Harstedt Pty Ltd v Jose Maria Lopez
[2018] VCC 1361
•31 August 2018
| THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-17-02818
| HARSTEDT PTY LTD | Plaintiff |
| v | |
| JOSE MARIA LOPEZ & ORS | Defendants |
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JUDGE:HIS HONOUR JUDGE COSGRAVE
WHERE HELD: Melbourne
DATE OF HEARING: 23 and 24 July 2018
DATE OF JUDGMENT: 31 August 2018
CASE MAY BE CITED AS: Harstedt Pty Ltd v Jose Maria Lopez & Ors
MEDIUM NEUTRAL CITATION: [2018] VCC 1361
REASONS FOR JUDGMENT
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Subject:REAL PROPERTY – LAND TRANSFER – VOIDABILITY
Catchwords: Fraudulent alienation – alienation from husband to wife following alleged separation – anticipated and actual creditors – section 172 of the Property Law Act 1958 (Vic) – intent to defraud – whether consideration was good or valuable – whether alienation made in good faith and without notice of intent to defraud creditors
Legislation Cited: Bankruptcy Act1966 (Cth); Child Support Assessment Act 1989 (Cth); Family Law Act 1975 (Cth); Property Law Act 1958 (Vic)
Cases Cited:Allen v Bonnett (1870) LR 5 Ch App 577; Barton v Official Receiver (1986) 161 CLR 75; Benson v Cook [2001] FCA 1684; Chen v Marcolongo [2009] NSWCA 326; Deputy Commissioner of Taxation v Haritos (2014) 287 FLR 136; Groenveld Australia Pty Ltd v Nolten Vastgoed BV [2011] VSC 18; Harstedt Pty Ltd v Apollo Development Enterprises Pty Ltd [2017] VCC 834; In Re Symon [1944] SASR 102; Jew v Holloway (2013) 43 VR 243; L’Estrange v Graucob [1934] 2 KB 394; Lloyds Bank Ltd v Marcan [1973] 1 WLR 339; Lloyds Bank Ltd v Marcan [1973] 1 WLR 1387; Lysaght v Edwards (1876) 2 Ch 499; Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723; PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515; Re Trautwein (1994) 14 ABC 61; Richards v Dare [2001] VSC 466; Sargent v ASL Developments Pty Ltd (1974) 131 CLR 634; Taylor v Johnson (1983) 151 CLR 422; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; Wilton v Farnsworth(1948) 76 CLR 646
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D Robertson, QC Ms R Campbell | Katherine Moorhouse Perks M |
| For the Second Defendant | Mr T R Messer | Wightons Lawyers |
HIS HONOUR:
Issue
1 The central issue in this case is whether the transfer by the first defendant (“Mr Lopez”) of his interest in the property at 10 Gaunt Street, Lara (“the property”), to his wife, the second defendant (“Mrs Lopez”), is voidable under section 172 of the Property Law Act 1958 (Vic) (“the PLA”).
Parties positions
2 The plaintiff (“Harstedt”) contended that, in circumstances where Mr Lopez was found by this court in May 2017 to be knowingly concerned in a fraudulent breach of trust and therefore liable to compensate Harstedt, the subsequent transfer of the property to Mrs Lopez was effected with the intention to defraud creditors. Section 172 of the PLA enables the court to set aside such a transfer.
3 Mrs Lopez contended that Mr Lopez alienated his interest in the property in January 2012 when he signed the separation agreement (“the Separation Agreement”) with Mrs Lopez. Thus, the formal transfer of the property in May 2017 did no more than give effect to the earlier alienation because the beneficial interest of Mr Lopez in the property had passed to Mrs Lopez five years earlier, well before Harstedt began its litigation against Mr Lopez and the other defendants.
Background
4 On 9 December 1986, Mr Lopez became the sole registered proprietor of the property being the land more particularly described in Certificate of Title Volume 9158 Folio 218.
5 On 16 April 1987, Mr Lopez married Mrs Lopez. They subsequently had five children: Andreas born in 1988, Alana born in 1990, Krystyna born in 1991, Alberto born in 1993, and Carmen born in 1995. In addition, they raised as their own another child who was the daughter of a close friend who died.
6 On 18 March 1993, Mr Lopez transferred his interest in the property to his sister, Juana Maria Angeles Losa, and her husband, Ramon O’Sullivan, as joint tenants. The sale price was $153,000. According to Mrs Lopez, her husband sold the property because he needed funds to fight legal proceedings against Pyramid Building Society which had lent money to Mr Lopez, or entities associated with him, and sought to recover the outstanding loans.
7 On 31 April 1993, Juana Maria Angeles Losa and Ramon O’Sullivan registered their interest as registered proprietors of the property.
8 On 30 December 1994, Mr Lopez became bankrupt. He completed a statement of affairs on 21 December 1994. His only assets at the time were cash of $50 and household furniture, which was jointly owned, valued at $8,000.
9 Juana Maria Angeles Losa became the sole registered proprietor of the property on 30 January 1996.
10 In December 1997, Mr Lopez was discharged from bankruptcy by operation of law.
11 On about 21 January 1999, Mr and Mrs Lopez repurchased the property from Juana Maria Angeles Losa for $154,000. On 2 February 1999, Mr and Mrs Lopez registered their interest as joint registered proprietors of the property.
12 On 5 August 1999, the police arrested Mr Lopez and charged him with offences regarding the importation of ecstasy.
13 On 6 August 1999, Mr Lopez transferred his interest in the property to Mrs Lopez. She did not register her interest as the sole registered proprietor of the property until 8 November 1999.
14 On about 24 August 2000, a jury in the County Court found Mr Lopez not guilty in respect of the drug charges.
15 Soon after, on 8 November 2000, Mrs Lopez transferred her interest in the property to Mr Lopez and herself as joint tenants. The defendants did not register their interest in the property until 12 June 2001.
16 On 2 May 2007, Geoffrey Olsen, a director of Harstedt, deposited $250,000 on its behalf into an account at the Commonwealth Bank of Australia (“the CBA”). The money was deposited into an account in the name of Apollo Development Enterprises Pty Ltd (“Apollo Development”). This company was the trustee of the Apollo Development Enterprises Trust. Mr Lopez was a director and sole shareholder of Apollo Development and a signatory to the bank account. The funds comprised part of the funds contributed to an investment scheme run by Apollo Development. Under the terms of the deposit, the funds were to be held in a non-depleting account maintained in Australia.
17 On about 10 September 2007, Mr Lopez signed a request for the wire transfer of various funds to a Spanish bank. A sum of $US 4.1m, which included the Harstedt deposit of $250,000 was paid into an account in the name of “Back Away SL” in a bank in Spain.[1]
[1]Harstedt Pty Ltd v Apollo Development Enterprises Pty Ltd [2017] VCC 834 at [103] per Judge Macnamara.
