The primary judge's findings and conclusions
158 The primary judge dealt with the evidence relating to the transactions between Ottoman and Mr Stojanovski at PD[65]-[96].
159 The primary judge noted that Mr Nathan El Ali and Mr Stojanovski were business associates who first met some time in 2006. Her Honour also noted that their explanation for the transfer of Unit 2 to Mr Stojanovski was as security for the loan of $1 million to Ottoman to finance completion of the purchase of the Minto property, and the loan was said to have been made on 23 December 2010 (see PD[65]).
160 The primary judge had, by way of background, recorded previously in her reasons that:
(1) The debt proceedings commenced in March 2010.
(2) The contract for the purchase of the Minto property was entered into in July 2010 with completion due to occur on 30 November 2010.
(3) Units 1, 2 and 3 of 4 Hogben Street, Kogarah (Units 1, 2 and 3) were acquired by Ottoman on 23 August 2010.
(4) On 1 October 2010, the Royals had obtained the 2010 Freezing Orders over the assets of Mr Nathan El Ali and Saracen in the debt proceedings. It was not in dispute at trial that, when the 2010 Freezing Orders were made, shares in Ottoman (then held by Mr Nathan El Ali) and the real property owned by Ottoman were covered by those Freezing Orders.
(5) On 19 October 2010, Mr Nathan El Ali transferred the shares in Ottoman to Mr Nazloomian for nominal consideration, purportedly effected as security for outstanding loans from Mr Nazloomian to Mr Nathan El Ali and his companies, including Ottoman, and Mr Nathan El Ali retired as the sole director. That transaction was not impugned in the proceedings because the shares were later transferred back to Mr Nathan El Ali.
(6) On 22 November 2010, Mr Nathan El Ali affirmed an affidavit of assets and liabilities in the debt proceedings. He said that he resigned as a director of Ottoman due to credit defaults which had been recorded against his name which made it difficult for Ottoman to raise finance. He disclosed that Ottoman was the registered proprietor of Units 1, 2 and 3, which he valued at $670,000 each, and Units 1 and 3 (but not Unit 2) were mortgaged, each securing an amount of $545,000. He disclosed the contract to purchase the Minto property for $3.8 million on which a deposit of $38,000 had been paid. He also disclosed the contract to purchase the Taren Point property for $2.025 million which had been entered into on 15 September 2010 with a deposit of $50,625 and a completion date 130 days after the date of the contract.
161 The primary judge accepted that:
(1) Ottoman was served with a notice to complete the purchase of the Minto property on 30 November 2010.
(2) On 3 December 2010, Ottoman's solicitors advised the vendor's solicitors that Ottoman would endeavour to complete the purchase by 15 December 2010.
(3) On 14 December 2010, Mr Nazloomian resigned as a director of Ottoman and Mr Nathan El Ali was re-appointed as the sole director and shareholder of Ottoman. The primary judge accepted that this was because of the financing required for Ottoman to complete the acquisition of the Minto property.
162 At PD[67]-[68], the primary judge recorded that Mr Stojanovski gave evidence that he and Mr Nathan El Ali had a conversation in early December 2010 to the effect that Mr Nathan El Ali told him that he had exchanged contracts on a property at Minto and was struggling to secure funding. Mr Nathan El Ali asked Mr Stojanovski whether he would be interested in "coming in on the purchase". Mr Stojanovski asked how much was needed and what security he would get. He said that he was told $1 million and that he would get security over three commercial properties at Kogarah and a caveat over the Minto property. Mr Stojanovski said that he agreed "so long as [he got] the caveats and security up front", and Mr Nathan El Ali said that he would "draft up a deed". The primary judge recorded that Mr Nathan El Ali gave no evidence-in-chief about this but did confirm in cross-examination that he had discussions with Mr Stojanovski about the possibility that he might advance funds towards the purchase of the Minto property. The primary judge also recorded Mr Stojanovski's evidence that at some time later, around mid-December 2010, Mr Nathan El Ali told him that he would make him the trustee of the Ottoman Investments Unit Trust and transfer Unit 2 to him as the new trustee, which would give him control of the asset, and Mr Stojanovski said "that's fine. As long as it is in my name". Again, the primary judge recorded that Mr Nathan El Ali gave no evidence-in-chief about this.
