor. And in cases of voluntary disposition that intention may be inferred. ... The intention of Mr Marcan is perfectly plain: the lease to his wife was designed expressly to deprive the bank of the ability to obtain the vacant possession to which the bank plainly attributed value, and to diminish to that extent the strength of the bank's position as creditor. To take that action at that juncture, in my judgment, was, in the context of relationship of debtor and creditor, less than honest: it was sharp practice, and not the less so because he was advised that he had power to grant the lease. It was, in my judgment, a transaction made with intent to defraud the bank within section 172, and would have been within the [Elizabethan Statute]. [33]To that may be added the statement in the joint reasons of the court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd: As a matter of ordinary understanding, and as reflected in the criminal law in Australia, a person may have acted dishonestly, Judged by the standards of ordinary, decent people, without appreciating that the act in question was dishonest by those standards. Further, as early as 1801, Sir William Grant MR stigmatised those who "shut their eyes" against the receipt of unwelcome information. [34]Lym relied upon the references by Brennan CJ and McHugh J in Cannane v J Cannane Pty Ltd (in liq) to "the onus of proving an actual intent". But their Honours were adding the word "actual" as a periphrasis to emphasise that, while the existence of the intent might be inferred from the evidence, it was to be found as a fact. With Gaudron J and Gummow J, Brennan CJ and McHugh J concluded that the facts of Cannane did not support the drawing of such an inference." 58The Fourth Defendant's arguments in relation to the pleadings can be summarised as follows (T40-T48): (1)The amended statement of claim did not properly identify the "legal fees" said to have been incurred by Harry and for which the Fourth Defendant lent him money, or paid on Harry's behalf; (2)The pleadings in relation to the Fourth Defendant not responding to the plaintiff's letter dated 28 February 2012 could no longer be relied upon because the Fourth Defendant has denied the substance of the allegation (that he had lent money to Harry to repay Tom and Anna's debt) in his defence and claimed to have responded by letter. There is therefore no "absence of response" which can be relied upon by the plaintiff to draw inferences; (3)There is no dispute that the money used to pay Tom and Anna originated from the Fourth Defendant's bank account and it does not matter whether Harry or Poppy paid over that money. The plaintiffs have failed to properly plead a basis for their allegation that the Fourth Defendant has not complied with his contractual obligation to Poppy. 59The plaintiff responded that the court could not look at the pleading in isolation and that there was substantial evidence in the case that suggested that Harry had paid the costs. He also noted that the defendants had filed defences to the amended statement of claim. Finally, he submitted that Tass Michael's response to the plaintiff's letter dated 28 February 2012 stated that the issues of the loan to Harry was irrelevant, when in fact it is directly relevant to the issues in this case. There is therefore a dispute and triable issue in relation to the alleged loan to Harry. 60Recently in Szanto v Bainton [2011] NSWSC 985, Ward J discussed the issue of adequacy of pleadings at [129] - [130]: "Lander J in Arthur Young v Tieco International (1995) 182 LSJS 367 at [370] (approved by McDougall J in Ingot Equity Capital Markets v Macquarie Capital Investments [2004] NSWSC 1136 at [46]), said the following in the context of a consideration as to the adequacy of pleadings: 'Whether the material facts and whether sufficient particulars have been pleaded must depend upon the cause of action, the complexities of the case and the whole of the circumstances of the case. None of those matters can be considered in isolation any more than each of the paragraphs of the pleading can be considered in isolation. When the Court considers a pleading it will not consider the pleading with the same degree of scrutiny which the courts are required to give to an Act of Parliament. With the complexities of modern litigation, a pleader can usually point to some deficiency in the opponent's pleadings. One can usually, if one approaches the matter with a critical eye, identify some failing in a pleading. But that is not the approach that in this age ought to be adopted. A court would not sit down in the manner of a nineteenth century pleader seeking to find an error capable of sending a party away to re-plead his claim or defence. Such a technical approach is inconsistent with modern litigation and inconsistent with the court's function which is to try to arrive at a just result. A successful result, if arrived at, after too great an expense may not be considered by even the successful party to be a just result. A court ought to approach a consideration of the adequacy of a pleading seeking to answer the ultimate question; does the pleading give fair notice of the case to be made against the other party at trial, thereby minimising the risk of injustice resulting from surprise.' (my emphasis) The above principles are reflected in the Uniform Civil Procedure Rules (see rr 14.7 and 15.1). Rule 14.8 requires a pleading to be brief as the nature of the case allows. A pleading that is not precise, concise, clear and definite may be struck out (Re Parton; Townsend v Parton (1882) 30 WR 287; Hill v Hart-Davis (1884) 26 Ch D 470)." 61A properly pleaded statement of claim performs the functions of briefly and explicitly stating the material factual allegations which support the claim thereby ensuring the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her: Banque Commerciale SA, En liquidation v Akhil Holdings Ltd (1990) 169 CLR 279; ASIC v Rich [2009] NSWSC 1229 at [158]. Furthermore in a statement of claim, the plaintiff must plead specifically any matter that, if not pleaded specifically, may take the defendant by surprise, meaning that the material facts must be stated in such a way that the defendant can understand the materiality of the facts, that is how they are material to an asserted cause of action: r 14.14(1); ASIC v Rich. 62It is my view that the amended statement of claim allows the defendants to understand the case that is to be brought against them. While inferences should not be pleaded, and paragraphs [37] and [38] are superfluous, the amended statement of claim nevertheless pleads the material factual allegations made by the plaintiff such that the defendants can understand what case they are answering (and indeed have already responded to in their filed defences).

Zahos v Michael

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