Huynh v Helleh Holdings Pty Ltd - [2001] NSWSC 1162

No judgment structure available for this case.

CITATION: Huynh v Helleh Holdings Pty Ltd [2001] NSWSC 1162

CURRENT JURISDICTION: Equity

FILE NUMBER(S): SC 2416/00

HEARING DATE(S): 28 - 31 May, 1, 2 & 22 August 2001

JUDGMENT DATE:
14 December 2001

PARTIES :

Van Tri Huynh (P)
Helleh Holdings Pty Limited (D1)
Hong Ve Duong (D2)
Scott Darren Pascoe (D3)

JUDGMENT OF: Hamilton J

COUNSEL : C Harris (P)
No appearance (D1)
B DeBuse (D2)
Submitting appearance (D3)

SOLICITORS: Maclarens (P)
No representation (D1)
Marsdens (D2)
Kemp Strang (D3)

CATCHWORDS: BANKRUPTCY [209] - Fraudulent disposition of property - Conveyancing Act 1919 s 37A - Proof of intent to defraud - Proof that alienation not to a purchaser in good faith not having notice of the intent to defraud - EVIDENCE [142] - Presumptions and weight and sufficiency of evidence - Generally - Credibility and weight - Party's failure to give or call evidence - Failure to call particular witnesses.

LEGISLATION CITED: Bankruptcy Act 1966 (Cth) ss 134 & 135
Conveyancing Act 1919 ss 37A(1) & (3)
Statute 13 Eliz I c 5

CASES CITED: Abignano v Wenkart (1998) 9 BPR 16,765
Cannane v J Cannane Pty Limited (In Liquidation) (1998) 192 CLR 557
Coghlan v Alexander (1905) 5 SR (NSW) 441
Earl of Chesterfield v Janssen (1751) 2 Ves Sen 125; 28 ER 82
Electrical Enterprises Pty Ltd v Rodgers (1989) 15 NSWLR 473
Ex parte Kirk (1745) 1 Atk 108; 26 ER 71
Glegg v Bromley [1912] 3 KB 474
Jones v Dunkel (1959) 101 CLR 298
Lloyds Bank Ltd v Marcan [1973] 1 WLR 1387
McGregor v Fraser (1913) 32 NZLR 1325
Middleton v Pollock (1876) 2 ChD 104
O'Donnell v Reichard [1975] VR 916
Payne v Parker [1976] 1 NSWLR 191
Prosser v Edmonds (1835) 1 Y&C Ex 481; 160 ER 196
PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515
Re Hyams; Official Receiver v Hyams (1970) 19 FLR 232
Re Johnson (1881) 20 ChD 389
Meagher, Gummow and Lehane "Equity Doctrines and Remedies" [1210]

DECISION: Judgment for the second defendant.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

HAMILTON J

FRIDAY, 14 DECEMBER 2001

2416/00 VAN TRI HUYNH v HELLEH HOLDINGS PTY LIMITED & ORS

JUDGMENT

: These are proceedings to set aside the sale of a property by the first defendant to the second defendant on the ground that the sale was entered into by the vendor with the intent of defrauding creditors (Conveyancing Act 1919 (“the CA”) s 37A(1)) and that the purchaser did not enter into the sale bona fide not having notice of the intent to defraud creditors (s 37A(3)), or on the ground of fraud. The relevant property is a house at 230 - 234 Cabramatta Road, Cabramatta, used as a doctor’s surgery (“the property”). The vendor was the first defendant, Helleh Holdings Pty Limited, the sole directors and shareholders of which were the doctor, Tan Thanh Le, and his wife, Thanh Dinh Thi Le. The purchaser was the second defendant, Hong Ve Duong, who was the husband of Dr Le’s receptionist, Thi Minh Dang Nguyen referred to both as “Mrs Nguyen” and “Mrs Duong”. The plaintiff is Van Tri Huynh, a judgment creditor of Dr Le, who sues in that capacity, and also as assignee of any rights of action of Scott Darren Pascoe as trustee of Dr Le’s bankrupt estate. Mr Pascoe was originally a plaintiff in the suit, but late in the day became unwilling to continue his instructions to the solicitors who were acting for him and Mr Huynh and was thereupon dismissed as a plaintiff but joined as third defendant in the proceedings.

2 The history of Mr Duong and Mrs Nguyen is relevant to the proceedings. I generally accept their account of this history without difficulty, except the portions relating to a woman called Nga Tran. Indeed, the history, except so far as it concerns Nga Tran, is not hotly disputed. Mrs Nguyen was born in 1953 and her husband in 1947. Her native place is Ca Mau, a city in Vietnam south of Saigon (now known as Ho Chi Minh City) and said to be about 400 km distant from it. Her mother continued to live in Ca Mau until she came to Australia in 1997 in the last years of her life. She died here in 2000. It is said that Mrs Nguyen was friends at school with Nga Tran and that that friendship has persisted until now. Mrs Nguyen has visited Nga Tran in Vietnam, including a visit in 1999. At the time she met and married Mr Duong she was working as a nurse. During the war in Vietnam he was a lieutenant in the South Vietnamese Air Force and a pilot, flying Cessna L19 aircraft. After the end of the war he was imprisoned by the Communist government in a re-education camp for three years. He had not previously lived in Ca Mau, but after his release from the re-education camp they went to live there. After two unsuccessful attempts they succeeded in escaping from Vietnam to Malaysia in a small boat. They left Mrs Nguyen’s mother in Ca Mau. They took with them only clothes and a small amount of gold. On the voyage they were robbed by pirates. At a camp in Malaysia they were accepted for immigration to Australia as refugees. They came to Australia in 1980. In Australia they lived for a short time in a refugee camp. In 1981 Mr Duong obtained a job at Sebel Furniture where he still remains. He has been a storeman and fork lift driver. They have one daughter, now grown up, who did not give evidence, but appears in various guises in the evidence. After leaving the refugee camp they lived in rented accommodation, but by 1984 had saved enough money to buy a block of land upon which in 1987 they built the house in which they still live, at 8 Ithaca Close, St John’s Park. Although Dr and Mrs Le are also Vietnamese in origin, Mr Duong and Mrs Nguyen did not know the Les in Vietnam. Mrs Nguyen first met Mrs Le in about 1995 when Mrs Nguyen’s daughter tutored Mrs Le’s son. In 1996 Mrs Nguyen was employed by Dr Le as the receptionist in his surgery, where Mrs Le also worked and works. In 1999 Mr Duong, Mrs Nguyen and their daughter, who it appears still lives with her parents, were each earning a full wage. Mr Duong and Mrs Nguyen had no property other than their house in Ithaca Close (which was still subject to a mortgage on which $85,000 was owing).