18 In about February 2008, Mr Lopez left Australia and moved to Spain. According to Mrs Lopez, he did this in order to recover the moneys which were sent to the Spanish bank the year before. Mrs Lopez said that her husband remained in Spain until 2014, at which time he returned to Australia and resumed living at the property.
19 Mrs Lopez said that in about November 2011, she and Mr Lopez separated as husband and wife. Mrs Lopez said that she decided that the marriage was over.
20 In January 2012, Mrs Lopez drew up the Separation Agreement. She said that she did so without legal assistance, relying upon her own resources and some research performed on the internet. She said that she prepared the document as security against any later change of mind by her husband whereby he sought to claim an interest in the property. She said that they orally agreed that she would have 100% proprietorship of the property and her husband would relinquish all his rights in the property. Further, as part of the Separation Agreement, Mrs Lopez agreed “to take full financial responsibility for the property and the dependent children residing at the property in her care”. At the time, there were five such children.
21 On 15 January 2012, Mr Lopez signed the Separation Agreement prepared by his wife. Mrs Lopez signed the document on 27 January 2012. The parties signed the agreement at different times because they were in different countries. Mrs Lopez prepared the Separation Agreement and sent it to her husband who, at the time, was in Spain. He signed the document and returned it to Australia so that she could sign.
22 On 28 October 2015, Harstedt commenced proceedings in the County Court of Victoria (“the Apollo Proceedings”) to recover from Mr Lopez and others the $250,000 which it had deposited into the CBA.
23 Subsequently on 9 May 2017, His Honour Judge McNamara handed down reasons for judgment in which he found that Mr Lopez had knowingly assisted in a fraudulent breach of trust and was obliged to compensate Harstedt for the loss which it sustained.
24 On 23 May 2017, Mr and Mrs Lopez signed a transfer of the property pursuant to which Mrs Lopez became the sole registered proprietor of the property. The transfer of land in respect of the property was registered three days later at the Land Titles Office.
25 On 31 May 2017, Judge Macnamara made final orders in the Apollo Proceedings. His Honour ordered that Apollo Development and Mr Lopez pay the sum of $250,000, together with interest in an amount of $31,780.82 to Harstedt and also pay Harstedt’s costs of the Apollo Proceedings.
Issues
26 In this case the parties did not provide the court with an agreed list of issues which the court had to decide. However, Mrs Lopez in her final submissions identified three matters which she said required decision:
(a) When did Mr Lopez alienate his interest in the property in favour of Mrs Lopez?
(b) Has Harstedt established that such alienation was made with the intent to defraud creditors so that it is voidable under section 172(1) of the PLA?
(c) If yes to (b), was the alienation made upon good consideration and in good faith to Mrs Lopez at a time when she had no notice of the intent of Mr Lopez to defraud creditors such that, by force and effect of section 172(3) of the PLA, section 172(1) did not apply?
Summaries of Parties’ Contentions
27 Mrs Lopez argued that Mr Lopez alienated his interest in the property when he signed the Settlement Agreement in January 2012. The effect of the Settlement Agreement was that the beneficial interest in the property passed to Mrs Lopez in January 2012. This outcome was consistent with longstanding authority derived from cases regarding conveyances of land.[2]
[2]See, for example, Lysaght v Edwards (1876) 2 Ch 499.
28 Mrs Lopez contended that:
· the state of affairs in May 2017 was irrelevant in terms of the position of the creditors because the alienation of the property was completed more than five years earlier.
· Harstedt had not proved the necessary intent to defraud creditors in January 2012. At that time, Harstedt was not a creditor of Mr Lopez and the Settlement Agreement was entered into more than three and a half years before Harstedt issued the Apollo Proceedings. There was no direct evidence of the state of mind of Mr Lopez and there was no other evidence from which it could be inferred that he was aware at that time of a future personal liability as distinct from a liability in the company in which he was a director. Mrs Lopez argued that the only intention which could be inferred was that her husband meant to transfer his interest in the property for the reasons given by Mrs Lopez in her evidence. Thus, Mrs Lopez contended that the answer to the second question was “No”.
29 Finally, even if the second question were answered “Yes”, Mrs Lopez submitted that she was saved by section 172(3) of the PLA. She said that she gave valuable consideration, acted in good faith, and had no notice of any intention to defraud creditors in the requisite sense of delaying, hindering, defeating, or defrauding them.
30 For its part, Harstedt contended that there was no alienation under the Settlement Agreement because the consideration was defective. The consideration purportedly given by Mrs Lopez under the Agreement was no more than she had to undertake in any event because, at the time, Mr Lopez was out of the country, had no income since the financial year ending 30 June 2009, and could not assist with meeting the costs associated with the running of the household, the maintenance of the property, or the support of the dependent children. Accordingly, the consideration was colourable or illusory.
31 Harstedt submitted also that the consideration was ineffective because nothing in the Agreement prevented Mrs Lopez from applying under the Family Law Act 1975 (Cth) and the Child Support Assessment Act 1989 (Cth) for orders in relation to children under 18. Because these rights existed and because Mrs Lopez actually made application under the Child Support Assessment Act, Harstedt argued that this was fundamentally inconsistent with her assuming full financial responsibility for the children. Under the assessment issued on about 20 August 2013, Mr Lopez was to pay Mrs Lopez $1,269 for the support of the youngest child, Carmen. However, I accept that Mr Lopez made no payments despite the making of the assessment.
Legal Principles
32 The applicable legal principles have an extensive history. The genesis of section 172 of the PLA lay in the Elizabethan Statute which was enacted in 1570. The statute was intended to prevent debtors alienating property when this would prevent their creditors from recovering the monies owed to them. It is well recognised that provisions such as section 121 of the Bankruptcy Act1966 (Cth) and section 172 of the PLA are intended to reflect generally the principles which have been applied since the Elizabethan Statute to fraudulent dispositions which prejudice creditors.[3]
[3]Jew v Holloway (2013) 43 VR 243 at [10].
33 In Deputy Commissioner of Taxation v Haritos,[4] Sloss J examined the relevant authorities and summarised the major principles. In my view, the principles relevant to the present case include the following:
[4](2014) 287 FLR 136.
