Jew v Holloway
[2013] VSCA 260
•20 September 2013
SUPREME COURT OF VICTORIA
COURT OF APPEAL
| S APCI 2012 0127 | |
| DEBORAH LOUISE JEW | Appellant |
| v | |
| PETER HOLLOWAY | First Respondent |
| and | |
| RHONDA JOY HOLLOWAY | Second Respondent |
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JUDGES: | REDLICH and COGHLAN JJA and T FORREST AJA | |
WHERE HELD: | BALLARAT | |
DATES OF HEARING: | 30 May 2013 | |
DATE OF JUDGMENT/ORDER: | 20 September 2013 | |
MEDIUM NEUTRAL CITATION: | [2013] VSCA 260 | |
JUDGMENT APPEALED FROM: | Jew v Holloway & Anor (Unreported, County Court of Victoria, Judge Coish, 22 June 2012) | |
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REAL PROPERTY – Voidable transactions – First respondent charged and acquitted of sexually abusing the appellant and her brother – Appellant successful in civil claim for damages for sexual assault – First respondent transferred to his wife his interest in the matrimonial home – Trial judge dismissed the appellant’s claim that the transfer was voidable – Whether trial judge erred in finding that the transfer was not executed ‘with intent to defraud creditors’ – Section 172(1) of the Property Law Act 1958 – ‘Natural love and affection’ – Intent to defraud need not be the sole intent of the transferor - PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515; Cannane v J Cannane Pty Ltd (In liq) (1992) 195 CLR 557; Marcolongo v Chen (2011) 242 CLR 546 applied – Appeal allowed.
APPEALS – Appellate intervention in the face of credibility findings made by the trial judge – Credibility findings that leave untouched other evidence may render trial judge’s conclusion contrary to compelling inferences – Trial judge’s reasons failed to adequately evaluate the circumstances surrounding the transfer – Appellate court bound to intervene - Fox v Percy (2003) 214 CLR 118; State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (1998) 160 ALR 588 applied.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr P A Jewell SC with Ms F A L Ryan | Pearce Webster Dugdales |
| For the Respondents | Mr G T Bigmore QC with Mr G J Burns | Baird & McGregor |
REDLICH JA
COGHLAN JA
T FORREST AJA:
The appellant commenced proceedings in the County Court, seeking damages from the first respondent, her paternal uncle, for sexual assaults committed 40 years earlier. She later added a claim in the same proceedings, seeking an order that a transfer of land from the first and second respondents to the second respondent be declared void pursuant to s 172(1) of the Property Law Act 1958 (‘the Act’). The appellant alleged that the transfer by the respondents, as joint registered proprietors, was made with the intention of defeating any claim the appellant might make for damages.
At trial, the two claims were heard together. The appellant succeeded in her claim for damages for sexual assault. The trial judge dismissed the claim that the transfer was voidable at the instance of the appellant. In so doing he found that the transfer had been made in good faith and without an intent to defraud. The appellant has appealed against that order and the findings which supported it.
The issue on appeal
The appellant submitted that his Honour made four errors. First, that his Honour failed to adequately consider all of the relevant circumstances. Second, that his Honour failed to give any or sufficient weight to certain key facts. Third, that his Honour erred in using the respondents’ denial that they intended to defeat the potential claim of the appellant to negative an objective inference to the contrary. Finally, that his Honour’s reasons were unsatisfactory as they amounted to a mere recitation of the facts and a statement that the respondents’ asserted purpose was accepted. They contained no synthesis of the facts or reasoning as to why the inference to be drawn from the uncontroverted evidence that the respondents had the requisite intent should be rejected.
Background Facts
The respondents (Mr and Mrs Holloway) were married on 19 March 1983. From 15 August 1991 to 23 March 1999, they were joint registered proprietors of 110 Lane Street, Ballarat (‘the property’). Mr Holloway paid for the house.
In August 1998, Mr Holloway was charged by the police with numerous offences arising from allegations that he had sexually abused the appellant and her brother between 1970 and 1972. In September 1998 he was committed to stand trial. There were to be two trials. The first, in which the appellant’s brother was the complainant, commenced on 15 March 1999. Mr Holloway was acquitted. The second, in which the appellant was the complainant, commenced immediately thereafter. Mr Holloway was also acquitted on these charges.
Some six days before the commencement of the trials, on 9 March 1999, Mr and Mrs Holloway executed a transfer of land whereby Mr Holloway transferred his interest in the property to his wife. The transfer stated that the consideration for the transfer was ‘natural love and affection’.
The respondents testified in the proceedings that Mrs Holloway proposed to use money from an investment account in her name which she had received as a redundancy payment, to pay for Mr Holloway’s legal fees for the trials. They said that Mr Holloway had agreed to transfer his interest in the property to her, because he did not think it fair that Mrs Holloway should use her money to pay for legal fees in a proceeding that involved his family.
The appellant submitted at trial and on appeal that the respondents had made the transfer on 9 March 1999, ‘with intent to defraud creditors’, within the meaning of s 172(1) of the Act’. Senior counsel for the respondents rightly abandoned a contention raised in the respondents’ written submission that s 172(3) applied.[1]
[1]The provision cannot aid a transferee who is also a transferor with the requisite fraudulent intent.
Section 172(1) provides:
172 Voluntary conveyances to defraud creditors
(1)Save as provided in this section, every alienation of property made, whether before or after the commencement of this Act, with intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced.
It is well recognised that s 121 of the Bankruptcy Act 1996 (Cth) and various other provisions, including s 172, are intended to reflect generally the principles that have been applied in relation to fraudulent dispositions since the enactment in 1570 of 13 Eliz c 5 (‘the Elizabethan Statute’). An understanding of the scope of s 172 is informed by the case law upon the Elizabethan Statute[2] and other legislation which has replaced it. An intent to defraud creditors is to be understood as an intention to delay, hinder, defeat or defraud one’s creditors,[3] and is an abbreviation of the provision as appeared in the Elizabethan Statute.