3 On 20 February 1997 the second plaintiff obtained judgment against Dr Le in the sum of $212,540 in proceedings in this Court. On 17 December 1998 an appeal by Dr Le against the judgment was dismissed with costs by the Court of Appeal. In interlocutory proceedings in the Court of Appeal an order had been made staying judgment pending the appeal on condition that Dr Le lodge $212,000 on trust with his solicitor to meet the judgment. On 24 December 1998 the second plaintiff obtained the release of $227,109.45, being the proceeds of that fund, in part satisfaction of the judgment debt. As at 16 December 1999 Dr Le was indebted to the second plaintiff in the sum of $244,804.84. A bankruptcy notice was issued to Dr Le on 1 September 1999. He was adjudged bankrupt on 7 December 1999 on his own petition. A bankruptcy notice was issued against Mrs Le on 22 March 2000 by the second plaintiff and his wife in respect of a judgment debt of some $37,000. She was adjudged bankrupt on 6 June 2000 and the third defendant was also appointed as her trustee in bankruptcy. The first defendant has been served in these proceedings and given notice of the trial, but has not filed a defence or participated in the trial. It is not in liquidation. Computerised accounts of the company for the years ended 30 June 1998 and 1999 are in evidence. The 1998 accounts show shareholders’ loans of $460,503 at the commencement of the year. That sum increased during the year by three items totalling $7,000 to $467,503. The three items were $3,600 attributable to Dr Le, $2,400 attributable to both Dr Le and Mrs Le and $1,000 not attributed. As I have already said, the only shareholders were Dr and Mrs Le. Thus, except as to the two items just mentioned totalling $6,000, there is no evidence as to whether the $467,503 was owed to one or both of them and, if the latter, in what proportions. The property appeared from those accounts to be the only substantial asset of the company and was shown on an at cost basis at $480,000. After his investigations, the Official Trustee was of the view that the shareholders’ loans had not been repaid. Although, as appears below, $405,000 of the proceeds of sale of the property were paid by direction to Mrs Le, the Official Trustee could find no trace of them in Mrs Le’s estate or, for that matter, in Dr Le’s. It appears that neither Dr Le nor Mrs Le has been examined under the Bankruptcy Act 1966 (Cth) (“the BA”).

4 The first defendant purchased the property in 1988 for $420,000. On 8 January 1999 it obtained a valuation of the property for stamp duty purposes in the sum of $550,000 from H R Deane (“the Deane valuation”). The Deane valuation was addressed to the Commissioner of Stamp Duties. It is not clear from the evidence whether the Deane valuation ever came to the attention of Dr Le and Mrs Le. The valuation was made on the basis that the property was zoned light industrial.

5 In her affidavit sworn 21 July 2000 Mrs Nguyen deposed as follows as to the history of her relationship with the Les:

“10 About three and half years ago, I commenced employment as a Receptionist at the Surgery. I was employed to answer the telephone when the callers were Vietnamese. I do not speak good English and if the caller was non-Vietnamese speaking, Mrs Le would take the call. I also carried out cleaning functions at the Surgery. My instructions were and are issued by Mrs Le and I worked under her supervision. I regarded her as my employer and I was respectful to her. I worked a six day week. Four days per week were set days and two days were casual. I earned $400.00 per week net from this occupation. I am still employed at the Surgery. I do not regard Mrs Le as my friend. I regard her as my employer.

11 I have had very little to do with Dr Le whilst working at his Surgery .

12 I did not discuss Mrs Le's business affairs with her. I did not hear Dr & Mrs Le discuss their business affairs. From time to time, I would hear them arguing but I do not know what they were arguing about. I could sometimes hear raised voices. I did not open the mail and was not allowed to access any information or documentation relating to the financial situation of Dr or Mrs Le. Mrs Le completed all administration tasks in the Surgery as Clinic Manager .

6 Mrs Nguyen’s evidence in the same affidavit as to how the subject transaction came to be entered into was as follows:

“14 The purchase/sale of the Surgery was first mentioned by Mrs Le to me in the middle of 1999. I do not remember the month. The first discussion took place at the Surgery. Mrs Le [sic] ‘I want to sell this Surgery because my husband owes people money. I want to pay them back. My husband and I are not happy any more’. I did not comment but went home and discussed this with my husband.

15 On a day not long after Mrs Le's statement I had a further discussion with her. I said to Mrs Le ‘How much do you want to sell the Surgery for?’ Mrs Le replied "A few months ago, I would have sold it for $550,000.00 to $600,000.00 but there was no interest. If you want it, I will reduce the price for you. I will sell it to you for $450,000.00’. I said ‘Why should we buy the property?’ She said ‘After you buy the property we will lease it back from you and this will be your income to make payments to the Bank.’ I said ‘I will have to discuss this with my husband and go to the Bank and arrange finance’. No one else was present during this discussion.

16 I discussed this matter with my husband. I thought that it would be a good opportunity for the family to advance itself. My husband was not enthusiastic about the purchase because we did not have enough money to buy. I spoke to a friend in Vietnam regarding the possibility of a loan. This person's name is Nga Tran. She is not related to Dr or Mrs Le. She is a close personal friend of mine. We grew up together and went through Primary and High School with me in Vietnam.”