(a) section 172 of the PLA (and the equivalent provision in other state jurisdictions) was derived from the Elizabethan Statute and was intended to prevent debtors alienating property when this would have the result of preventing creditors from recovering monies owed to them;
(b) the concept of “defrauding” within section 172 of the PLA should be liberally construed consistent with the case law implementing or giving effect to the Elizabethan Statute;
(c) an intent to defraud creditors is to be understood as an intention to delay, hinder, defeat or defraud creditors;
(d) the concept of “defraud” does not require a finding of actual dishonesty in the sense of an actual intention or purpose of causing loss to creditors;
(e) the affected creditors need not be existing creditors – they may be anticipated future creditors;
(f) a party’s awareness of a future liability will be sufficient for this purpose;
(g) an inference as to the necessary intent may be inferred from known facts. In the absence of direct proof of intention, if a person indebted to creditors makes a settlement which subtracts from the property which is the proper fund for the payment of those debts an amount without which the debts cannot be paid, an inference arises that the party intended to defeat or delay his creditors;
(h) the intent to defraud creditors need not be the sole, or even the predominant, intent of the alienation. The intention may coexist concurrently with a genuine and good faith intention to dispose of property;
(i) the burden of establishing an intention to defraud lies with the party asserting that the transfer of property is voidable. The party seeking to avoid the disposition must prove an actual intent by the disponor at the time of the disposition to defraud creditors;
(j) in assessing the existence of the requisite intention, the court is to look at all the facts of the case including evidence of subjective intention and can take into account the nine “badges of fraud” as described by Lord Hatherley LC in Allen v Bonnett.[5] The badges provide a useful checklist when a court is considering whether a conveyance for value is fraudulent. The badges are as follows:
[5](1870) LR 5 Ch App 577, 579.
· the conveyance of the whole of a person’s property;
· the donor’s continued possession of the property;
· secrecy of transfer;
· conveyance made pendente lite;
· a trust or reservation for the grantor’s benefit;
· unusual statements of fact in the deed (a statement that the deed is made without any fraudulent intent is suspicious);
· power of revocation;
· false statements in the deed; and
· inadequacy of consideration;
(k) section 172(3) of the PLA provides that sub-section (1) will not apply where the transferee acted in good faith and without notice of the intent to defraud creditors and gave either valuable or good consideration. The transferee has the burden of proof in establishing the application of the exception.
Mrs Lopez’s evidence
34 My consideration of the issues is significantly affected by the evidence of Mrs Lopez and my assessment of her credit. Accordingly, I now address these matters.
35 Mrs Lopez gave detailed evidence. She presented as an intelligent, capable, and calculating person. I readily accept that she developed and ran a successful business. She said that when she met him, Mr Lopez owned the freehold to a property in Separation Street, North Geelong, from which he conducted a body-building gym as a hobby. Mrs Lopez became involved in the gym in about April 1987 and ran the business until June 2009. Mrs Lopez said she was responsible for the operation of the business and did the marketing, advertising, training, and wages. It seems that she was intimately involved in the management and operation of the business.
36 Mrs Lopez said that after running the business for about six months, she turned the top half of the Separation Street building into a “ladies only” gym. At the time, she believed this was the first such gym in Australia. It was certainly the first of its kind in Geelong. Within about 18 months, Mr and Mrs Lopez bought a building in Moorabool Street, Geelong, for another ladies’ gym. Approximately one year later they opened another ladies’ gym at the Arena.
37 In addition to running the business, Mrs Lopez had five children with Mr Lopez, as well as Elisha, the daughter of a friend whom they took into their family as a four year old when her mother died. Mrs Lopez’s mother-in-law helped with each new baby (except Andreas) and looked after the newborns until they were about one year old. After that, when Mrs Lopez was at work, a nanny cared for the children.
38 The Lopez family enjoyed material success. The family owned at least four properties before the collapse of Pyramid Building Society. Even now, the Gaunt Street property is still registered in the name of Mrs Lopez. Around the time that Mr and Mrs Lopez purchased the property back from his sister, they considered building a new house on an acre of land they bought in Lara. Ultimately, because Mrs Lopez was so busy, they decided it was more convenient to remain living at the property rather than build a new house and move.
39 Mrs Lopez made reference to a property which she and her husband owned in Brougham Street in about 2006 or 2007. Mr Lopez allegedly borrowed funds against the security of this property in order to contribute money to the investment project which Harstedt and others were pursuing. Because they could not meet the mortgage repayments, the Brougham Street property was repossessed. Mrs Lopez said she also sold “some rental properties” which they owned to pay out all outstanding debts. Mrs Lopez also arranged to pay out the mortgage over the property.
40 There was no clear evidence about the contribution which Mr Lopez made to the gym business or to the financial needs of the family. As noted, Mr Lopez swore that he had no income for the period from 30 June 2009 to 30 June 2017 inclusive. There was no basis in the evidence to contend that Mr Lopez made any, or any significant, contribution to the material sustenance of the family. The only reference to him having a job was Mrs Lopez’s statement that, when she met him, he worked as an operator at Shell.
41 I note that the gym business survived the collapse of Pyramid Building Society even though Pyramid sold three of the properties owned by Mr and Mrs Lopez or their companies. From the evidence, it was not clear precisely what happened to the business and whether it still operated.
42 Mrs Lopez appears to have been a meticulous record keeper. The Court Book contained extensive receipts and other documents concerning bills paid in the period from 2010 to 2017 by Mrs Lopez in relation to such things as household groceries, utilities, rates, maintenance, and credit card expenses. The credit card expenses were those incurred by Mr Lopez.
The credibility of Mrs Lopez
43 I did not regard Mrs Lopez as an altogether credible and reliable witness. While I accept that much of what she said was probably true and documents supported parts of her evidence, I do not accept her evidence on certain important matters:
(a) her relationship with her husband;
(b) her explanations for earlier transfers of the property; and
(c) her alleged state of ignorance about the circumstances behind the latest transfer of the property.
My assessment of the credit of Mrs Lopez is significantly influenced by my assessment of her demeanour and manner in giving evidence, the evidence she gave and how it related to the evidence as a whole.
(a) The relationship between Mr and Mrs Lopez
44 The relationship between Mr and Mrs Lopez is important because of the context it provides for the operation of the statutory provisions of the Property Law Act relied upon by the parties. Mrs Lopez asked the court to accept that:
· she and her husband were separated for almost 12 months in the period before August 1999;
· Mrs Lopez decided, and Mr Lopez accepted, that the marriage was over in late 2011; and
· the only reason they did not divorce was due to the inability to afford a lawyer.
45 Mrs Lopez said that she brought her children up to pay board: In 2012, she received $15,600; in 2013, $20,800; in 2014, $20,800; in 2015, $20,800; in 2016, $15,600; and to June 2017, $8,100. She said that in January 2012, five children were living at the property with her. By May 2017, the number had reduced to three. At the time of this hearing, there was only one child at home. In 2012, the two boys were apprentices and the two older girls were students in receipt of a youth allowance. All paid board. Only the youngest, Carmen, who was still at high school, did not pay board. In 2012 and 2013, the children’s board payments exceeded Mrs Lopez’s income.
46 Mrs Lopez said that after Mr Lopez came back to Australia in 2014, he returned overseas from time to time. When he was in Victoria, he lived at the property because, according to Mrs Lopez, he did not have a place to go. He, unlike his children, paid no rent and no board. Even though there was no basis in the evidence to believe that he was anything other than an able-bodied adult male, he alone within the family appeared to have no financial obligations to the other family members. On the defendant’s case, Mr Lopez earned no income from between at least July 2008 and June 2017. Accordingly, he had no means by which he could contribute to the maintenance and upkeep of the property or financially support his wife and children.