[2] Marcolongo v Chen (2011) 242 CLR 546, 553.
[3]Barton v DCT (1974) 131 CLR 370, 374 (Stephen J, with whom Menzies and Gibbs JJ agreed); PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515.
The creditors need not be existing creditors; they may be anticipated future creditors.[4] An awareness of a future liability will be sufficient.[5] The burden of establishing an intention to defraud lies with the party asserting that the transfer of property is voidable.[6] The intention need not be the sole purpose of the debtor.[7] It may exist concurrently with a genuine and good faith intention to dispose of property.[8]
[4]Cannane v J Cannane Pty Ltd (In liq) (1998) 195 CLR 557, 566 [10] (Brennan CJ and McHugh J) 574 [39] (Gummow J).
[5]Barton v DCT(1974) 131 CLR 370, 374.
[6]Cannane v J Cannane Pty Ltd (In liq) (1998) 195 CLR 557, 565-6 [10] (Brennan CJ and McHugh J).
[7]PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515, 526-7.
[8]Marcolongo v Chen (2011) 242 CLR 546; Cannane v J Cannane Pty Ltd (In liq) (1992) 195 CLR 557, 579 [58] (Gummow J); 593 [92.5] (Kirby J).
There was no dispute between the parties as to these general principles, although the assumptions made by each as to what proof would be sufficient to establish the requisite intent was different.
Where a necessary consequence of the alienation is to defeat creditors
In Noakes v J Harvey Holmes & Sons,[9] Brennan J (with whom Deane and Fisher JJ agreed) explained how an inference as to the necessary intent may be inferred from known facts:
We were pressed with some observations in Williams v. Lloyd; In Re Williams where the court affirmed that the burden of proof that a transfer was made with a real intent to defeat or delay creditors is upon the party who so alleges. But that was a case where, at the time of the challenged disposition of property by a husband to his wife, he was in a sound financial position, and it was held that subsequent conduct and events were insufficient to show that the husband had at that time an intent to defraud creditors (see the judgment of Dixon J). In the present case, the inevitable result of the transfer of shares on 13th December, 1976, was to defeat or delay any attempt to execute the judgment in Norfolk Island. The case falls squarely within the line of authorities of which Freeman v. Pope is the leading example, where Lord Hatherley L.C. said: ‘But it is established by the authorities that in the absence of any such direct proof of intention, if a person owing debts 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, then, since it is the necessary consequence of the settlement (supposing it effectual) that some creditors must remain unpaid, it would be the duty of the Judge to direct the jury that they must infer the intent of the settlor to have been to defeat or delay his creditors, and that the case is within the statute’. That proposition does not trespass upon the rule as to onus of proof; it is a particular illustration of the discharge of the onus by inference from the known facts (cf. In Re Holland; Gregg v. Holland). In this case, the inference is strengthened by the proximity in time of the failure to have the judgment set aside and the execution of the transfer of the shares. The challenge to his Honour's finding that the transfer fell within the statute of Elizabeth therefore fails.[10]
[9](1979) 37 FLR 5 (‘Noakes’).
[10]Ibid 11 [10] (citations omitted).
In Re PT Garuda Indonesia Limited v Richard John Grellman,[11] Wilcox, Gummow and Von Doussa JJ after examining the origins of s 121 of the Bankruptcy Act 1966 (Cth), turned to the basis upon which an intent to defraud creditors may be inferred. They referred to the statement in Lewis’ Australian Bankruptcy Law that ‘a dealing will be treated as fraudulent irrespective of the presence or absence of a conscious fraudulent intent if the necessary result of the dealing is to put the property beyond the reach of his creditors’ – fraudulent intent being equivalent with an intent to deprive creditors of recourse against the assets.[12] They then referred to the necessity to have regard to all the circumstances of the transaction, in order to determine whether the existence of such an intention should be inferred, quoting with approval the statement by Clyne J in Re Trautwein:
With regard to the applicant's claim under s. 37A of the Conveyancing Act, 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.[13]
[11](1992) 35 FCR 515 (‘Garuda’).
[12]Lewis’ Australian Bankrupty Law (4th edition, Sydney: Law Book, 1955), 45-6; PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515, 523.
[13](1944) 14 ABC 61, 75; Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515, 523.
Actual intention to defeat creditors
The joint reasons in Garuda further referred to the observations of Dixon J in Williams v Lloyd,[14] that there must exist ‘a real intent to defeat or delay creditors’, and to the remarks of Gibbs J in Re Barnes; Ex parte Stapleton that actual fraud is to be established being ‘actual intention to defeat or defraud creditors’.[15] Brennan CJ and McHugh J in Cannane v J Cannane Pty Ltd (in liq) repeated that an ‘actual intent’ must be proved.[16] Subsequently in Marcolongo v Chen, the plurality in the High Court explained that the adding of the word ‘actual’ was a periphrasis to emphasise that, while the existence of the intent might be inferred from the evidence, it was to be found as a fact.[17] Kirby J explained more fully in Cannane how an actual intent may be objectively inferred:
Proof of the intention of a person presents notorious difficulties in every area of the law where it is encountered. Even when the distinction between intention and motive is kept in mind, knowledge of subjective intention will ordinarily, or often, be reserved to the person whose interests may be so affected that an assertion, one way or the other, cannot necessarily be accepted at face value. That is why, at least in a provision such as s 121, it is not necessary to establish that the transferor of the property in question actually had in mind an intention to defraud creditors if the effect of what that person did would reasonably be expected to have such a consequence. Courts will therefore infer the intention in issue, deciding it as a question of fact. This does not mean that the intention so derived is one imputed by the law. It is not a fiction. It is the real intention of the transferor decided objectively rather than upon protestations of innocence on the part of the debtor or outraged accusations on the part of suspicious creditors.[18]
[14](1934) 50 CLR 341, 372.