7 Mrs Nguyen's account of her dealings with Nga Tran is as follows. When her husband was sent to the re-education camp she and her former schoolfriend set up a small business. This involved the purchase of material and medications and their sale into Saigon. At the time she left Vietnam the business was up and running and had stock. She left her share of the business and the stock to Nga Tran. The business has continued and prospered . As noted above, she also left her mother. Nga Tran was to provide anything needed for the mother out of the property left. By 1999 the mother was in Australia. Mrs Nguyen’s account in cross-examination of her telephone call to Nga Tran concerning the provision of money was as follows:

……

8 Mr Duong and Mrs Nguyen approached the Westpac Banking Corporation (“Westpac”) and sought to raise a loan for the purchase of the property relying on the incomes of both of themselves and that of their daughter. Westpac obtained a valuation of the property and Mrs Nguyen’s evidence as to what then occurred was as follows:

“21 The original purchase price was $450,000.00. We received a letter from the Bank asking us to come in and see them. We went to the Bank and we saw the same man, the manager named Garry. He said that the Bank had obtained a Valuation and the property was only worth $410,000.00.

22 After this visit to the Bank I had a further discussion with Mrs Le when the next occasion I went to work. I said ‘We don’t want to buy because we do not have enough money.’ She said ‘I cannot reduce the price.’ About a week later Mrs Le came to me and said words to the effect that she would agree with the price of $410,000.00.”

9 Different solicitors acted for vendor and purchaser and negotiation took place between them. One subject of negotiation was the terms of the lease. The solicitors were employed by late July. Contracts were not exchanged at once. One reason may have been the lack of the deposit at that time. It may have been decided to await settlement of the terms of the lease and confirmation of bank finance. The contract was finally entered into on 16 September 1999 for the price of $410,000 and was completed on 30 September 1999. Westpac in the end lent $292,000 secured by mortgage towards the purchase price and the balance was provided by Mr Duong and Mrs Nguyen. Although the first defendant was the owner of the property, it was Mrs Le to whom the balance of purchase price and the deposit totalling some $405,823 were paid by bank cheque on completion of the sale. This was on the direction of the first defendant’s solicitor. The property was on completion leased from Mr Duong by Dr Le for a total term (including options) of 12 years, also the term of Westpac’s finance facility, at a rent of $2,500 per month with annual CPI adjustments. In November 1999 Dr Le sold his practice, including a transfer of the lease, to a Dr Bright. The purchaser has since conducted a medical practice in the property and Dr Le works in that practice.

10 The plaintiffs by their amended statement of claim alleged that on 16 September 1999 (shortly after a bankruptcy notice was issued against Dr Le) the first defendant agreed to sell the land to the second defendant for $410,000 (par 8); that at the time of the sale the market value of the land was $550,000 or substantially in excess of $410,000 as both the first defendant and the second defendant well knew (par 9); that the contract was completed on 30 September 1999; that the first defendant did not use any part of the proceeds of sale to pay out its indebtedness to Dr Le and his wife; and that the net proceeds of sale were transferred by the first defendant or by Mrs Le to a bank account in her brother’s name in Hong Kong (par 10). It was charged that the intention of the first defendant in selling the land for only $410,000 was to prevent the first defendant from being able to repay its debt to Dr and Mrs Le and to prevent the second plaintiff from being able to recover from Dr Le his debt (par 11); and that the second defendant knew that the first defendant’s intention in selling the land to him for $140,000 less than its market value was to assist it in avoiding the payment of its creditors and also to prevent the second plaintiff from being able to obtain repayment of the money owed to him by Dr Le (par 12). It was charged that the sale was an alienation to defraud creditors within s 37A of the CA and a fraud by the first and second defendants (par 13) by which the plaintiff had suffered damage (par 14). The second defendant by his defence traversed all the material allegations. The plaintiffs rely on the inferences which they say may be drawn from the proximity of the transaction to the initiation of the bankruptcy; the absence of an indication from whence Mr Duong and Mrs Nguyen obtained the difference between the purchase price and the bank loan; and the sale at an undervalue, that there was an intent to defraud creditors and a fraud. The second defendant relied on the absence of proof of his knowledge of the Les’ affairs and his denial of any intention to participate in a fraud upon creditors or any fraud. The Court was asked to infer that the balance of the necessary moneys had come from the Les, or some source associated with them, and also suggested the inference that the property was being held for and would be returned to the Les at some stage.

11 Comment was made at various stages when the matter was before me prior to and at the trial on the apparent lack of efforts on both sides to prove certain material matters that it seemed would be amenable to at least some proof. The second defendant initially brought forward no evidence of any sort from Nga Tran, who was said to be the source of the money. There was suggestion, at least at the interlocutory stage, that, as Nga Tran was still living in a Vietnam ruled by a Communist government, her personal or financial wellbeing could be put at risk by any inquiry being made of her, particularly if it were made on behalf of the plaintiffs, as to her participation in this transaction and as to her financial affairs. However, it was equally notable that the plaintiffs appeared to be making little or no effort to obtain what banking documents might be able to be obtained to show where the funds had come from. And, as I have said, no one seems to have taken any steps to have the Les examined under the BA. Some efforts were made with some success to remedy some of these matters late in the day. So far as Nga Tran is concerned, what is even more curious is that, when her account of the facts was brought forward late in the day, it was in the form of a document said to have been faxed from Vietnam and bearing the date 2 August 1999, so that it appeared to have been in Mrs Nguyen’s possession for many months before it was brought forward. It is said that it was received on the fax machine in the surgery. As well as having the date 2 August 1999 in what purported to be Nga Tran’s handwriting, it bore a fax transmission imprint showing that date and identifying the source as “Saigon Fax”. The form on which it was written also had the heading (in English) “Vietnam Posts and Telecommunications Saigon Bfax”. It was directed in the handwriting in which the body of the document was written to what was said to be the surgery fax number. The body of that document translated by an official interpreter was as follows:

“DANG!

I have asked my business partner in Singapore to send the amount of money as previously discussed by phone. At the present, from your business capital over here, I am sending you US $30,000 in the first instance. As for my part, I am sending you as a loan US &70,000 [sic]. If this is not enough, let me know and I will try to get more. In regards to the interest, as you keep insisting that you have to pay for it, so, in the interim, I shall charge you $5,000 in the Australian currency at the end of each year as mentioned by you. This is because if I do not take it then you will feel uneasy and may not borrow the money. I still remember your good deeds before when you helped me in my business. Nowadays, thanks to the Almighty God, I am quite well off so I keep remembering your kind act before. You'll just keep the interest over there, my child will soon go to Australia to study. The paperwork is about to be finalised. When he/she arrives there, please give him/her the money for me. I will need to ask you to look after everything for me; if there is anything, give me a call. These days I stay home more often to let him look after the business because I am not very well at the present and I intend to rest a bit. Upon receipt of the money, remember to phone me so that I can fix up the bookkeeping work with the other people. Send my regards to brother VE and little TRANG for me.