47 In addition, Mrs Lopez began the 2012 year by assuming responsibility for approximately $59,000 of credit card debts owed by Mr Lopez. Mrs Lopez asserted that, as part of the Settlement Agreement, she agreed to pay whatever bills came into the house, including credit card bills for Mr Lopez from overseas, for such things as car hire. However, I note that the credit card documents in the Court Book indicated that, while Mrs Lopez did make payments on the credit card bills, the payments were often small relative to the outstanding debt and did not discharge the whole debt owing to the credit provider.
48 In the circumstances set out above, the conduct of Mrs Lopez was more consistent with that of a wife who still loved her husband and wanted to be with him rather than a wife who had decided her marriage was over and did not divorce her husband only because she could not afford it. In her actions and demeanour, Mrs Lopez exhibited a steeliness of character which suggested that she:
· would not have easily tolerated a lazy and irresponsible husband who took from the family but did not contribute to it; and
· would not have agreed to provide accommodation for him and paid his credit card bills,
unless she truly loved him.
49 Mrs Lopez offered no convincing explanation for why she allowed Mr Lopez to live at the property on the terms he did. On his own admission, he was still living at the property in November 2017 - in his affidavit sworn that month in support of his application for an extension of time for seeking leave to appeal, Mr Lopez gave his address as the Gaunt Street property.
50 Further, I do not accept that the only reason they did not divorce was because she could not afford a lawyer. In circumstances where Mr Lopez spent years overseas, the criterion in the Family Law Act for the couple being apart for one year was easily fulfilled. They agreed upon the disposition of the only asset which Mr Lopez had, namely his interest in the property. The cost of documenting the agreement between the spouses was unlikely to be significant.
51 Another aspect of Mrs Lopez’s evidence which did not sit comfortably with the idea that there was, after 2011, no marriage between Mr and Mrs Lopez, was the action taken by Mr and Mrs Lopez to safeguard the property and quarantine it from creditors. This conduct reflected a level of cooperation and teamwork between the couple which existed over an extended period. They engaged in a pattern of behaviour whereby the proprietorship of the property changed depending upon economic threats to the property. Before Mr Lopez became bankrupt in November 1994, he transferred his interest in the property to his sister and brother-in-law. After Mr Lopez was discharged from bankruptcy in December 1997, his sister sold the property back to Mr and Mrs Lopez as joint proprietors in January 1999. Mrs Lopez agreed that she was aware of the importance of her husband not purchasing any interest in the property until he was discharged from bankruptcy. It seemed a little odd that Mr Lopez sold the property to his relations in 1993 for $153,000 and then repurchased the property in 1999 for $154,000. It is possible that there was virtually no change in the real estate market in Lara over that period of nearly six years. But it seems questionable when, notwithstanding various economic shocks and upheavals around the world since the early 1990’s, Australia has enjoyed about 25 years of economic growth without a recession and Victoria’s population has continued to increase over that time. However, there was no direct evidence of the property’s market value in either 1993 or 1999.
52 The other time at which the proprietorship of the property changed was in August 1999, the day after Mr Lopez was charged with drug importation offences. The next day, Mr and Mrs Lopez transferred the property to Mrs Lopez alone. Then, after Mr Lopez was acquitted in August 2000, Mrs Lopez transferred the property back into joint proprietorship later that year.
53 During the course of her evidence, Mrs Lopez said that until 2011, she considered the property to be that of her husband and herself. This evidence confirmed my view that a married couple would change proprietorship of the family home during the course of the marriage only if there were a special reason for doing so. Mrs Lopez said that the first transfer to Mr Lopez’s sister and brother-in-law was due to a need for funding to fight Pyramid Building Society. Mrs Lopez said that the transfer in August 1999 was brought about by the couple being separated for almost 12 months.
54 Mrs Lopez gave no details about either explanation. She did not explain the nature of the litigation with Pyramid Building Society, whether or not there was any counterclaim raised, the nature of the cause or causes of action, or the costs incurred in connection with the litigation. Similarly, in relation to the alleged separation for nearly 12 months, she provided no other information. In particular, she did not say what was special about the circumstances existing in August 1999 to bring about the transfer. I am not convinced by Mrs Lopez’s evidence about the reasons for either transfer.
55 In my opinion, Mr and Mrs Lopez showed themselves to be astute in protecting the family home from third parties, be they creditors or government agencies potentially seeking to clamp down upon possible proceeds of crime. To the extent that Mr Lopez engaged in activities which might jeopardise the family’s proprietorship of the property, the couple took action designed to insulate the property and keep it safe from creditors. Mrs Lopez’s acknowledgment that it was important her husband not obtain an interest in a property until after he was discharged from bankruptcy confirmed her practical commercial shrewdness about such matters. She was keen to retain the property she regarded as her house.
(b) Earlier transfers of the property
56 I have discussed above the evidence regarding the various transfers of the property between Mr and Mrs Lopez and / or other members of the family. For the reasons cited, the second defendant’s evidence on this topic was not persuasive.
(c) Mrs Lopez’s alleged ignorance surrounding the latest transfer of the property
57 I do not accept the explanation offered by Mrs Lopez regarding the reason for and timing of the Settlement Agreement. Her evidence was not convincing. In my opinion, it is more likely that, through her intelligence and “street smarts”, she worked out that if the title to the property were in her name alone, it would be considerably easier to maintain ownership and control over the property for the benefit of the family.
58 Similarly, I do not accept the whole of Mrs Lopez’s explanation about the transfer and registration of the legal interest in the property in May 2017. She made out that this was an accident because she assumed from the water and land rate notices being in her name that she was the sole registered proprietor of the property. She could not explain precisely what made her check the title to the property after Judge Macnamara gave judgment in the Apollo Proceedings. However, she admitted that when she found both she and her husband on title, she reacted immediately to save what she considered to be her house.
59 The transfer of land dated 23 May 2017, and registered at the Land Titles Office, was designed to implement the Settlement Agreement and transfer all of the legal and equitable interest in the property to Mrs Lopez. The transfer document described the consideration for the transfer as “desire to make a gift”. This was consistent with Mrs Lopez’s evidence that she told her solicitor, Lorraine Secen, that she and her husband were separated and there was no talk of money changing hands. Mrs Lopez said she could understand why Ms Secen put down “gift” in the documentation. However, it was not consistent with the case Mrs Lopez ran before me and the evidence which she gave. She insisted there was proper consideration for the transfer and that she was not a volunteer.
60 Mrs Lopez signed the transfer document in two places. The general rule regarding signed documents is that:[6]
[6]Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [57].
“…where there is no suggested vitiating element, and no claim for equitable or statutory relief, a person who signs a document which is known by that person to contain contractual terms, and to affect legal relations, is bound by those terms, and it is immaterial that the person has not read the document.”