[15][1962] Qd R 231, 237.
[16](1998) 195 CLR 557, 566 (‘Cannane’).
[17] Marcolongo v Chen (2011) 242 CLR 546, 559 [34].
[18](1998) 195 CLR 557, 591 [92.3]. See also Duus v DalvellaPty Ltd [2007] FCA 1921, [31] (Greenwood J).
These observations reflected the conclusion reached in Garuda as to the meaning of ‘actual intent.’ In Westpac Banking Corporation v The Bell Group Ltd (In Liq) (No 3)[19] the principle to be taken from the discussion in Garuda was stated in these terms:
[T]hat real or actual intent to defraud, defeat or delay creditors may be readily inferred where that is the necessary consequence of the disposition of property made by a debtor to stave off action by another creditor.[20]
[19](2012) 270 FLR 1 (Lee, Drummond and Carr AJJA).
[20]Ibid 102.
Sufficiency of proof of fraudulent intent
The sufficiency of proof of ‘intent to defraud creditors’ in s 37A of the Conveyancing Act 1919 (NSW), which is for present purposes the same as s 172 of the Act, was considered in Marcolongo v Chen.[21] French CJ, Gummow, Crennan and Bell JJ said:
[21](2011) 242 CLR 546.
Nevertheless, the 19th century cases did support a related distinction bearing upon the sufficiency of proof in these cases. The effect of the decisions was summed up as follows in the treatment under the title ‘Fraudulent and Voidable Conveyances’ in the first edition of Halsbury's Laws of England.
“In an action to set aside an alienation under the statute the onus of proof of actual fraud on the part of the grantor, and that the grantee was privy to the intent, rests upon the plaintiff where the alienation is for valuable consideration (a). Where, however, the alienation is voluntary, then on proof that the grantor was at the time of its execution contemplating his entry upon a hazardous business (b), or that the natural consequence of the alienation was to delay, hinder, or defraud creditors (c) or that the circumstances under which the alienation was effected bore one of the indications or badges of fraud hereafter mentioned (d), the onus of upholding the alienation is imposed on the defendants.” (emphasis added)
The two leading authorities given in footnote (c) to this passage are Freeman v Pope and Ex parte Mercer; In re Wise. However, neither case concerned a transaction cast in the form of a contract for sale of property. Rather, each transaction was a voluntary settlement of property, which was set aside in the first case but not in the second.
The point sought to be made in the text of Halsbury attached to footnote (c) may be expressed by saying that it would be the duty of the judge to direct a jury that they might infer an intention by the settlor to defeat or delay creditors, even in the absence of direct evidence of that intention, where this outcome was the necessary consequence of a voluntary settlement. In this way, it was easier to infer a dishonest intention if the conveyance were voluntary than if it were made for consideration. Evidence that the conveyance was voluntary does not replace the requirement of proof of intent by a distinct category where constructive fraud, with notions of constructive knowledge or notice as understood in equity, would suffice for the application of s 37A. Rather, the evidence is that species which has sufficient weight to entitle the fact finder to decide an issue (here the necessary intent) in favour of the moving party, although the fact finder is not obliged to do so and other evidence given may be decisive to the contrary.[22]
[22]Ibid 555-6 [24]-[25].
The plurality rejected the proposition that it was necessary in the proof of ‘actual intent’ to show ‘awareness that the transaction would have an effect on the ability of creditors to recover’ from the disponor. They also rejected the assumption that it 'was appropriate to fortify the requirement of an intention to defraud by some notion of dishonesty involving a desire to ‘cheat’ or ‘swindle’ those prejudiced’.[23]
[23]Ibid [58].
Whether transfer voluntary or for consideration
The consideration expressed in the transfer was to be ‘for natural love and affection’. The appellant’s statement of claim alleged that the transfer was made for no consideration other than natural love and affection and with the intention to defraud creditors. In the respondents defence each such allegation was denied. However no other consideration was pleaded. In Noakes,[24] Brennan J referred to a passage from the judgment of Lord Chancellor Hardwick in Walker v. Burrows that:
to point to the matrimonial relationship of the parties to the transfer, for a transfer by a husband to a wife made not in discharge of legal obligation but merely for naturallove andaffection or to make provision for a family, is yet avoluntary transfer for the purposes of 13 Eliz. I. c. 5.[25]
[24](1979) 37 FLR 5.
[25][1745] Eng R 80; (1745) 1 Atk 93, 94; 26 ER 61, 62; Noakes (1979) 37 FLR 5, 9-10.
However neither at trial or on appeal was reliance placed on the consideration of ‘love and affection’ expressed in the transfer nor was an explanation forthcoming as to why that consideration had been specified in the transfer. It was inconsistent with the respondents’ evidence at trial that the explanation for the transfer was to give effect to their agreement that in exchange for Mrs Holloway paying Mr Holloway’s legal fees, he would transfer his interest in the property to his wife.
In the context of fraudulent dispositions under s 121 of the Bankruptcy Act it was settled in Barton v Official Receiver[26] that valuable consideration, a term which appears in the provision, must be real and substantial as distinct from merely nominal, trivial or colourable.[27] The terms ‘voluntary’ or ‘valuable consideration’ do not appear in the Act or its predecessors. As the plurality reasons in Marcolongo v Chen show, the case law establishes that s 172 is not limited to voluntary dispositions.[28] However, if the disposition is voluntary, rather than for valuable consideration, the inference of fraudulent intent required by s 172 might more easily be drawn where a necessary consequence of the alienation was the defeat or delay of creditors.[29] In substance both respondents testified that as Mr Holloway did not have any other assets, it was only fair that he transfer the property to his wife as she was going to pay the legal costs of his family dispute. No other reason was proffered by the respondents as to why the transfer was made.