12 Whether or not this document should have remained in evidence was itself a matter of contention. The document itself was p73 and the translation p74 in a bundle of documents tendered at the trial on behalf of the second defendant. They were unequivocally and unconditionally received into evidence on 28 May 2001, the first day of the trial. Next day, Mr Christopher Harris, of counsel for the plaintiff, sought to have the documents excluded from evidence. He conceded that he had made no objection to their tender but said that this was under a misapprehension that there was going to be an affidavit from Nga Tran which would give him the right of cross examination. Whilst I do not doubt Mr Harris’ statement about his subjective frame of mind, I found it difficult to understand how such an impression could have arisen. Nga Tran’s version of the matter and her very existence had been under challenge. Objection was made by the second defendant at all times to revealing her address in Vietnam, and there was resistance to any suggestion that she should come to Australia to give evidence. No affidavit or other statement by Nga Tranh was served. There is no question that the plaintiff’s advisers were aware of the presence of these documents in the bundle tendered and of the unequivocal call for objections to the tender and of the unconditional admission of the documents. The trial was thereafter conducted for a day on the basis that this material was in evidence. The plaintiff’s counsel cross examined the second defendant concerning the subject matter of the fax: see my judgment of 29 May 2001 at [10]. Even though the documents may well have been rejected if objected to, in light of the above circumstances I refused to remove the documents from evidence.

13 On 31 May the proceedings were adjourned to 1 August 2001. On that day the second defendant tendered copy bank vouchers that indicated that the following amounts had been transmitted from Singapore to the joint account of Mr Duong and Mrs Nguyen at the Bankstown Old Town Plaza Branch of the Commonwealth Bank of Australia:

10 August 1999	$A 18,818.00
11 August 1999	$US 12,362.29
11 August 1999	$A 9,409.00
18 August 1999	$US 5,872.78
18 August 1999	$A 100,000.00
24 August 1999	$US 6,041.52

14 None of these matters, of course, corroborates the existence of Nga Tran or establishes that it was from her or at her instance that the funds were transmitted. For all that the documentation (other than the fax from Nga Tran) shows, the funds could have been transmitted at the instance of or from an associate of the Les. In the end, whether or not I accept that the funds were furnished by Nga Tran to Mr Duong and Mrs Nguyen as they allege depends upon my acceptance upon the balance of probabilities of their word to that effect, including their word as to the genuineness of the fax.

15 Both Mr Duong and Mrs Nguyen were cross examined before me at some considerable length. Mr Duong was not an impressive witness. His evidence contained inconsistencies and equivocations which were listed in detail in the plaintiff’s written submissions. Many of these were as to matters central to his case. There must be remembered that he was born into and lived for many years in a culture significantly different from ours and also his experience as a prisoner in a re-education camp after the end of the hostilities in Vietnam. It is hard to say to what extent he may have difficulty in dealing with questions asked by or in front of persons in authority. The language barrier must also be borne in mind. Mr Duong gave evidence through an interpreter, despite having been in Australia for nigh 20 years. It was suggested that he knew more English than he pretended and gave evidence in Vietnamese to give himself an advantage. I did not form the impression that this was so. He clearly spoke some English, but not enough, I thought, to give evidence in English. I had an impression that the difficulties of translation may have had considerable effect both on the giving of his evidence and of communication with his solicitors (who were not Vietnamese speaking) about such matters as the discovery or production of documents. However, none of that renders his evidence very impressive. I do not reject his evidence outright, but approach anything he said with caution.

16 Mrs Nguyen was a more impressive witness. She was much more prepared to engage with the questions and give what appeared to be reasonably direct and considered answers to the questions she was asked. She gave her evidence in English with little assistance from an interpreter. However, her English was broken, as will appear from her answers in cross examination which are set out in [7]. The language and communication problem was still a real difficulty in her evidence. In the end, I formed the view that she was attempting to convey to the Court the truth as to the matters she was asked about as she saw them.

THE LAW

“37A(1) Save as provided in this section, every alienation of property, made … with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced.

……

(3) This section does not extend to any estate or interest in property alienated to a purchaser in good faith not having, at the time of the alienation, notice of the intent to defraud creditors.”

17 The law as to the nature and proof of intent was stated in the High Court in Cannane v J Cannane Pty Limited (In Liquidation) (1998) 192 CLR 557 by Brennan CJ and McHugh J at 566 - 567 as follows:

“[12] Although the party impugning the disposition of property must show an actual intent to defraud creditors at the time of the disposition, the intent may be inferred (Noakes v Harvy Holmes (1979) 37 FLR 5 at 10-11) from the making of a disposition which, to adopt the words of Lord Hatherley LC in Freeman v Pope (1870) 5 Ch App 538 at 541, ‘subtracts from the property which is the proper fund for the payment of [the] debts, an amount without which the debts cannot be paid’. The ‘proper fund’ may consist in assets out of which future creditors as well as present creditors would be entitled to be paid a dividend in respect of what is owing to them. Therefore a subtraction of assets which, but for the impugned disposition, would be available to meet the claims of present and future creditors is material from which an inference of intent to defraud those creditors might be drawn. Whether that inference should be drawn depends upon all the circumstances of the case.

[13] If property be disposed of by sale and the sale price received by the disponor is equal to the true value of the property at the time of the disposition, the creditors have an undepleted fund against which to prove their debts. But if property is sold for an undervalue or is given away, that fact is relevant to the intent to be attributed to the disponor in disposing of the property (Lloyds Bank Ltd v Marcan [1973] 1 WLR 1387 at 1392; [1973] 3 All ER 754 at 761). The value of property at the time of disposition may reflect, of course, the prospect of its future increase or decrease in value. But disposition of property at an undervalue is only a fact from which, dependent on the surrounding circumstances, an inference of fraudulent intent may be drawn. In Williams v Lloyd; In re Williams (1934) 50 CLR 341 at 372, 377, 378, a majority of the Court declined to draw that inference when the disponor was in a financially sound position and transferred property to his wife and children because his wife sought to have the family property preserved against the hazard of loss by her husband.”