This view is consistent with the law set out in L’Estrange v Graucob[7] and the earlier High Court decision of Wilton v Farnsworth,[8] where Latham CJ said:[9]
“in the absence of fraud or….special circumstances…a man cannot escape the consequences of signing a document by saying, and proving, that he did not understand it. Unless he was prepared to take the chance of being bound by the terms of the document, whatever they might be, it was for him to protect himself by abstaining from signing the document until he understood it and was satisfied with it. Any weakening of these principles would make chaos of everyday business transactions.”
[7][1934] 2 KB 394, 403. The statement of Scrutton LJ that “when a document containing contractual terms is signed, then in the absence of fraud or misrepresentation, the party signing it is bound and it is wholly immaterial whether he has read the document or not,” has been cited with apparent approval in cases such as Sargent v ASL Developments Pty Ltd (1974) 131 CLR 634, 644 and Taylor v Johnson (1983) 151 CLR 422, 446.
[8](1948) 76 CLR 646.
[9]Ibid at 649.
61 The fact of the transfer being a gift and without consideration was supported also by the notice of acquisition of land dated 13 May 2017 and the notice of disposition of land of the same date. In each case, the sale price or the purchase price was said to be a “gift”. In the former, a representative of Mrs Lopez’s solicitors, Birdsey Dedman & Bartlett, signed the document stating that to the best of the person’s knowledge, “the particulars supplied in this form are accurate”. In the latter document, the same representative of Birdsey Dedman & Bartlett signed the document declaring that “the above statements are true and correct”. I consider it unlikely that a solicitor would falsely complete important formal documents like a transfer of land and such notices. It is more likely that the solicitor followed, and acted in accordance with, the instructions of the client. Even if the solicitor exercised some judgment and inferred from the circumstances that the transfer was a gift, the solicitor could reasonably have expected the client to read the transfer document and correct any error in it. Especially would this apply to someone like Mrs Lopez who had experience in property dealings and the completion of land transfer instruments. The contents of the transfer and notices was inconsistent with the evidence given by Mrs Lopez. The contemporary documents undermined her credit.
62 Another aspect of Mrs Lopez’s evidence which concerned me is why she gave no evidence about some matters which were relevant to the case and of which she had particular knowledge. She said nothing about why the Settlement Agreement contained no reference to her allegedly agreeing to pay debts incurred by her husband.
63 Mrs Lopez suggested it was an oversight because she drew up the document herself without legal assistance. I do not accept that explanation. Her evidence about the Settlement Agreement suggested that this commitment to paying credit card bills, including those of her husband, was an important aspect of the Settlement Agreement. It was a short and uncomplicated document. I have already said that I regard Mrs Lopez as an intelligent and shrewd individual. As a result, I do not consider that this alleged component of the Settlement Agreement was omitted by mistake.
64 Mrs Lopez said that, in making the Settlement Agreement, she agreed to pay whatever bills came to the property. I regard this as an important matter. If true, it means that Mrs Lopez agreed to assume an obligation to pay an indeterminate sum of money for an indefinite period in relation to debts over which she had no control and in respect of expenditure from which neither she nor her children derived any obvious benefit – for example, paying car hire bills for her husband in Spain. She provided no convincing evidence to explain why she would have made such an agreement. Nor did she say how her husband could afford to return to Spain from time to time since coming back to Australia in 2014 when he had no assets and no income. Given that Mr Lopez has been living mainly in Victoria for about the past four years in the same house as his wife, one might reasonably assume that Mrs Lopez would have had some broader knowledge of Mr Lopez’s financial situation.
65 Mrs Lopez also gave no evidence about precisely where within the property her husband stayed when he was in Victoria or how much time he spent living at the property after returning from Spain in 2014. If his visits to Victoria were fleeting and few in number and he stayed in the spare room, that would be significantly different from staying with Mrs Lopez for the majority of that time. It was in the best interests of Mrs Lopez to clarify these matters and she chose not to. As noted by the learned author of Cross on Evidence[10]:
“… the principles of Jones v Dunkel apply to the failure by a party to ask a witness called by that party questions in chief, at least where the most natural inference is that the party feared to do so. Indeed it has been said that the omission to ask questions of a friendly witness is more significant than the failure to call the witness, and that the presumption that the testimony would not have been favourable to the party’s case is stronger than the assumption arising from the failure to call him. A fortiori, inferences are not to be drawn in favour of a party calling a witness who could have given direct evidence to that effect, but did not.”
[10]J D Heydon, 11th ed, 2017 at [1215].
66 I propose to now consider the issues as matters stood in January 2012.
Was the alleged alienation made in January 2012 with an intent to defraud creditors?
67 Mrs Lopez relied upon the decision of Richards v Dare,[11] and argued that Harstedt had failed to prove that Mr Lopez made the Settlement Agreement with the intent to defraud. Counsel referred to several matters in support of Mrs Lopez’s position:
[11][2001] VSC 466
(a) Harstedt was not a creditor of Mr Lopez in January 2012;
(b) there was no basis for saying Harstedt had communicated to Mr Lopez at the time the fact or likelihood of a claim being made against him. At its highest, Harstedt had an inchoate claim for equitable compensation arising in connection with the alleged complicity of Mr Lopez in the breach of trust;
(c) the Settlement Agreement preceded the issue of this proceeding by more than three years;
(d) there was no evidence to show that Mr Lopez was aware of a future personal liability at the time he made the Separation Agreement. Apollo Development was the entity through which the investment deal was conducted;
(e) in the circumstances, she contended that “the only intention that can be inferred is that Joe (Mr Lopez) meant to transfer his interest in the land for the reasons stated by Anna (Mrs Lopez) in her evidence”.[12] Mrs Lopez had been left on her own to support the family after her husband left for Spain in 2008. The Settlement Agreement was the agreement the couple reached “as to the division of the matrimonial property”.[13]
[12]Paragraph 20(d) of the second defendant’s final submissions
[13]Paragraph 20(d) of the second defendant’s final submissions
68 Harstedt argued that the evidence was sufficient to establish that any alienation was made with the requisite intent to defraud.
69 First, the transfer was one between spouses, from husband and wife to wife alone. This transfer represented a disposal of the whole of Mr Lopez’s property at the time. He had no other assets and, according to both him and to his accountant, he had no income between the financial years ending 30 June 2009 and 30 June 2017.[14] The relationship between transferor and transferee, the disposal of Mr Lopez’s entire property, and the questionable adequacy of consideration are factors which can be suggestive of fraud within the meaning of section 172 of the PLA.
[14]Affidavit of Jose Maria Lopez sworn 12 November 2017 at [13] in support of his application for an
extension of time to appeal the judgment in the Apollo Proceedings.
70 Secondly, Mr Lopez continued to live at the property when he was in Victoria. It appears that although Mr Lopez was in Spain full time between 2008 and 2014, thereafter he was based in Victoria but went overseas again from time to time. When he was in Victoria, he lived at the property without paying rent or board to Mrs Lopez. On his own admission, Mr Lopez was still living there in November 2017. A donor’s continued use or possession of a property is one of the badges of fraud.