[26](1986) 161 CLR 75.
[27]Ibid 86.
[28]Marcolongo v Chen (2011) 242 CLR 546, 555 [22].
[29]Ibid 556 [25].
If the quid pro quo for the transfer was Mrs Holloway’s payment of Mr Holloway’s legal fees, the transfer would not be voluntary because the agreement to pay Mr Holloway’s legal fees was a more than nominal or trivial consideration. But we do not commence any evaluation of the circumstances by assuming the purpose for the transfer to be as the respondents testified. If a review of the circumstances leads to the conclusion that their asserted purpose existed, the transfer was not voluntary. That would not, however, preclude the existence of a concurrent fraudulent intent. And if the respondents’ asserted purpose for the transfer, advanced at trial, were not accepted, the transfer would be voluntary so that the inference of a fraudulent intent would become a very likely hypothesis. In either event, the requirement remains that proof of the necessary intent must be established.
In order to decide whether the disposition was made with that intent, the decision-maker must look at all the circumstances surrounding the impugned transaction. Gaudron J observed in Cannane, that it may take very little to justify a finding that a real intent existed.[30] Common features of transactions susceptible to avoidance are that the debtor is not in a sound financial position, has disposed of property to a close family member or trusted friend, usually a spouse, that the disposition was made for inadequate consideration and that the disposition subtracts from the property an amount without which the debt cannot be paid.[31] These are facts, from which an actual intent might be drawn.
[30](1998) 195 CLR 557, 572 [31].
[31](Ibid 566-7 [12]–[13] (Brennan CJ, McHugh J; [92] (Kirby J).
Evidence of the respondents
Mr and Mrs Holloway stated in evidence that the transfer was in exchange for Mrs Holloway paying Mr Holloway’s legal costs. Both also acknowledged that they were aware that Mr Holloway could be subject to a claim for compensation or a claim for damages by the appellant if he was convicted of the criminal charges.
Mr Holloway said in evidence in chief that he had received a redundancy payment in 1992 and used it to purchase the house in joint names. Mrs Holloway later received a redundancy payment which she invested in her name. That money was to be used to fund his defence. As he did not have any cash the house was put in her name. In cross examination Mr Holloway testified that he and his wife trusted each other. He said that he sold his wife his share of the house and she gave him the money from her investment to pay the solicitors $60,000. He acknowledged that the house was worth about $300,000, and that he gave her his half of the house for $60,000. He conceded that in order to pay his legal fees, it was not necessary for him to transfer his interest in the property to Mrs Holloway, as his wife was prepared to give him the money but felt he should pay for it out of his money. He denied that part of the reason for the transfer was to avoid the payment or potential payment of compensation that might have occurred but accepted that he was aware at the time of the transfer that a possible outcome was that he may face a compensation order. He agreed that it was his belief at the time of the transfer that it was probable if he was convicted that the court may award compensation to the appellant. He agreed that gaol was ‘on the cards’ and the potential for an order for compensation was ‘in my mind’ before he signed the transfer. He repeated this a number of times.
Mrs Holloway’s then testified that the purpose for which the transfer of land was executed was as an exchange for her using money from her redundancy payout which she had invested to pay for Mr Holloway’s legal fees. She said that the transfer was made because Mr Holloway ‘thought it wasn’t very fair we were going to use my money to fight something that involved his family.’ She said there was no other purpose in the transfer. She acknowledged that she had full faith and trust in her husband and that it was not necessary to execute the transfer of land in order to give Mr Holloway the money to pay his legal expenses.
It was a feature of Mrs Holloway’s testimony that she believed the motive of the appellant and her family was to obtain money from her husband. When asked in chief whether she was aware of the possibility of the appellant pursuing a claim for compensation when she signed the transfer, she said that the thought has crossed her mind. She knew ‘what they were like’. During cross-examination, she stated that ‘the thought crossed our mind’, that it was ‘probably our turn to be dealt with’ by the appellant’s family. The following exchange occurred during cross-examination:
COUNSEL: When you say ‘the thought crossed our mind’.
MRS HOLLOWAY: M’mm.
COUNSEL: I’d suggest you had a talk about it?
MRS HOLLOWAY: It went through my mind.
COUNSEL: Yes?
MRS HOLLOWAY: But we signed that paperwork over to fund this court case.
COUNSEL: So if I can just understand it. The thought went through your mind before you signed that document in front of you , Exhibit 9?
MRS HOLLOWAY: At the same time I—I’m not sure whether it was before I signed it or at the same time.
COUNSEL: Yes?
MRS HOLLOWAY: We were in turmoil at that stage because of what Peter had been accused of, our life was changing.
COUNSEL: How would you know understand the significance of what civil proceedings meant?
MRS HOLLOWAY: I’ve seen civil proceedings in the papers and that sort of thing, I knew what happened.
…
COUNSEL: But nonetheless you had an idea of civil proceedings for damages?
MRS HOLLOWAY: I knew what that branch of the Holloways were like, so…
…
COUNSEL: [B]ut it was still your belief, I suggest, that if the outcome of the trial was bad for Peter the victims should get no money out of it?
MRS HOLLOWAY: That was their plan.
COUNSEL: Yes?
MRS HOLLOWAY: But at that time we were more worried about fighting to keep him out of gaol for something.
COUNSEL: Are you saying it was your belief that that was their plan?