18 The plaintiff, in his initial written submissions, contended that the onus of proof of good faith rested on the second defendant. He did not persist in that submission, which is clearly wrong. The meaning of “good faith” in the relevant sense and the burden of proof were discussed by the Full Court of the Federal Court (Wilcox, Gummow and von Doussa JJ) in PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515. That case again concerned s 121 of the BA, but the discussion again applies equally in respect of s 37A(3). Their Honours said at 527 - 528:

“The notion of good faith is common to the protective provisions of both ss 120 and 121. In each section it is the good faith of the settlee or disponee respectively that must be considered. This is clear from the language of s 121, and well established by authority in the case of s 120: see Mackintosh v Pogose [1895] 1 Ch 505 at 509-510; Re Hyams; Official Receiver v Hyams (1970) 19 FLR 232 at 256.

In Butcher v Stead (1875) LR 7 HL 839 the Lord Chancellor (Lord Cairns) said (at 847) in relation to s 92 of the Bankruptcy Act 1869 (UK): ‘I think there can be no doubt that the words “in good faith” mean without notice that any fraud or fraudulent preference is intended.’ In Re Hyams; Official Receiver v Hyams (at 256) Gibbs J, in relation to the meaning accorded to good faith by the Lord Chancellor in UK Butcher v Stead (supra), said: ‘ ... In the context of the Australian statute this exposition may be modified to read “without notice that any fraud or preference contrary to the statute is intended”.’ This formulation of the meaning of "in good faith" in s 120(1) was applied by the Full Court of the Supreme Court of Queensland in Re Pacific Projects Pty Ltd (In liq) [1990] 2 Qd R 541 at 545. Gibbs J, when sitting as a judge of the Supreme Court of Queensland, had earlier posed the relevant question in a case under s 46 of the Mercantile Act 1867 (Qld) as whether the disponee of a disposition made by the disponor with intention to defraud creditors was ‘privy to the fraud’: see Re Barnes; Ex parte Stapleton (supra) (at 240).

19 The plaintiff correctly points out that, to be entitled to relief under s 37A, a plaintiff must establish that there has been:

'steal'

20 In his submissions, the second defendant emphasises that an intention to prefer one or more creditors over others, rather than an intention to defraud creditors generally, does not fall within the statute: Middleton v Pollock (1876) 2 ChD 104 at 108; Re Johnson (1881) 20 ChD 389 at 392; Glegg v Bromley [1912] 3 KB 474 at 484; and Abignano v Wenkart (1998) 9 BPR 16,765 at 16,776 – 16,777. There is no evidence that creditors of the first defendant were defrauded. The creditors referred to by the section are creditors of the alienor. The plaintiff was not a creditor of the first defendant. There could be no question of the first defendant defrauding its own creditors, since its only creditors were its controllers, and it is unlikely that they intended to deceive themselves. The plaintiff must be a person "thereby prejudiced", ie, prejudiced by the impugned transaction. Here, the cause of any loss to the plaintiff is not the sale of property, but the disappearance or transfer of the proceeds of the sale overseas. In respect of the requirement of good faith, there is a requirement, at least where the conveyance is for consideration, of dishonest intention: Lloyds Bank Ltd v Marcan [1973] 1 WLR 1387 at 1392; Electrical Enterprises Pty Ltd v Rodgers (1989) 15 NSWLR 473 at 497. What is required is subjective intention. There is no duty to inquire: Coghlan v Alexander (1905) 5 SR (NSW) 441; Re Hyams; Official Receiver v Hyams (1970) 19 FLR 232 at 256, 261. In any event, in the circumstances there was no basis for Mr Duong to have been on inquiry. There is simply no basis in the evidence for any assertion that Mr Duong knew anything of the first defendant’s or the Les’ financial affairs at all. The plaintiff cannot succeed because the assignment by the third defendant to the plaintiff is invalid. Its terms are too broad and do not adequately or properly define what is assigned. The rights purported to be assigned are personal to the third defendant and cannot be assigned.. In any event, a bare right to sue in equity to set aside a deed for fraud may not be assigned: Prosser v Edmonds (1835) 1 Y&C Ex 481; 160 ER 196; McGregor v Fraser (1913) 32 NZLR 1325. In any event, the operation of s 37A of the CA is excluded by the operation of s 109 of the Constitution because the proceedings deal with the estate of a bankrupt: it is part of the plaintiff’s claim that Dr Le is entitled to recover from the first defendant the debt owed to him by it; the only provisions applicable are the relevant provisions of the BA.

21 The plaintiff submits in reply that the principle in Jones v Dunkel does not apply in the circumstances. The second defendant might not reasonably be expected to call either Nga Tran or the Les: O'Donnell v Reichard [1975] VR 916 at 929; Payne v Parker [1976] 1 NSWLR 191 at 201 – 202. Under ss 134 and 135 of the BA the trustee has the right to sell a bare cause of action.

22 Before proceeding to consider whether the requirements of s 37A of the CA are met, there are two preliminary questions of fact to be determined. They are, first, whether the sale of the property by the first defendant to the plaintiff was at an undervalue and, secondly, whether the Court accepts Mr Duong and Mrs Nguyen’s account of the source of the cash funds which were used in the purchase of the property.