71 Thirdly, the Settlement Agreement was a secret agreement between Mr and Mrs Lopez to the extent they allegedly made the agreement in about January 2012 but did not seek to register the transfer of the property or inform the lawyer, Lorraine Secen, until May 2017. Throughout that time, anyone conducting a search of the property at the Land Titles Office would have reasonably concluded that Mr Lopez was a joint owner of the property.
72 Mrs Lopez said that the Settlement Agreement was created in order for her to use it against Mr Lopez if he later sought to challenge her sole ownership of the property. Mrs Lopez did not tell her solicitor about the Settlement Agreement when she consulted her about the formal transfer in May 2017.
73 As noted, Mrs Lopez raised several reasons why there should be no finding of fraudulent intent in relation to the January 2012 transaction. I was not persuaded that these arguments were sufficiently compelling.
74 I accept that Harstedt was not a creditor of Mr Lopez in the strict sense at January 2012. But, as one of the investors who lost funds through the transfer of money overseas effected in breach of trust and fiduciary duty, Harstedt was an anticipated future creditor of the trust, and due to Mr Lopez’s critical involvement in the breach, of Mr Lopez too. On the findings made against him by Judge Macnamara, Mr Lopez must have been aware that a claim could be made against him for moving the funds overseas when he knew this constituted a breach of the trust.
75 While I agree that mere delay or exclusion of a creditor per se will not necessarily establish the requisite intent to defraud, taken with a consideration of the broader context, it can be a factor in concluding that the transferor exhibited the statutory intent. I have set out elsewhere the badges of fraud (para 33), quite a number of which feature in this case. Also, I have rejected the innocent explanation Mrs Lopez sought to give regarding the alienation of the property in January 2012.
76 Mrs Lopez also relied upon Richards v Dare[15], where Harper J found that the alienation of property pursuant to an order of the Family Court did not attract the operation of section 172 of the PLA. The principles of law invoked in that case were unexceptional. There, the trial judge found that the evidence did not satisfy him that the alienation attracted section 172(1) of the PLA. Importantly, the court believed the de facto wife who gave evidence that, although she and her de facto husband lived under the same roof and conducted a partnership to run a milking operation on a farm, the relationship had broken down irretrievably and she was justifiably concerned about how she would support her four young children, the eldest of whom was about seven. Also, his Honour found that even if the husband had an intent to defraud his creditors by obtaining the Family Court order on the terms he did, the wife had no notice of that intention. Accordingly, I consider the circumstances in the Richards case were sufficiently different from those in the present case that the judgment does not compel me to find in favour of the defendants. In my opinion, each case involving section 172 of the PLA must depend on its own facts.
[15][2001] VSC 466
77 In my view, there was sufficient basis in the evidence to infer an actual intent to delay, hinder, defeat, or defraud creditors by the making of the Settlement Agreement in 2012. The factors which led me to this conclusion included the following:[16]
[16]Other factors are referred to in this judgment – for example, paragraphs [79] – [83].
(a) the relationship between the transferor and transferee of the property, the disposal of Mr Lopez’s entire property and the questionable adequacy of consideration given by Mrs Lopez are all factors pointing to fraud;
(b) Mr Lopez appears to have lived at the property in 2014 when he was in Victoria. While paying no rent or board, he has continued to enjoy possession or use of the property;
(c) For Mr Lopez to dispose of the whole of his property where he had no income must inevitably prejudice creditors. The court can take into account that adult persons must intend the natural and inevitable consequences of their acts;[17]
(d) The transfer from a husband to his wife of the whole of the husband’s assets is an important factor, especially when the husband had earned no income since at least July 2008 and the transferee wife knew he had no income or other assets at the time of transfer.
[17]SeeChen v Marcolongo [2009] NSWCA 326, per Young JA and Lloyds Bank Ltd v Marcan [1973] 1 WLR 339, at 344 per Pennycuick BC, upheld by the Court of Appeal [1973] 1 WLR 1387.
78 Even if there were enough consideration to satisfy a conveyance, in this particular context, it is apparent that there is a substantial discrepancy between the value given by Mr Lopez in the form of his interest in the property and the value received from his wife. His half share in the property at the time of the Settlement Agreement was worth about $175,000 to $195,000. Mrs Lopez did not argue that the consideration she gave totalled an amount of this, or similar, magnitude. Where a disposition is voluntary rather than for valuable consideration and a necessary consequence of the alienation is to defeat or delay creditors, the inference of intent to defraud may be drawn more easily.[18] In my view, the inference can also be drawn where there is a substantial discrepancy in the value given and received by the transferor.
[18]DCT v Haritos (2014) 287 FLR 136 at [226]
79 The secrecy attaching to the Settlement Agreement suggests that it was, as Mrs Lopez said, a private arrangement between the couple rather than an agreement intended to be publicly known and publicised given the potential impact it might have on third parties who dealt with Mr Lopez in a business or financial context.
80 Mr Lopez engaged in activities which involved a level of financial risk. This was evident from his signing documents to effect the movement of investment monies from Australia to an account in a Spanish bank.[19] Mr Lopez involved himself in the overseas funds transfer even though he knew the investment funds were to be held in a non-depleting account in the CBA and were not to be removed from the control of the trustee. Thus, he knowingly assisted Apollo to breach the trust. I infer from the judgment of Judge Macnamara and the findings made against Mr Lopez that he knew that he had acted improperly and that those investors whose funds were lost might well seek a remedy against, or compensation from, him.
[19]It is possibly also evidenced by his alleged association with people involved in illicit drugs (even though he was not convicted of any offence).
81 While some time passed between the breach of trust and the transfer of property, Mr Lopez nevertheless acted in a way which involved a settlement or transfer of his property to his wife while leaving creditors without recourse if they made a claim against him. This was the very kind of conduct which the Statute of Elizabeth was designed to prevent.
82 I note also the comments of Clyne J in Re Trautwein,[20] where he said:
“With regard to the applicant’s claim under section 37 of the Conveyancing Act 1919 (NSW), it is, I think, clearly established that in determining whether or not an alienation has been made with intent to defraud creditors, a court must look at all the circumstances surrounding the alienation to ascertain if there were any such intent. It is not necessary to bring actual proof that the alienor had in his mind an intention to defraud creditors: for if it appears from the evidence that the effect might be expected to be and has in fact been to do so, the court will attribute the fraudulent intention to the alienor.”
This passage was referred to with approval by the Full Court of the Federal Court of Australia in PT Garuda Indonesia Ltd v Grellman[21] and DCT v Haritos.[22] I infer from the statement of principle in Trautwein that a person with obligations to creditors who chooses to divest himself of all his assets to his spouse can fairly be viewed as having the fraudulent intention if such conduct exposes existing or potential creditors to a major risk of non-recovery in respect of moneys owing to them.