MRS HOLLOWAY: That was their plan?
COUNSEL: To get money out of it?
MRS HOLLOWAY: Well I don’t know what their plan was, but they just, it was ludicrous what they accused him of.
COUNSEL: But a moment ago you said ‘that was their plan’?
MRS HOLLOWAY: More than likely, yes.
COUNSEL: And that was your belief, though?
MRS HOLLOWAY: Yeah, I would believe that’s what they’d do.
COUNSEL: And that was your belief when you signed that document?
MRS HOLLOWAY: This was to fund the case.
…
COUNSEL: So I’m asking you when did you believe they had that plan?
MRS HOLLOWAY: S[o]me (sic) time that they made up this story.
COUNSEL: Before you signed that document?
MRS HOLLOWAY: Well that was their plan, it wasn’t our plan.
COUNSEL: But all I’m asking is that you believed it was their plan sometime between when you heard about the allegations?
MRS HOLLOWAY: Yes, I do believe it was their plan, long-term plan.
COUNSEL: And you formed that belief when you heard about the allegations, is that right?
MRS HOLLOWAY: Yes.
COUNSEL: You insist that the signing of that document was to fund the action?
MRS HOLLOWAY: It was, yes.
COUNSEL: But you know very well it wasn’t necessary to do that before the funds could be used?
MRS HOLLOWAY: We agreed to do that, that we changed I – to fund – as I said before Peter felt really bad that we were going to use my superannuation money to fight something that happened before we even met.
…
COUNSEL: No I was going to suggest that you had an unshakeable belief that no matter what the outcome of the trial of your husband, the victims should get no money out of it?
MRS HOLLOWAY: There was nothing for them to get money out of, because nothing happened.
COUNSEL: But that was your belief wasn’t it?
MRS HOLLOWAY: Well it was what they – their reputation was like, yes.
The trial judge was therefore required to assess the respondents’ denials that they had an intent to defeat any claim by the appellant against the surrounding circumstances. These included: a) Mr Holloway’s belief at the time of transfer that if the allegations of the complainants were established at trial, he would probably face a potential award of compensation to the victims; and b) Mrs Holloway’s belief at the time of the transfer that the appellant and her family had a long-term plan to fabricate allegations of sexual abuse in order to get money out of Mr Holloway by way of a civil claim.
In the trial judge’s reasons he set out at great length the respondents’ evidence that the purpose of the transfer to Mrs Holloway was an exchange of the property for the use of her funds to pay for Mr Holloway’s defence. In summarising their evidence he made passing reference to the answer given by Mrs Holloway in her evidence-in-chief set out at [18] above. In his summary of the evidence, his Honour further stated that both respondents ‘conceded that they were aware of the possibility of a compensation order’.[32] He did not refer to what Mr Holloway said was in his mind at the time of the transfer. The judge also said that Mrs Holloway ‘was concerned the plaintiff and her family had a plan to get money out of her husband, however she insisted the transfer was to fund her husband’s defence.’[33] That was the extent to which his Honour made reference at all to their acknowledged states of mind at the time of the transfer as to the appellant’s potential claim for damages or compensation.
[32]Mrs Holloway made no such concession.
[33]Jew v Holloway & Anor (Unreported, County Court of Victoria, Judge Coish, 22 June 2012) (‘Reasons for judgment’), [21].
The following paragraphs comprised the entirety of his Honour’s reasoning process and conclusion:.
I have summarised the evidence of the first defendant and second defendant on this issue. I have also set out the circumstances existing as at 9 March 1999. In particular at 9 March 1999 there was no debt owing to the plaintiff although there was the possibility of a future debt. There was no civil proceeding on foot. There had been no notice of a potential application for a compensation order or demand for damages. Criminal charges had been laid but they were being defended. The first defendant at all times maintained his innocence. Money was needed to fund the first defendant’s defence.
The second defendant wanted to ensure the first defendant was well represented. He was facing very serious criminal charges and in the minds of the defendants there was a real risk of a sentence of imprisonment if he was found guilty. The defence of these charges was likely to be an expensive exercise.
I accept the evidence of both defendants as to their state of mind at the time of the transfer of land on 9 March 1999. I find that they wanted to use the second defendant’s money to fund the first defendant’s defence. I find that it was their belief that the transfer of the first defendant’s interest in the property to the second defendant was he right thing for them to do in the circumstances. This was their state of mind at 9 March 1999. They felt that in using the second defendant’s redundancy money to fund the first defendant’s defence it was appropriate to transfer the first defendant’s interest in the property into the second defendant’s name. I accept this evidence.
Both defendants agreed and I find that it was not legally necessary to effect the transfer to enable the second defendant’s money to be used, however I find that this was their agreement amongst themselves. Both denied any intent to defeat a possible claim for compensation by the plaintiff by virtue of the transfer. I accept this evidence. I am therefore not prepared to infer that at the time of the execution of the transfer of land the defendants had an intention to defraud creditors.[34]
[34]Reasons for judgment, [31]-[35].
Appellate intervention in the face of credibility findings
The respondents, drawing upon the joint reasons of Brennan, Gaudron and McHugh JJ in Devries v Australian National Railways Commission,[35] submitted that a finding resting substantially on credibility must stand unless it can be shown that the trial judge has acted on evidence which was inconsistent with facts incontrovertibly established by the evidence or which was glaringly improbable.[36] It was said that there was no direct or circumstantial evidence contradicting the respondents’ evidence of their intention.
[35](1993) 177 CLR 472.
[36] Ibid 479.