23 As to the first question, there is the conflicting evidence of two valuers, Mr Barone, who made the Barrone valuation for Westpac at $410,000, and Mr Sorrenson, who made a valuation of the property as at the date of sale at $550,000 for the plaintiff (“the Sorrenson valuation”). I accept Mr Sorrenson’s evidence as showing the real value of the property at the time of the sale. The Deane valuation at the same figure had been obtained for stamp duty purposes early in 1999, but on the basis that the property was zoned special industrial. The Sorrenson valuation was avowedly made as a fair market value, whereas the Barone valuation was made for Westpac for mortgage purposes, a type of valuation usually made on a more conservative basis for obvious reasons. Mr Sorrenson was a very much more experienced valuer than Mr Barone, who had only short experience at the time that he made his valuation. The principal difference of method was that Mr Sorrenson did give, whereas Mr Barone declined to give, weight to or allowance in his valuation for the fact that the property had a potentiality to be rezoned from a purely residential zoning (which it had at the date of sale) to a zoning for special industrial purposes. Whilst it is obvious there must generally be great caution in assigning an increased element of value for a prospective rezoning, there was good ground for doing so in the peculiar circumstances of this property. The property is adjacent to properties on Cabramatta Road which were at all times zoned special industrial. The property had itself previously been zoned special industrial. There was evidence that the Council was firmly inclined to approve a rezoning of the property to be again special industrial. Furthermore, reality is given to the view that there was at the relevant date a real potentiality for rezoning by the fact that the rezoning to special industrial has indeed been effected since that date and the property is at present zoned special industrial. Mr Barone seems also to have omitted from consideration a recent comparable sale that supported the higher valuation. I also take into account the manner in which Mr Sorrenson and Mr Barone respectively gave evidence and dealt with cross examination. In all the circumstances, I accept that the Sorrenson valuation at $550,000 reflected the real value of the property at the time of the sale. On that basis, the sale at $410,000 was at an undervalue of some $140,000.

24 In light of what has been said above about the onus of proof, the question as to whether or not I accept the first defendant and his wife’s account of the source of the cash funds which were used in the purchase might be better stated as whether the plaintiff has established that the moneys used by them were not from the source asserted by them, bearing in mind that it is for the plaintiff to establish that the purchase by them was not made bona fide. The question of whether their word ought be accepted on this subject matter I have found a difficult one. Many reasons have been put forward to doubt their word, some of them of considerable substance. There was great reluctance on their part to reveal Nga Tran’s whereabouts. No affidavit by her has been produced, nor any really convincing evidence that she could not make an affidavit. There is not squarely any evidence that she has been firmly asked to come to Australia to give evidence and refused, rather than simply expressing reluctance to come. The second defendant was not an impressive witness. Even the banking documents that were finally produced do not indicate the ultimate source of the funds and are consistent with the plaintiff’s assertion that they emanated from the Les or their associates. Both the banking vouchers and the document said to emanate from Nga Tran were produced late after non-production in response to earlier demands. In the case of the Nga Tran document, it was, on Mr Duong and Mrs Nguyen’s story, already in their possession when not brought forward in answer to those demands. However, whilst Mrs Nguyen’s version of when and through what fax machine the Nga Tran document was received was challenged, it was not squarely put to the second defendant or Mrs Nguyen in cross examination that they fabricated or were involved in the fabrication of the text of the document, nor was it squarely put to them (particularly to Mrs Nguyen, who might be thought to be familiar with Nga Tran’s handwriting) that the handwriting in the document was not Nga Tran’s. The document, as I have observed, was admitted into evidence without objection and I subsequently refused to remove it from evidence. It was suggested that the document must be false because it named Ho Chi Minh City as Saigon and that the apparently genuine fax transmission inscription at the top of it may be faked, but no evidence was led on the plaintiff’s part that the name “Saigon” is not used in Vietnam as part of commercial titles such as “Saigon Bfax” or as to how fax transmission notes may be fabricated.

25 As I say, considerable doubts have been thrown on Mr Duong and Mrs Nguyen’s accounts and on the Nga Tran document and the circumstances of its receipt. However, I have already indicated that I accept Mrs Nguyen overall as a witness of truth and in the end, on the balance of probabilities, I accept her account of when and how the fax arrived and when and where the moneys came from. Whilst no doubt it may said that the story of the old association with Nga Tran is very convenient, I do not in light of the troubled history of Vietnam over the last 30 years regard as utterly improbable the story that Mrs Nguyen and her friend started a trading business in the early days after the hostilities; that Mrs Nguyen left her interest in it behind when she fled the country with her husband after his release from detention; and that in the changed circumstances of the 1990s the friend who had made good was both prepared to recognise an old friendship and a financial advantage that she had gained a long time ago in the way in which she is said to have done. I do not forget the fact that even the envelope in which the bank statements were received was thrown away. It is also put that it was virtually inconceivable that the second defendant and his wife, whose only asset was their comparatively modest home subject to a mortgage, together with their daughter, should enter into an enterprise for the purchase of this commercial property for more than $400,000. However, it seems to me that they were offered a once in a lifetime opportunity to acquire a property in circumstances (with the promise to take a lease which would essentially cover the repayments) that would greatly improve the financial future of all three of them. That the whole idea was not entirely fanciful is shown by the fact that in reliance upon the incomes of all three of them Westpac was prepared to make a substantial loan for the purpose. Again, I do not regard it as utterly improbable that, given the opportunity, it should have been taken. As I have said, on the balance of probabilities, I accept the second defendant and Mrs Nguyen’s evidence in these regards.

26 It is contended on behalf of the plaintiff that inferences arise from the plaintiff’s failure to call Nga Tran and the Les and that these should result in the opposite conclusion. In my view the inferences do not arise. In the case of Nga Tran, despite what is said about Nga Tran in [24], the fact remains that she is overseas and not subject to compulsion as a witness and it does not appear on the evidence that she is willing to travel to Australia to give evidence. So far as the Les are concerned, I do not regard them as witnesses whom the second defendant might reasonably be expected to call. They are the directors of the first defendant, which is a party to the proceedings, although not represented at the trial. On the plaintiff's case they are the perpetrators of the fraud of which he complains. They were certainly on the evidence involved in abstracting the proceeds of sale of the property from the first defendant and disposing of it so that it did not form part of their bankrupt estates. Their interests are not coincidental with the interests of the second defendant. More importantly, on his case they are the persons who involved him in the transaction said to be fraudulent and they did not reveal to him the facts constituting the alleged fraud. Neither of them is a witness he might reasonably be expected to call. In regard to both these matters, see Payne v Parker ibid.