163 The following findings from PD[68]-[76] are based on documents in evidence to which the Court was taken in argument on the appeal:
(1) By 15 December 2010, Mr Nathan El Ali instructed his solicitors to prepare, among other documents: a deed of appointment of new trustee appointing Mr Stojanovski as the new trustee of the Ottoman Investments Unit Trust, three "consented caveats" over Kogarah Units 1, 2 and 3 showing the interests of Mr Stojanovski and his brother as purchaser of Unit 2 from Ottoman; and a "consented caveat" over the Minto property with the interest of Mr Stojanovski and his brother as lender.
(2) On 15 December 2010, the notice to complete the purchase of the Minto property was extended to 17 December 2010.
(3) On 15 December 2010, Mr Nathan El Ali and Mr Stojanovski signed a transfer of Unit 2 from Ottoman to Mr Stojanovski for a consideration of $1, caveats over Units 1 and 3 which showed the interest of Mr Stojanovski as purchaser of those Units and a caveat over the Minto property. The primary judge records Mr Stojanovski's evidence that he did not obtain legal advice before signing the documents.
(4) A deed of appointment, under which Ottoman purported to appoint Mr Stojanovski as trustee of the Ottoman Investments Unit Trust, was signed by Mr Nathan El Ali (on behalf of Ottoman) and Mr Stojanovski on the same day (the 15 December 2010 Deed of Appointment). Blanks in the document drafted by Mr Nathan El Ali's lawyers were completed. The primary judge explained that, significantly, the 15 December 2010 Deed of Appointment recorded that the appointment of the new trustee took place under cl 30 of the trust deed for the Ottoman Investments Unit Trust, but in fact Ottoman did not have that power under that clause, the unitholder (Isaac & Jacob) did.
(5) On 16 December 2010, Mr Nathan El Ali submitted the transfer form for Unit 2 to the OSR for stamping. The transfer was stamped with $50 duty pursuant to s 54(3) of the Duties Act as a transfer made in consequence of the appointment of a new trustee. Mr Nathan El Ali agreed in cross-examination that he had pointed out cl 27 of the trust deed to the OSR but not clause 30. At PD[74], the primary judge noted that cl 27 of the trust deed for the Ottoman Investments Unit Trust provided that the trustee is "both absolutely and irrevocable (sic) prohibited from being a unitholder or otherwise directly or indirectly benefitting under the deed" save for its rights to reimbursement and remuneration. The primary judge inferred that this clause satisfied the officer at the OSR that the transfer of Unit 2 from Ottoman to Mr Stojanovski should be stamped at $50 having regard to the requirements of s 54(3) of the Duties Act that:
(b) none of the trustees of the trust after appointment of a new trustee is or can become a beneficiary of the trust; and
(c) the transfer is not part of a scheme for conferring an interest, in relation to the trust property, on a new trustee or any other person, whether as a beneficiary or otherwise, to the detriment of the beneficial interest or potential beneficial interest of any person.
(6) Having been stamped, the transfer of Unit 2 was registered by the Land Titles Office on 21 December 2010.
(7) Ottoman did not complete the purchase of the Minto property on 17 December 2010 and on that day the contract was terminated by the vendor. The primary judge noted Mr Nathan El Ali's evidence that negotiations continued after that date.
164 It was accepted that, on or about 17 December 2010, Ottoman (with Mr Nathan El Ali acting as director) and Mr Stojanovski entered into a deed of agreement even though that document was expressed to be dated 13 December 2010. Mr Nathan El Ali had prepared the deed of agreement. The primary judge noted Mr Stojanovski's submission that the deed of agreement contained the agreement for the provision of a loan of $1 million and for Unit 2 to be assigned to him as security holder and that entitled him to hold the property until he had been repaid.
165 The primary judge's reasons at PD[78]-[80] address the following features of the deed of agreement:
(1) The deed of agreement recites that: Ottoman was the nominated purchaser of the Minto property. Mr Nathan El Ali was Ottoman's sole director. Mr Stojanovski was "an established investor with strong building experience" and he was invited to participate in "the project" by providing a cash investment of $1 million to complete the proposed purchase of the Minto property. Mr Stojanovski accepted the offer to participate and the parties agreed "to form an affiliation in accordance with the terms of the deed".