For reasons that follow, that submission cannot be sustained. Firstly, the respondents’ description of the appellate function makes no allowance for other well recognised circumstances in which an appellate court may intervene where the findings at first instance rest substantially on credibility. Despite the respondents’ denials, there was in our view evidence from the respondents and other uncontested evidence from which a compelling inference arose that a purpose of the respondents’ in transferring the property was to defeat any potential claim for damages or compensation that the appellant might make. Appellate intervention is also necessary as his Honour did not in his reasons undertake any evaluation of other important evidence. The respondents had admitted in cross-examination that they turned their minds to the fact at the time of the transfer that the appellant could make a claim against Mr Holloway if he was convicted. The reasons of the trial judge are also silent as to his evaluation of the uncontested facts from which it could be inferred that it was their intent to defeat any potential claim by the appellant. These facts include the transfer itself and its timing, relative to the commencement of the criminal trials.
Credibility findings in the reasons of the primary judge will not insulate those reasons from proper analysis.[37] A finding by the judge at first instance, substantially influenced by an opinion concerning the credibility of witnesses, will not relieve this court of its statutory appellate duty to decide the case for itself by way of rehearing,[38] while recognizing the advantage enjoyed by the judge who conducted the trial.[39] Gleeson CJ, Gummow and Kirby JJ said in Fox v Percy,[40] that in addition to incontrovertible facts or uncontested testimony, facts which fall short of being ‘incontrovertible’, may support an appellate conclusion that the decision at trial is ‘glaringly improbable’[41] or ‘contrary to compelling inferences’[42] or that the trial judge has ‘failed to use or has palpably misused his advantage’ so as to demonstrate that the trial judge's conclusions are erroneous. Observations to similar effect were also made by Kirby J in Earthline,[43] and repeated in CSR Ltd v Della Maddalena.[44] Where the conclusion of the primary judge depends on inferences drawn from evidence that is unchallenged, unanswered or is ostensibly reliable, or facts that have been found but can equally be re-determined by the appellate court, without relevant disadvantage, the appellate court must not then shrink from giving effect to its own conclusion.[45] Even where credibility findings represent an apparent obstacle to appellate intervention, the finding may be so much contrary to compelling inferences of the case that it justifies and authorises appellate interference in the conclusions reached by the trial judge.[46] The observations of Kirby J in Earthline, that credibility findings that left untouched other evidence which required separate evaluation and which may render the judge’s conclusion improbable or contrary to compelling inferences, have been applied to justify an appellate review of the evidence itself and the drawing of its own conclusions.[47]
[37]Gray v Motor Accident Commission (1998) 196 CLR 1, 39 [106]; State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (1998) 160 ALR 588 (‘Earthline’).
[38]Section 74(3) of the County Court Act 1958.
[39]Warren v Coombes (1979) 142 CLR 531, 552 Gibbs ACJ, Jacobs and Murphy JJ; see also Humphries v Poljak [1992] 2 VR 129.
[40](2003) 214 CLR 118.
[41]Brunskill v Sovereign Marine & General Insurance Co Ltd (1985) 62 ALR 53, 57.
[42]Chambers v Jobling (1986) 7 NSWLR 1, 10.
[43](1999) 160 ALR 588.
[44](2006) 224 ALR 1.
[45]Fox v Percy (2003) 214 CLR 118, 128.
[46]Forder v Hutchinson [2005] VSCA 281, [48] (Nettle JA, with whom Maxwell P and Habersberger AJA agreed).
[47]Ceva Logistics (Australia) Pty Ltd v Redbro Investments Pty Ltd [2013] NSWCA 46; Hewett v Medical Board of Western Australia [2004] WASCA 170; Husain & Ors v O & S Holdings Pty Ltd [2005] VSCA 269; St George Bank Limited v Quinerts Limited [2009] VSCA 245; Forder v Hutchinson [2005] VSCA 281.
Credibility findings have not impeded appellate intervention where there has been an inadequate analysis of important evidence in the reasons for decision.[48] They will not relieve the trial judge of the obligation to subject all the evidence to rational analysis including countervailing factors and to draw whatever inferences were capable of arising having regard to all the evidence and in a manner which exposed the reasoning process.[49] Conclusions as to credibility cannot be a substitute for an exposition of the judge’s process of reasoning.[50] Hayne J observed in Waterways Authority v Fitzgibbon[51] that a trial judge‘s findings will be defective unless the obligation of evaluating all of the evidence bearing upon the relevant issue of fact, has been discharged. Where the trial judge’s reasons are significantly inadequate, because they do not make reference to all of the important evidence or explain how the facts which may stand in the way of conclusions have been evaluated, findings as to credibility will not then be conclusive of the proper outcome of the trial.[52]
[48]Fox v Percy (2003) 214 CLR 118, 126, [24]–[27]; Waterways Authority v Fitzgibbon (2005) 221 ALR 402; Commissioner of Main Roads v Jones (2005) 79 ALJR 1104, [73].
[49]Ceva Logistics (Australia) Pty Ltd v Redbro Investments Pty Ltd [2013] NSWCA 46, [152]-[154] (McColl JA).
[50]Ibid.
[51](2005) 221 ALR 402, [132]-[133].
[52]Earthline (1998) 160 ALR 588, 620 [93].
Although his Honour summarised the appellant’s submissions, his reasons do not disclose any evaluation of those arguments or the facts upon which they rested. The appellant contended on appeal with some force that the trial judge’s approach, which he had foreshadowed in oral argument with counsel, was to treat a finding as to the existence of the respondents’ subjective intent to exchange the property for the use of Mrs Holloway’s funds as precluding a coexistent finding of a contrary or additional intent that could be objectively inferred from the evidence. That may well explain why the trial judge did not consider it necessary to undertake any evaluation of the surrounding circumstances or the respondents other evidence.