[20](1994) 14 ABC 61.
[21](1992) 35 FCR 515 at [523].
[22](2014) 287 FLR 136 at [225].
83 Having regard to the whole of the material, I consider that any alienation of the property in January 2012 occurred with the requisite intent to defraud creditors and fell within the scope of section 172(1) of the PLA.
Did Mr Lopez alienate the property in January 2012?
84 Harstedt argued that the Separation Agreement did not constitute or give effect to an alienation of property because there was no consideration given for the transfer such that a court would have made an order for specific performance in favour of Mrs Lopez. Harstedt argued the consideration was illusory or colourable for several reasons.
85 First, Harstedt pointed out that Mr Lopez had no income in the financial years from 2009 to 2017 and accordingly, he was in no position to contribute to the maintenance of the property or the support of the dependent children. For this reason, the undertaking given by Mrs Lopez to meet expenses which her husband could not meet was said not to constitute good or valuable consideration. In other words, she had no option but to look after her children when Mr Lopez could not.
86 Secondly, Harstedt argued that the purported consideration was illusory on several bases. The agreement by Mrs Lopez to assume financial responsibility for the property was said not to be good consideration because every transferee of property would in the normal course assume responsibility for the costs and outgoings associated with the property whether the transfer was for consideration, gratuitous, or by operation of law.
87 Next, it was said that the willingness to take full financial responsibility for the dependent children was void at common law because, as a matter of public policy, parents could not divest themselves from responsibility for their children. Section 61C of the Family Law Act is consistent with the alleged common law position in providing that each parent of a child who is not 18 has parental responsibility for the child. In this context, parental responsibility means all of the duties, powers, responsibilities, and authority which the law confers upon parents in relation to their children.
88 Pursuant to the Child Support (Assessment) Act 1989 (Cth), it is possible for parents to make a binding financial agreement which precludes either of them from seeking a child support assessment. In the present case, the Separation Agreement does not constitute a binding financial agreement for the purposes of that Act because, inter alia, it does not comply with the formal requirements set out in section 80C(2) of the Act. Thus, Mrs Lopez remained entitled to obtain child support relief against her husband.
89 Further, pursuant to section 79 of the Family Law Act 1975 (Cth), either spouse could apply for a financial settlement within one year of their divorce. Given that Mr and Mrs Lopez remain legally married, the limitation period has not begun to run. Accordingly, the existence of the Separation Agreement would not prevent the Family Court from making the usual sorts of orders it makes in connection with financial settlements between former spouses.
90 Finally, Harstedt said that the consideration failed because Mrs Lopez in fact applied for child support from her husband under the legislation and obtained an order that Mr Lopez pay money.
91 Ultimately, Harstedt contended that because of the deficiencies in the consideration provided by Mrs Lopez for the Settlement Agreement, the transfer of the property was voluntary and therefore, the inference of fraudulent intent might be more easily made. Further, if there were no good or valuable consideration, there was no scope for the operation of section 172(3) of the PLA.
92 For her part, Mrs Lopez contended that her undertakings as set out in the Settlement Agreement were good consideration, such that section 172 of the PLA had no application on the transfer of property from Mr and Mrs Lopez to Mrs Lopez alone. In so arguing, Mrs Lopez relied upon what she called the modern day interpretations of consideration.
93 Mrs Lopez cited the decision of the New South Wales Supreme Court in Musumeci & Anor v Winadell Pty Ltd.[23] In that case, Santow J analysed when a promise to perform an existing duty may be valid consideration, notwithstanding the general rule that such a promise is not consideration. His Honour held that general rule is only avoided “where the promisor in fact obtains in practice a benefit or obviates a ‘disbenefit’, from the promise or its performance, so enabling the promisee’s reciprocal promise to be enforced”.[24]
[23](1994) 34 NSWLR 723
[24]Ibid at 738.
94 Mrs Lopez submitted that the effect of the Separation Agreement was the same as the effect of a contract of sale of real estate. She further submitted that Mr Lopez, who was living in Spain at the time the Separation Agreement was entered into, derived a practical benefit from her promises to take full financial responsibility for their dependent children and the subject property, along with her verbal undertaking to pay Mr Lopez’s credit card debt.
Analysis
95 In this area of the law, as shown by the High Court judgment in Barton v Official Receiver,[25] valuable consideration must be real and substantial and not merely nominal, trivial, or colourable. In my view, this means that consideration which might suffice in the context of a simple contract will not necessarily be sufficient to qualify as consideration in the context of defrauding creditors.
[25](1986) 161 CLR 75
96 Having regard to the purpose of section 172 of the PLA, it follows that the consideration provided must have a real and substantial value in order to prevent people from transferring their assets as a way of defrauding creditors.[26]
[26]Benson v Cook [2001] FCA 1684.
97 At the time of entering into the Settlement Agreement in 2012, the property was valued at approximately $350,000 to $390,000. Mr Lopez’s share was therefore worth between about $175,000 and $195,000.
98 At that time, Mr Lopez had no income and had not had any since July 2008. He was in no position to contribute financially to the property, and more importantly, would not ordinarily be expected to, unless he had an interest in the land. Mrs Lopez’s undertaking to satisfy the financial responsibilities of the property was one that, as the recipient or purchaser of land, she was required to undertake in the usual course. Normally the owner of land is responsible for the payment of outgoing and expenses associated the land. Her commitment to assume sole responsibility as the only registered proprietor was of no utility to Mr Lopez and cannot constitute good consideration.
99 At first glance, Mrs Lopez’s agreement to take full financial responsibility for the dependent children appears to be a significant one. However, upon further examination, I consider that this purported consideration is illusory.
100 Mrs Lopez’s financial undertaking as to the dependent children was, as Harstedt submitted, an obligation that would expire in relatively short order as the youngest child was 16 years old at the time the Settlement Agreement was executed. In addition, Mrs Lopez received government benefits from 2012 to 2014 in the amount of $19,830 for the minor child (as she then was). Moreover, Mrs Lopez was receiving payments for board from the children residing at the property.[27] These board payments exceeded Mrs Lopez’s own income in 2012 and 2013.
[27]See paragraph 45 above.
101 There appears to be substance in the submission that section 61C of the Family Law Act imposes responsibility on each parent of the child under the age of 18. I also accept that the Settlement Agreement here did not satisfy the formal requirements of a binding financial agreement as set out in section 80C(2) of the Child Support (Assessment) Act. Thus, Mrs Lopez remained legally entitled to seek child support relief against her husband.
102 Further, it was clear that Mr and Mrs Lopez are not divorced and that either party could apply for a financial settlement within one year of the divorce.