(2) It records that: The purchase price of the Minto property was $3.8 million and settlement was to have been effected by 30 November 2010. A development application to subdivide the property was expected to be finalised by the end of January 2010 (presumably meant to be 2011). A market valuation completed on 2 December 2010 reflected an "as is" value of $4.13 million and a value of $4.9 million with approval for a three lot subdivision.
(3) It records that: The solicitors for the vendor had terminated the contract for sale of the Minto property on 17 December 2010.
(4) It also records that funding to complete the project was expected to be generated as to $3 million from Mr Nathan El Ali "and associates" secured by a first registered mortgage over the Minto property and Mr Stojanovski "and associates" would provide a "direct Cash investment" of $1 million "secured in (sic) way of transfer of ownership" of Unit 2 and caveats over Units 1 and 3 and a "consented Caveat" over the Minto property "in the event the purchase proceed (sic) to settlement".
(5) Under the heading "Security" it was stated that Mr Nathan El Ali had agreed to supply Mr Stojanovski with a "written consent" for a caveat over the Minto property, "transfer ownership" of Unit 2, supply caveats over Units 1 and 3 and an executed contract for the sale of Unit 2. It was further stated that:
Any net sale proceeds to the value of $1,000,000 of the [Kogarah Units] are to be disbursed to or as directed by [Mr Stojanovski]. Any amount disbursed would be [utilised] to reduce [the] value of [the] initial [investment] by [Mr Stojanovski] and associates but it would not reflect or effect (sic) the agreed profit share of 25% of net profit before tax or 25% of net amount received as a result of negotiations with the vendor.
(6) Further terms were that:
(a) Mr Stojanovski would lodge a withdrawal of caveat to effect a sale of Units 1 or 3 "subject to the sale being in line with market expectation of greater than $700,000 for each and every floor" Mr Stojanovski would execute a transfer of Unit 2 subject to the same qualification.
(b) Mr Nathan El Ali agreed "to be held personally liable" for the initial investment by Mr Stojanovski and associates with Ottoman.
(c) Should Mr Stojanovski elect to recall the loan of $1 million on 1 May 2011 or later, Mr Nathan El Ali must within 30 days provide Mr Stojanovski with $1 million "in way of Cash plus interest calculated at 10% annually".
166 At PD[81]-[82], the primary judge dealt with the evidence that another deed of appointment of new trustee for the Ottoman Investments Unit Trust was signed by Mr Nathan El Ali (on behalf of Ottoman) and Mr Stojanovski on 21 December 2010 (the 21 December 2010 Deed of Appointment). It was identical in form to the 15 December 2010 Deed of Appointment. The primary judge said that "as best could be made out on the evidence", it appeared that this document was executed along with transfer forms for the transfer of Units 1 and 3 to Mr Stojanovski, also for $1 each, and that those documents were submitted to the OSR on 23 December 2010. The reason given by Mr Nathan El Ali for the two deeds of appointment was that the 15 December 2010 Deed of Appointment related to Unit 2 and the later deed related to Units 1 and 3, but he accepted in cross-examination that neither deed referred to any particular property. Mr Stojanovski's evidence in cross-examination was to the effect that the 15 December 2010 document "was requisitioned by the LPI [Land Titles Office], and then we had to sign a new trust around the 20th - around the 23rd. So there was another trust deed signed after this date". The primary judge noted that Mr Stojanovski had made no mention of this in his evidence-in-chief and wholly unexplained was why Units 1 and 3 were to be transferred to him when this was not recorded in the deed of agreement. The primary judge found neither explanation adequate but, in any event, neither of Units 1 or 3 was, in fact, transferred to Mr Stojanovski.
167 At PD[75], the primary judge noted that, although Mr Nathan El Ali initially disagreed that he was responsible for the documents submitted to the OSR on 16 December 2010 (he said he believed he only "assisted"), when pressed he agreed that he did the work. He also agreed that by late 2010, he had considerable experience with the OSR and knew that stamp duty was levied on a transfer of property at a rate that was a percentage of the purchase price, but that a transfer made in consequence of an appointment of a trustee was chargeable only at $50.