An evaluation is necessary of all of the relevant evidence given by the respondents and the surrounding circumstances from which their intent may be inferred. Some of the ‘badges of fraud’ described by Lord Hatherley LC in Allen vBonnett[53] are present in this case. They include the following – that the transfer was for the whole of the person's property, his continuance in possession of the property, that it was made when litigation was anticipated, that false consideration was stated in the transfer and that it was inadequate. We turn to that evaluation.
[53](1870) LR 5 Ch App 577, 579.
First, the transfer was executed 6 days before Mr Holloway was to face his criminal trial. Given the trial judge’s finding that Mr Holloway was guilty of sexually abusing the appellant – a finding made in the related proceedings, Mr Holloway must have contemplated the real risk of conviction, and then, as Mrs Holloway’s cross-examination so emphasised, exposure to the appellant’s plan to obtain damages.
In Prentice v Cummins (No 5),[54] Sackville J said:
A transferor may have the requisite purpose if assets are given away at a time when he or she is aware of an impending liability, but one which has not yet crystallised into an existing indebtedness: Barton v Deputy Commissioner of Taxation at 374 per Stephen J (where the impending liability related to a taxation debt which would come into existence only once an assessment had issued).[55]
[54](2002) 124 FCR 67.
[55]Ibid 91 [99].
The analogy of a business person entering into a risky venture is apposite. Wilcox and Cooper JJ in Official Trustee in Bankruptcy v Alvaro & Ors[56] referred to the judgment of Sir George Jessel MR in Ex parte Russell; Re Butterworth[57] where Sir George Jessel commented:
The principle of Mackay v Douglas, and that line of cases, is this, that a man is not entitled to go into a hazardous business, and immediately before doing so settle all his property voluntarily, the object being this: `If I succeed in business, I make a fortune for myself. If I fail, I leave my creditors unpaid. They will bear the loss.' That is the very thing which the Statute of Elizabeth was meant to prevent.[58]
[56](1996) 138 ALR 341.
[57](1882) 19 Ch D 588.
[58]Ibid 598-9 (citation omitted).
Next, the respondents said they had faith in each other and fully trusted each other. Mrs Holloway acknowledged that the funds would be made available by her whenever payment was required by Mr Holloway’s solicitors. Both respondents conceded that it was unnecessary that the transfer take place before the trial. Further a transfer was not necessary to address the use of the Mrs Holloway’s funds. A caveat or charge over the property would have been sufficient.
Mr Holloway’s only asset was the property. He had no funds because he had used the money he received from his own redundancy payout, being more than $95,000, to pay off the property. As a result of the transfer Mr Holloway had no assets or funds to which a future creditor could have recourse.
This was not an exchange or conversion of one asset for another. His remaining asset was placed beyond the reach of the appellant. The subtraction of Mr Holloway’s sole asset was a fact that will ordinarily imply strongly that the transfer was executed with an intent to defraud. Usually a settlement of property which leaves the debtor without sufficient assets to meet his or her debts, will enable it to be more readily inferred that the debtor’s main purpose in effecting the relevant transfer was to prevent the transferred property from becoming divisible among creditors.[59] As Brennan and McHugh JJ said in Cannane:
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 from the making of a disposition which, to adopt the words of Lord Hatherley LC in Freeman v Pope, ‘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. 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.[60]
[59]Prentice v Cummins(2002) 124 FCR 67, 91 [98].
[60](1998) 195 CLR 557, 566-7 [12]-[13].
Gaudron J also considered that a finding of 'real intent' for the purposes of s 121(1) would take very little to justify where 'the person or company concerned disposes of assets when facing financial difficulties'.[61] As Pennycuick VC observed in Lloyds Bank Ltd v Marcan,[62] intent may also be imputed on the basis that a man must be presumed to intend the natural consequences of his own act.[63]
[61]Ibid 572 [31].
[62][1973] 1 WLR 339, 344.
[63]Ibid 344. See also Chen v Marcolongo [2009] NSWCA 326, [210]-[211] (Young JA); Groeneveld Pty Ltd v Nolten Vastgoed BV [2011] VSC 18, [62] (Vickery J).
The property was estimated at trial to be worth $300,000. Mr Holloway’s share was thus $150,000. The transfer of the property was alleged to be in exchange for Mrs Holloway paying his legal fees. These fees were thought at the time of transfer to be somewhere between $45,000 and $60,000. Mr Holloway thus gave away his interest at an undervalue of at least $90,000. No reason was advanced by either respondent at trial why that benefit was conferred on Mrs Holloway. Accordingly the respondents’ only stated reason for the transfer – that Mr Holloway did not regard it as fair that Mrs Holloway should have to pay his legal fees – does not explain a transfer in which Mr Holloway gave away his entire interest in the property being an amount well in excess of the amount required for his defence. That of itself provides some reason to doubt the purpose claimed by the respondents. The net effect of the transfer was that Mr Holloway did not receive from his wife something approaching a value equivalent to his interest. Even if the respondents had the purpose they asserted, Mr Holloway had left himself with no asset to which a potential creditor could have recourse.
These facts show that the respondents were aware that Mr Holloway’s impending trial was about to expose him to the risk of a claim by the appellant and that the circumstances under which the transfer was effected bore all of the indicia of fraud as discussed in the authorities. The natural consequence of the transfer was that Mr Holloway put his assets beyond the reach of the appellant. The conclusion is inescapable from their evidence and from the surrounding circumstances that both respondents recognised the consequences of their action.