103 In circumstances where:
· the value of Mr Lopez’s share of the property at the time of entering into the SA was about $175,000-$195,000;
· as a result of the transfer to Mrs Lopez, she had full ownership of the property;
· Mrs Lopez received government funds of $19,830 in the 2012-2014 period for the youngest child and, in addition, received board payments from the other children ranging from $15,600 to $20,800 per annum in the 2012-2016 period;
· in two of the years the board payments exceeded the income earned by Mrs Lopez,
the consideration given by Mrs Lopez was significantly less than the value of her husband’s half share in the property. It was not adequate consideration in the context.
104 The effect of the family law matters referred to – family law legislation regarding responsibility for children, applications for child support, and seeking a financial settlement against a former spouse – was to the same effect. Any agreement of the kind alleged by Mrs Lopez did not provide sufficient consideration in the context.
105 Harstedt did not accept that any interest in the property had been alienated because there was no proper consideration for the reasons already referred to.
106 Aside from the argument regarding the adequacy of the consideration offered, Mrs Lopez’s case on the issue of alienation was strong. Mrs Lopez said the alienation of the property took place in January 2012 when the parties signed the Separation Agreement. In substance, the agreement was one for the sale by Mr Lopez of his interest in the property to Mrs Lopez. She contended that, in return for Mr Lopez’s interest, she promised to assume “full financial responsibility for the land and the children of the marriage” and she paid that price in full. As a result, she said the effect of the Settlement Agreement was to immediately pass the beneficial interest in the property from her husband to herself. She relied upon Lysaght v Edwards.[28] There, the Court said that the settled doctrine was that the moment there was a valid contract for sale, the vendor became in equity a trustee for the purchaser of the estate sold and the beneficial ownership passed to the purchaser. The vendor had a right to the purchase money, a charge or lien on the estate for the security of the purchase money and a right to retain possession of the estate until the purchase money was paid (in the absence of express contract as to the time of delivering possession).
[28](1876) 2 Ch D 499.
107 In my view, there was an alienation of the property in January 2012. Whether or not the property was alienated is independent of the adequacy of consideration. The concept of alienation includes a parting with property or some interest in property.[29] The alienation of land occurs whenever the owner of land, or of an interest in land, acts to divest himself or herself of that interest (or some lesser interest) and to vest the interest in another person.[30] Here, Mr and Mrs Lopez, by the Settlement Agreement transferred the equitable or beneficial interest in the property to Mrs Lopez alone and completed the transfer and registration of the legal interest in the property in 2017.
[29]S Robinson, The Property Law Act Victoria, (Lawbook, 1992), 406.
[30]In Re Symon [1944] SASR 102, 108 and authorities cited therein.
108 Although I consider that, from a conveyancing perspective, there was an alienation of Mr Lopez’s interest at the time of entering the Settlement Agreement, that did not necessarily mean that section 172 of the PLA had no application to these facts. This was because the characterisation of the requisite consideration differs according to the context. This particular context required consideration which was real and substantial, sufficient in value to qualify as proper, and not nominal consideration in relation to potentially defrauded creditors. I find that, in this case, there was not good or valuable consideration for the alienation.
Is Mrs Lopez saved by the operation of section 172(3) of the PLA?
109 For the reasons already canvassed, I do not consider that Mrs Lopez provided good consideration or valuable consideration to Mr Lopez when making the Settlement Agreement. The consideration was inadequate because:
· agreeing to be financially responsible for the property upon transfer to her was a natural incident of owning the property; and
· she was not fully responsible in a financial sense for all the children of the marriage. The two who were apprentices paid board. The two who were university students and received a government allowance, also paid board. The only child who did not pay board was the youngest who was aged 16 and still at school. Further, in relation to this child, Mrs Lopez received federal government payments which in the years 2012, 2013, and 2014, totalled approximately $19,800.
110 Even if I am wrong about this issue of consideration, I consider that Mrs Lopez, as transferee, did not act in good faith. As referred to by Vickery J in Groenveld Australia Pty Ltd v Nolten Vastgoed BV,[31] the concept of good faith means the transferee had no notice of any fraud or fraudulent purpose intended by her husband.
[31][2011] VSC 18.
111 In my opinion, Mrs Lopez failed to discharge her onus under section 172(3) to show that she acted in good faith.
112 First, I do not accept her evidence that the marriage with Mr Lopez was over in late 2011 and early 2012 and so, the alleged reason for the transfer of the property to her was unconvincing.
113 Secondly, Mr and Mrs Lopez had a history of acting together in a way best designed to facilitate the protection of the family home from creditors.
114 Thirdly, Mrs Lopez knew that her husband had borrowed against the Brougham Street property to raise funds to contribute to the investment trust of which Apollo Developments was the trustee. She must have been aware of the problem with the funds being sent overseas because her husband left for Spain in 2008 and did not return until 2014. She was commercially savvy enough to know that her husband, as the person who effected the transfer of funds from the CBA to Spain, might be sued by the other investors.
115 Fourthly, Mrs Lopez was an intelligent and strong-minded person and it was she who largely created the gym business and drove the success of the business. She knew that Mr Lopez in January 2012 had no income and that the transfer of the property to her rendered him without any assets. She was sufficiently shrewd to appreciate the benefit of having her husband appear destitute and without assets to dissuade anyone associated with the Apollo trust from suing him for any alleged wrongdoing.
116 In summary, the alienation of the property (or at least Mr Lopez’s equitable interest therein) effected by the Settlement Agreement is voidable and should be set aside.
Registration of the transfer in 2017
117 Mrs Lopez conducted her case on the basis that the property was alienated in January 2012 and thus, there was no need to consider the application of section 172 of the PLA to the transfer in 2017. I assume that at least part of the reason for this was a tacit acknowledgment that she would fail on the 2017 transfer. Given my conclusions in this case, there is no necessity to state my views regarding the latest transfer but I will do so briefly in case it becomes relevant.
118 The registration of the transfer of the property at the Land Titles Office in May 2017 completed the transfer of the legal estate which Mr Lopez held in the property. Here, it was likely that the registration of the transfer effected an alienation of the legal estate in the property. Given the timing of the registration and the evidence surrounding it, I conclude that Mr Lopez alienated the property with the intent to defraud creditors. The transfer was produced and executed very soon after Judge Macnamara gave judgment against Apollo Development and Mr Lopez. A significant purpose of the transfer was to ensure that Mrs Lopez retained ownership of the property.
119 For the reasons given regarding the January 2012 transaction, I find that Mrs Lopez did not give good or valuable consideration for the transfer. I find that Mrs Lopez did not act in good faith because she was aware of the risk to the property posed by the recent judgment in this court against Mr Lopez and was determined to save her property even if creditors were prejudiced. She was fully aware of the situation and indeed, she herself arranged the transfer and registration through Lorraine Secen.
120 Accordingly, to the extent that the 2017 transfer is relevant, then I consider it is voidable in favour of Harstedt.
Conclusion
121 In my opinion, the transfer of this property is caught by section 172 of the PLA and should be set aside in the interests of creditors. I will hear the parties on the form of final order and costs.
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