168 At PD[83], the primary judge stated that both Mr Nathan El Ali and Mr Stojanovski claimed that Mr Stojanovski gave Mr Nathan El Ali two bank cheques for $500,000 on 23 December 2010. Mr Stojanovski's evidence was that Mr Nathan El Ali phoned him on that day and said that now that Mr Stojanovski had the security that he wanted, Mr Nathan El Ali needed the cheques urgently. In cross-examination, Mr Stojanovski said that he was aware at the time that the vendors had terminated the contract for sale of the Minto property, but he believed that Ottoman still had "two weeks" to complete the purchase and believed that there were "some negotiations going on" "to continue with [the contract]". He said that he believed that Mr Nathan El Ali was going to use the $1 million to settle on the Minto property. His evidence was that, at all times, he believed that the transfer of Unit 2 was as security for his loan to Ottoman as trustee of the Ottoman Investments Unit Trust. The respondents asked the Court to reject that evidence.
169 At PD[84], the primary judge noted the respondents' submission that the explanations given by Mr Nathan El Ali and Mr Stojanovski for the transfer of Unit 2 were "riven with self-contradiction" and their submission that they either misled the Court or the OSR about the reason for the transfer. The primary judge disagreed with Mr Stojanovski's submissions that the Court should accept that the loan transaction was the fundamental underlying basis for the transfer of the property and that the Court should accept his evidence that the property was transferred to him as security for the advance of $1 million.
170 At PD[85], the primary judge found as follows:
85 I find that Mr Stojanovski did not in fact lend the $1 million to Ottoman (or otherwise). There is evidence that two bank cheques payable to the National Australia Bank ("NAB") were drawn from funds in Mr Stojanovski's account on 23 December 2010. The applicants did not dispute that the documentary evidence demonstrates the existence of those two bank cheques and that the photocopy of them bears the handwritten annotations of Mr [Nathan] El Ali to the effect that he received them. There is, however, no evidence that the cheques were ever banked by Mr [Nathan] El Ali. One of the key issues in the proceeding is whether, as the applicants alleged, consideration of $1 only was given for a property with a net value of $670,000. Mr [Nathan] El Ali's evidence was that he banked the $1 million into the Saracen bank account on or about 23 December 2010, that the $1 million "assisted in many other ventures to pay deposits for other stuff as well", including "the deposits for Wollongong, which we lost at the time" and the $1 million was thereafter "lost". All that evidence was given in cross-examination. In examination-in-chief, Mr [Nathan] El Ali deposed merely that "on 23 December 2010, [he] received two cheques, each in the amount of $500,000 from Stojanovski". He did not depose to what he did with those cheques. I am prepared to infer from Mr [Nathan] El Ali's failure to lead evidence on this critical issue that such evidence would not have assisted him. There are, in addition, other facts from which it may reasonably be inferred that the loan was not ultimately made.
171 At PD[86]-[95], the primary judge listed nine other reasons for her finding that the loan was ultimately not made:
(1) Completion of the Minto property never occurred, so there was no need for the $1 million to be advanced (PD[86]).
(2) With Mr Stojanovski knowing that completion of the Minto property had not occurred and that all negotiations for it had stopped and (according to his own evidence) knowing that a notice to complete had been issued in relation to the Taren Point property and Ottoman needed more money, her Honour found it improbable that Mr Stojanovski would, in April 2011, have been willing to advance a further approximately $400,000 to Ottoman to complete the purchase of the Taren Point property when he was still owed $1 million. Nonetheless, it was "an uncontroverted fact" that Mr Stojanovski did advance approximately $400,000 to Ottoman (PD[87]).
(3) It was uncontroversial that Units 1 and 3 were sold in 2014 and Mr Stojanovski withdrew the caveats to enable them to be sold. Yet, notwithstanding that the terms of the deed of agreement provide for Mr Stojanovski to be paid $1 million out of the proceeds of sale, no amount was paid to him from the sale of those Units (PD[88]).
(4) The Kogarah Unit 2 property remained registered in Mr Stojanovski's name. On his evidence, the $1 million loan was to be short term (three or four months) but several years later he had still not been paid yet he took no steps to realise his security. Nor did he lodge a proof of debt in Mr Nathan El Ali's estate for the $1 million, notwithstanding that the deed of agreement provided that he personally guaranteed repayment of the loan to Mr Stojanovski (PD[89]).