27 As I have said, the plaintiff’s submissions accurately set out the elements which must be established for the plaintiff to succeed under s 37A. To succeed the plaintiff must establish both that he was disadvantaged by an alienation of property with intent to defraud creditors and that the second defendant did not acquire the property bona fide without notice of the fraud. Since I have come to a clear conclusion that, assuming the establishment on the facts of the first of these matters, the second of these matters is not established and that the plaintiff therefore cannot succeed, I shall deal with the second matter first.

28 The requirement of sub s (3) is that the second defendant must have received the transfer of the property as a purchaser in good faith who did not at the time have notice of the intention to defraud creditors. It is my conclusion that the plaintiff has not established that the second defendant was lacking in good faith or that he was not a person who did not at the relevant time have notice of the intention to defraud creditors. These are matters on which, on the authority cited in [18] above, the plaintiff bears the onus of proof. In this regard I have already recorded that I accept that the source of the cash moneys which were paid on completion were moneys received byto Mrs Nguyen and furnished by her for use in the transaction. I accept that Mr Duong, Mrs Nguyen and their daughter were purchasing the property on the basis that it was a good opportunity offered to them to improve their financial situation and within their reach because the rental which the property would produce would permit payment of the Bank loan, which their combined incomes were sufficient to procure.

29 Mrs Nguyen’s evidence is that Mrs Le told her that it was desired to sell the property to pay some debts of Dr Le. But people choose at times to liquidate assets to reduce their debts without being on the verge of bankruptcy and I do not think that it should be inferred that Mrs Nguyen or Mr Duong should have come to the conclusion from having been told this that Dr Le, Mrs Le or the first defendant were on the verge of bankruptcy or in financial difficulties at all. In view of my general acceptance of Mrs Nguyen’s evidence, I do not find it difficult to accept that she did not have any extensive knowledge of the Les’ financial affairs, much less that Mr Duong did. Indeed, it is simply not established on the evidence that Mr Duong knew anything of their financial affairs nor of any dishonest intention that they had. In my view the conclusion cannot properly be drawn on the evidence that Mr Duong was lacking in good faith or had notice of any intention to defraud creditors on the part of the first defendant or, so far as it is material, on the part of Mrs Le or Dr Le.

30 Equally, I do not think it can be concluded on the evidence that Mrs Nguyen or Mr Duong was aware at the time of the contract or the transfer that the property was being sold to them at an undervalue, despite my conclusion about the valuation evidence: see [23]. Mrs Nguyen’s account of what Mrs Le had told her included that Mrs Le had been earlier looking for a higher price for the property. However, it was clear that that price had not been obtained. It did not flow in my view from the fact that she was now prepared to sell for less that the property was necessarily in fact worth any appreciable amount more than $450,000. However, most importantly, even if it had been believed in the first instance that $450,000 was an advantageous price, the basis of that belief was in my view dispelled by Westpac’s receipt of a valuation at $410,000. Mrs Nguyen and Mr Duong were informed to that effect. I accept that Mr Duong insisted on the price being reduced to that level before he would continue with the transaction and that he believed at the time that he entered into the contract and took the transfer that that was indeed the true value of the property.

31 The result of these conclusions is that the plaintiff has not made out a case for relief under s 37A of the CA.

32 So far as concerns the first matter, whether the plaintiff was disadvantaged by an alienation of property with intent to defraud creditors, the plaintiff also faces difficulties. The first element is that there should have been a transfer of property. That this occurred is undoubted. Secondly, in my view it is not difficult to draw the conclusion that the abstraction of moneys from the company by both the Les or by Mrs Le was with the intention of enabling Mrs Le to put the money beyond the reach of creditors. The timing of the transaction, the surrounding circumstances (including the payment of the moneys to Mrs Le in satisfaction of a debt to her the existence of which is not established) and the disappearance of the funds so that they were not able to be found by the Official Trustee in either Dr Le or Mrs Le’s bankrupt estate makes that inference easy to draw and I do draw it.

33 However, the second defendant submits that there was no relevant fraud. The relevant creditors, being the only creditors of the first defendant, were Dr Le and Mrs Le. They, as the controlling minds of the company, could not be found to be defrauding themselves. However, as noted in [17] above, the relevant concept of fraud is the diminution of the pool available to satisfy the relevant creditors. If the available pool were diminished, it would cease to be available not only to the first defendant's creditors, but to those claiming through them, who might indirectly have access to the pool. On the facts of this case, that would include the plaintiff, who was a judgment creditor of Dr Le and who would be disadvantaged by loss of access to the pool. On this analysis, it seems to me that the existence of a fraud within s 37A is not excluded by the fact that the controllers of the first defendant were identical with its actual creditors. There was an alternative argument that the creditors contemplated by s 37A are not limited to creditors of the alienor, but may include anybody who can be characterised as a creditor, including the plaintiff, who may have relief if disadvantaged by the alienation. It is not necessary in the circumstances to consider this argument.

34 As the plaintiff concedes, it is important to bear in mind that it is necessary that it was the impugned transaction that caused the requisite element of disadvantage to the plaintiff for the plaintiff to succeed. If the abstraction of the value of the property from the resources of the first defendant available or potentially available to creditors were effected, not by the impugned transaction, ie, the sale of the property, but by another transaction, then the impugned transaction could not be struck down under the statute. The only transaction impugned in these proceedings is the transfer of the property from the first defendant to the plaintiff. The second defendant argues that, if the sale was at full value and if the vendor received that full value, it could not be said that the plaintiff was disadvantaged by the transaction. The fund available for the first defendant’s creditors would not be diminished by the property owned by it simply being converted into a cash fund in its hands. If the sale was at an undervalue and the price was received, then the degree of the creditors’ disadvantage would simply be the amount of the undervalue, in this case on the finding I have made $140,000 out of a value of some $550,000, not the whole value of the property.

35 The second defendant argues that what happened here and what really removed the bulk of the funds from the purview of the plaintiff and the creditors generally was that the first defendant received the funds (thereby putting them for the moment into the funds available for its creditors), then paid them away to Mrs Le. If this was in satisfaction of a debt to her, thereby at most it preferred one creditor over others, a preferential payment to creditors not evincing an intent to defraud that is caught by s 37A. The difficulty with this argument is that the payment was to Mrs Le alone and it is not established by the material concerning shareholder loans set out in [3] above that Mrs Le was a creditor for that sum or any particular sum. But the principal argument is that it was not by the alienation but by this second separate transaction that the funds were abstracted.