The trial judge’s acceptance of Mr Holloway’s credibility in respect of the s 172 proceeding was in stark contrast to his rejection of Mr Holloway’s evidence in finding that he had sexually abused the appellant. As senior counsel for the respondents’ acknowledged on appeal, the finding that Mr Holloway was untruthful as to the sexual abuse meant that the trial judge would have to have been ‘keenly aware’ of his credibility concerning the reasons for transfer. Although an adverse credit finding attaching to his denial of sexual abuse did not preclude acceptance of his evidence as to his intent in transferring the property, the reasoning is silent as to why the judge felt able to act upon his evidence in that regard having found that he had sexually abused the appellant and had lied on oath. The absence of any such reasoning is the more significant because of the observations of the trial judge to which we next refer.
We refer to the facts set out in the first paragraph of his Honour’s conclusion referred to at [30] above. The judge stated that as at the date of the transfer, there was no debt owing to the appellant, no civil proceedings on foot and no notice of a potential application for compensation or a claim for damages. His Honour in this passage also referred to the fact that the criminal charges were being defended and that Mr Holloway at all times maintained his innocence.
This passage confirms the view initially expressed by the trial judge during an exchange with the appellant’s counsel that it was very unusual and a matter of particular significance that there was no debt then owing and no civil claim or notice of a claim for compensation in existence. It is difficult to understand how these facts might have been viewed as circumstances which could be supportive of the respondents’ denial of an intent to defeat the appellant’s potential claim. We consider that the fact that the appellant was only a potential future creditor at the time of the transfer and that no claim had yet been made should not have assumed the apparent significance which it did. The trial judge, should have commenced any analysis on the basis of the prominent hypothesis that as Mr Holloway had sexually abused the appellant, he would have recognised the real likelihood of a finding of guilt, that he would have been conscious of the future claim that the appellant would likely make if the criminal proceedings were successful and the consequence of a transfer which would place the property beyond the appellant’s reach.
Next, during the course of argument at trial, counsel for the appellant had submitted that if a purpose of the respondents may have been that which they claimed, their intention was also to defeat any claim made by the appellant. His Honour appeared to accept during argument that there could be dual purposes that were not mutually exclusive but observed that in order to find in favour of the appellant, he would have to accept the respondents’ explanation of the transfer and at the same time reject their denial of the allegation put to them. Acceptance of the respondents asserted purpose should not have been viewed as an obstacle to the existence of another purpose. In Marcolongo v Chen,[64] the plurality observed of s 37A of the Conveyancing Act1919 (NSW):
The section does not postulate a mixture of motives from which there must be extracted what is identified as a predominant intent to defraud. Further, as Stephen J indicated in his discussion in Barton v Deputy Federal Commissioner of Taxation a provision such as the Elizabethan Statute does not require for its operation that the proscribed intent to defraud be the sole intent.[65]
[64]Marcolongo v Chen (2011) 242 CLR 546.
[65]Ibid 565 [57].
The appellant submitted that the judge had proceeded on the basis that a finding that the respondents had their declared intent left no room for a fraudulent purpose. A finding that the respondents had the purpose asserted did not end the inquiry for the trial judge as the existence of a concurrent fraudulent intent was not necessarily excluded. It was acknowledged by the respondents’ counsel that the reasons do not address the possibility of multiple purposes.
We have earlier noted the inconsistency between the consideration of natural love and affection expressed in the transfer and the viva voce evidence of the respondents in which a different consideration (legal fees) was expressed; no explanation was provided for this inconsistency nor was it referred to in his Honour’s reasons.
Next, his Honour stated that he accepted that the respondents’ ‘state of mind’ at the time of the transfer was as they had testified. He also accepted their denial that they had a fraudulent intent in making the transfer. But he made no reference in his brief conclusions to their admitted awareness of the potential claim of the appellant or an analysis of that evidence. The respondents contend that it was of no moment that he had not done so as their awareness at the material time that the appellant may claim damages or compensation if the guilt of Mr Holloway was established could not inform the reasons for their making the transfer. We do not agree that the respondents’ evidence as to their state of mind can be so compartmentalised. The argument misconceives what in law will constitute sufficient proof of the requisite intent.
Although the respondents denied any fraudulent purpose it was the judge’s duty to take account of all of the respondents’ evidence as to their state of mind, analyse all of the circumstances surrounding the transfer and then determine whether the transferors’ had an intention to defeat the contingent interest of the appellant. The judge did not undertake those tasks. The absence of any analysis of this evidence or reasoning necessitates appellate intervention.
The trial judge found the respondents to be credible witnesses and that they had the purpose they claimed. That finding is not to be undervalued. But as the respondents could have dual purposes so that the requisite fraudulent intent could exist concurrently with their asserted purpose, it is unnecessary to express a view as to whether the finding made by the trial judge as to their asserted purpose could be sustained. The inference we are compelled to draw from all of the circumstances surrounding the transfer together with the respondents’ evidence as to their state of mind at the time of the transfer is that the transfer was executed with an actual intent that the appellant’s future claim be defeated.[66]
[66]Chambers v Jobling (1986) 7 NSWLR 1.
The timing of the transfer, when Mr Holloway was about to be exposed to the risk of conviction and a potential claim by the appellant, the absence of any pressing need to undertake the transfer at that time, or at all, the respondents’ awareness of a likely claim by the appellant if Mr Holloway was convicted, Mr Holloway’s knowledge of his guilt, the disposition of Mr Holloway’s entire interest in the property, the fact that he would continue in possession of the property, the inadequacy of the consideration offered for the transfer, the absence of any explanation for why Mr Holloway gave away his interest at a marked undervalue, the effect of the transfer which left Mr Holloway with no assets to which the appellant could have recourse and the respondents’ awareness of the consequence of a transfer of Mr Holloway’s interest in the property, in combination lead to the compelling inference that at least one purpose of the transfer was to frustrate a claim by the appellant for damages or compensation if Mr Holloway was convicted.
The appeal must be allowed and the declaration sought by the appellant granted.
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