(5) While Kogarah Units 1 and 3 were sold, Unit 2 was not. The primary judge did not accept Mr Stojanovski's evidence that Unit 2 had been put up for sale; he admitted that he had never appointed an agent and there was no objective evidence that he had put it up for sale (PD[90]).
(6) In around October 2012, Mr Stojanovski entered into a lease with ECHL Pty Ltd (ECHL), another company wholly owned by Mr Nathan El Ali and later by Mr Mahmoud El Ali. The lease was signed by Mr Mahmoud El Ali for ECHL and negotiated by Mr Nathan El Ali. It was for a period of three years (with an option to renew for a further five years) and provided for rent of $78,000 per annum in monthly instalments. In cross-examination, Mr Stojanovski agreed that no rent had been paid and he had taken no steps to enforce payment. The context in which it was executed is that Mr Stojanovski was seeking a loan from the ANZ Bank. Although Mr Stojanovski denied that the lease was executed to lead the ANZ Bank to believe that he was receiving an income from the property, that denial was rejected by the primary judge. Her Honour found that there was nothing in evidence to support a finding that Mr Stojanovski ever expected an income stream from the lease: PD[91].
(7) It was implausible that Mr Stojanovski would leave Unit 2 vacant without using it for income producing purposes since 2010 if it was the case that $1 million was outstanding to him. No explanation was offered for why no steps were taken to realise or use the property as an income stream (PD[92]).
(8) It was implausible that Mr Stojanovski would agree to lend another $400,000 to Ottoman in April 2011 and agree to a registered first mortgage being taken over Unit 2 by Yasoo for around $600,000 for the purchase of the Taren Point property when the $1 million had not been repaid and (as at November 2010) Unit 2 had an approximate net value of $670,000. That is, if Mr Stojanovski was holding Unit 2 as security, it was "inconceivable" that he would allow that registered mortgage and it was "implausible" that Mr Stojanovski would have lent more funds in April 2011 when, as Mr Nathan El Ali said, he had used the $1 million for other purposes and the negotiations for the Minto property had ceased (PD[93]).
(9) The claim that Mr Stojanovski was owed $1 million was "implausible" because, at trial, he was unaware that Mr Mahmoud El Ali had become and remained the director of Ottoman and it would be expected that he would make enquiries as to who was in control of the Ottoman Investments Unit Trust and take steps to secure the debt owed to him, but he did neither (PD[94]).
172 The primary judge did not accept that Mr Stojanovski ever believed that his appointment as trustee of the Ottoman Investments Unit Trust had anything to do with giving him security over Unit 2 (PD[95]):
(1) Mr Nathan El Ali said that Mr Stojanovski "never took trusteeship" because all of the assets could not be transferred to him. Taking the other assets to be Units 1 and 3, the primary judge noted that there was no mention of the transfer of Units 1 and 3 in the deed of agreement and there is no mention of appointing Mr Stojanovski as trustee as part of the arrangements relating to the advancement of moneys for the Minto property. Nor was there any evidence that Mr Stojanovski performed any duties as trustee, believing himself to have been duly appointed; his evidence in cross-examination was to the contrary.
(2) Mr Stojanovski gave evidence that he believed he was appointed as trustee of the Ottoman Investments Unit Trust but in cross-examination admitted that he had done nothing in managing its affairs, he said that he did not believe that he was still trustee, that he ceased to be trustee "as soon as [he] ceased to carry out any activities of the trust - of the beneficiaries of the trust" and there were no activities that needed to be carried out in December 2010. That version of events was implausible, given Mr Nathan El Ali's control over Ottoman and the Trust, and on his version of events, the change of trusteeship did not proceed because the OSR sent further documents requiring changes and additional requirements and Mr Stojanovski refused to take over mortgages in his name as Kogarah Units 1 and 3 were mortgaged.
(3) Mr Nathan El Ali appeared not to regard Mr Stojanovski as ever holding the position of trustee of the Ottoman Investments Unit Trust, borne out by the fact that in April 2011, Mr Nathan El Ali had appointed Mr Zreika as its trustee in lieu of Ottoman.