36 To counter this principal argument, it is argued on the plaintiff’s behalf that the funds never reached the first defendant: the whole point of the scheme was that, instead of being received by the first defendant on the completion of the sale, they were diverted from the first defendant to Mrs Le in a fashion which meant that they were simply abstracted and made unavailable to creditors without ever having reached the first defendant. Equally, in my view, this argument is not correct. Although the bank cheques given at settlement were made out in Mrs Le’s favour, so that the funds never reached any bank account of the first defendant, the cheques were made out in that fashion by direction of the first defendant, which was the only person entitled validly to give such a direction to the second defendant at the time of settlement, and that cheques were delivered in that form in accordance with that direction. In my view, the correct view of the situation is that the moneys were paid to or at the direction of and must be taken to have been received by the first defendant at the time of settlement, whatever it was that the first defendant did with them and however immediately afterwards. In those circumstances it appears to me that (except for the matter of the undervalue) it cannot be said that it was by the impugned transaction (rather than by the way in which the first defendant dealt with the moneys after their receipt) that the plaintiff or any creditor of the first defendant was disadvantaged by the abstraction after settlement of the purchase moneys.

37 It could only therefore be by the amount of the undervalue that creditors of the first defendant could be said to have been disadvantaged by the transaction impugned. However, by reason of my findings as to the state of mind of the purchaser, my conclusion as set out above is that no contravention of s 37A has been established.

38 For the same reason, if for no other, the plaintiff cannot succeed in its cause of action in fraud. If the facts do establish a fraud on the part of the first defendant actionable in equity independently of s 37A, there was no participation in or knowledge of that fraud on the part of the second defendant and the plaintiff cannot succeed against him.

39 In these circumstances, it is not necessary to determine whether the assignment from the third defendant to the plaintiff was valid. The provisions of ss 134 and 135 of the BA referred to by the plaintiff do not appear to me to assist him. But whether the principle in Prosser v Edmonds supra should still be regarded as precluding relief in the year 2001 in a suit in which the assignor was originally a plaintiff and was removed to the ranks of the defendants on withdrawing instructions from the plaintiff’s solicitor and bearing in mind the radical changes of recent years to the laws of champerty and maintenance in this State must be doubtful.

40 As to the issue of whether or not s 37A of the CA applied at all in view of the fact that the plaintiff was the creditor of Dr Le, a person who was bankrupt, it was submitted that in these circumstances the operation of the BA including s 121, alone applied in the situation, and that the operation of s 37A of the CA was precluded by the operation of s 109 of the Commonwealth Constitution. The argument of this question would in my view have necessitated notice to the Attorney Generals of the Commonwealth and of the States pursuant to s 78B of the Judiciary Act 1903 (Cth) to permit them to intervene and argue this question if desired. To prevent the trial of the antecedent factual questions which I have now determined being encumbered by this process I ordered that the question of the application of s 37A by reason of the operation of the Constitution be tried separately from and after the other questions in this case. By reason of my determination of these issues in the fashion in which I have determined them the determination of that question will not now be necessary.

41 The only order necessary to give effect to my decision is that there should be judgment for the second defendant on the plaintiff’s claim. It appears inevitable that the plaintiff should be ordered to pay the second defendant’s costs of the proceedings.

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Last Modified: 12/18/2001

Citations

Huynh v Helleh Holdings Pty Ltd [2001] NSWSC 1162

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CITATION:	Huynh v Helleh Holdings Pty Ltd [2001] NSWSC 1162
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 2416/00
HEARING DATE(S):	28 - 31 May, 1, 2 & 22 August 2001
JUDGMENT DATE:	14 December 2001
PARTIES :	Van Tri Huynh (P) Helleh Holdings Pty Limited (D1) Hong Ve Duong (D2) Scott Darren Pascoe (D3)
JUDGMENT OF:	Hamilton J

COUNSEL :	C Harris (P) No appearance (D1) B DeBuse (D2) Submitting appearance (D3)
SOLICITORS:	Maclarens (P) No representation (D1) Marsdens (D2) Kemp Strang (D3)
CATCHWORDS:	BANKRUPTCY [209] - Fraudulent disposition of property - Conveyancing Act 1919 s 37A - Proof of intent to defraud - Proof that alienation not to a purchaser in good faith not having notice of the intent to defraud - EVIDENCE [142] - Presumptions and weight and sufficiency of evidence - Generally - Credibility and weight - Party's failure to give or call evidence - Failure to call particular witnesses.
LEGISLATION CITED:	Bankruptcy Act 1966 (Cth) ss 134 & 135 Conveyancing Act 1919 ss 37A(1) & (3) Statute 13 Eliz I c 5
CASES CITED:	Abignano v Wenkart (1998) 9 BPR 16,765 Cannane v J Cannane Pty Limited (In Liquidation) (1998) 192 CLR 557 Coghlan v Alexander (1905) 5 SR (NSW) 441 Earl of Chesterfield v Janssen (1751) 2 Ves Sen 125; 28 ER 82 Electrical Enterprises Pty Ltd v Rodgers (1989) 15 NSWLR 473 Ex parte Kirk (1745) 1 Atk 108; 26 ER 71 Glegg v Bromley [1912] 3 KB 474 Jones v Dunkel (1959) 101 CLR 298 Lloyds Bank Ltd v Marcan [1973] 1 WLR 1387 McGregor v Fraser (1913) 32 NZLR 1325 Middleton v Pollock (1876) 2 ChD 104 O'Donnell v Reichard [1975] VR 916 Payne v Parker [1976] 1 NSWLR 191 Prosser v Edmonds (1835) 1 Y&C Ex 481; 160 ER 196 PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515 Re Hyams; Official Receiver v Hyams (1970) 19 FLR 232 Re Johnson (1881) 20 ChD 389 Meagher, Gummow and Lehane "Equity Doctrines and Remedies" [1210]
DECISION:	Judgment for the second defendant.