173 The primary judge (at PD[96]) rejected the evidence of both Mr Stojanovski and Mr Nathan El Ali concerning why the title to Unit 2 (being the only unencumbered unit) was transferred. Their evidence did not present a plausible explanation for the transactions and "[b]oth witnesses were shown not to be credible" and their accounts were not accepted. Accordingly, her Honour found that the $1 million advance was not made, Mr Nathan El Ali remained in effective control of Unit 2 and the transfer was orchestrated by him to put that property beyond the reach of his creditors at a time when proceedings were pending against him and he was aware of the freezing orders against him and Saracen.
174 As noted above, the primary judge's conclusions on credit are set out at PD[168]-[169].
175 The primary judge rejected a contention made on behalf of Mr Stojanovski that the transfer of Unit 2 by Ottoman (and the transfer of the Potts Point property from Saracen to Mr Nazloomian) was not an "alienation of property" within the meaning of s 37A of the Conveyancing Act because Unit 2 (and the Potts Point property) was not "property" of Mr Nathan El Ali (PD[201]-[203]).
176 Relevantly to the appeal, the primary judge made the following findings at PD[219]-[221] in relation to intent to defraud and Mr Stojanovski's application to amend his defence as follows:
219 I have rejected Mr [Nathan] El Ali's and Mr Stojanovski's explanations for the transfer of the Kogarah Unit 2 property from Ottoman to Mr Stojanovski and found that notwithstanding the disposition and purported appointment of Mr Stojanovski as the trustee of the Ottoman Investments Unit Trust, the property (and affairs of the trust) both remained under the effective control of Mr [Nathan] El Ali. The effect of that transfer was also to put that property beyond the reach of Mr [Nathan] El Ali's creditors. Given the timing of the transfer and absence of a credible explanation as to why the property was transferred to Mr Stojanovski, I find that Mr [Nathan] El Ali made the transfer at that time for nominal consideration with the intent to defraud his creditors within the meaning of s 37A of the Conveyancing Act. I also find that the Royals, as creditors of Mr [Nathan] El Ali, were prejudiced by the transfer by reason of the divestiture of an asset belonging to a company of which Mr [Nathan] El Ali was the sole shareholder at the time.
220 Mr Stojanovski relied upon the defence under s 37A(3) of the Conveyancing Act. In view of the rejection of his evidence that the Kogarah Unit 2 property was transferred to him as security for a loan of $1 million to Ottoman and the rejection of his evidence that he advanced that sum to Ottoman, Mr Stojanovski has not made out the elements of the statutory defence. In so concluding I have taken into consideration the alternative argument put in final submissions on behalf of Mr Stojanovski following the concession by counsel for Mr Stojanovski that the Deeds of Retirement and Appointment were ineffective to appoint Mr Stojanovski as trustee of the Ottoman Investments Unit Trust. It was submitted that the evidence supported the finding that it was the intention of the parties that Mr Stojanovski hold the property, and that the property is held by him, as trustee by way of security for his loan of $1 million to Ottoman. Argument ensued as to whether the alternative claim was covered by the extant defence or whether an amendment was required. For the avoidance of doubt counsel for Mr Stojanovski sought the leave of the Court to amend the defence to add the allegation in answer to the allegation that the property was transferred to Mr Stojanovski for $1, as follows:
… the transfer of [Kogarah Unit 2] was from [Ottoman]:
(i) as retiring trustee for the Ottoman Investments Unit Trust to [Mr Stojanovski] as the new trustee; or alternatively
(ii) to [Mr Stojanovski] as trustee for [Ottoman], either as trustee for the Ottoman Investments Unit Trust or otherwise;
in consideration for and/or as security for the [Mr Stojanovski] loaning the sum of $1,000,000 to [Ottoman], as Trustee for the Ottoman Investments Unit Trust, to facilitate it purchasing property at 5 Stonny Batter Road, Minto, NSW (the "Minto Property") and
221 The proposed amendment was objected to and leave to amend should be refused on the basis that the proposed amendment in (ii) is embarrassing. Even if the amendment was allowed, it would not assist Mr Stojanovski having regard to the findings of fact made.