Marcolongo v Chen [2011] HCA 3 9 March 2011 S114/2010
ORDER
1. Appeal allowed.
2.Dismiss the summons filed by the second respondent seeking to file a notice of contention out of time.
3.Set aside paragraphs 1, 2, 3, 4 and 5 of the order of the New South Wales Court of Appeal made on 12 November 2009, and in their place order that:
(a) the appeal to the New South Wales Court of Appeal be dismissed;
(b)Yu Po Chen pay Leonilda Marcolongo's costs in the New South Wales Court of Appeal; and
(c)the sum of $60,000 paid into the New South Wales Supreme Court by Yu Po Chen as security for Leonilda Marcolongo's costs in the New South Wales Court of Appeal, together with interest thereon, be paid out forthwith to Leonilda Marcolongo's solicitor.
4.The first and second respondents pay the appellant's costs of the appeal to this Court.
5.The second respondent pay the appellant's costs of the summons filed by the second respondent seeking to file a notice of contention out of time.
On appeal from the Supreme Court of New South Wales
Representation
T A Alexis SC with D H Mitchell for the appellant (instructed by Dunstan Legal)
No appearance for the first respondent
T S Hale SC with D J A Mackay for the second respondent (instructed by Unsworth Legal Pty Ltd)
Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.
CATCHWORDS
Marcolongo v Chen
Real property – Conveyancing – Conveyancing Act1919 (NSW), s 37A – Voluntary alienation to defraud creditors – Appellant sought to set aside registered transfer of land from second respondent to first respondent – Whether intent to defraud creditors satisfied by proof of "actual" or "predominantly" fraudulent intent – Whether satisfied by proof that transfer would "delay, hinder or defraud" creditors – Whether intent may be inferred where transfer is voluntary.
Words and phrases – "delay, hinder or defraud".
Conveyancing Act1919 (NSW), s 37A. An Act against fraudulent Deeds, Gifts, Alienations, etc 1571 (Imp) (13 Eliz I c 5).
FRENCH CJ, GUMMOW, CRENNAN AND BELL JJ. This appeal from the Court of Appeal of the Supreme Court of New South Wales (Allsop P, Giles and Young JJA)[1] turns upon the application of the New South Wales legislation (s 37A of the Conveyancing Act 1919 (NSW) ("the Conveyancing Act")) which replaced in that State the statute 13 Eliz I c 5. This had been passed in 1571 and was generally identified by reference to the words in the long title "An Act against fraudulent Deeds, Gifts, Alienations, etc" ("the Elizabethan Statute"). As elsewhere in the British Empire[2], the Elizabethan Statute had been received as part of the law of England applicable in New South Wales[3].
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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Details
AGLC
Marcolongo v Chen [2011] HCA 3
Case
[2011] HCA 3
Decision Date
CaseChat Overview and Summary
The High Court of Australia considered an appeal concerning the validity of a registered transfer of land. The appellant, Mrs Marcolongo, sought to set aside a transfer of property from Lym International Pty Ltd (Lym) to Mr Yu Po Chen (the first respondent), arguing it was made to defraud creditors, specifically in contravention of s 37A of the Conveyancing Act 1919 (NSW). Lym was the second respondent. The dispute arose from a District Court judgment where Mrs Marcolongo had recovered substantial damages against Lym for loss of support to her adjacent property due to Lym's development activities.
The central legal issues before the High Court were whether the transfer of the subject property by Lym to Mr Chen was made with the intention to "delay, hinder or defraud" creditors, as contemplated by s 37A of the Conveyancing Act 1919 (NSW). This involved determining the requisite state of mind for the provision, specifically whether proof of "actual" or "predominantly" fraudulent intent was necessary, or if the broader interpretation of "delay, hinder or defraud" sufficed. The court also considered whether such intent could be inferred from a voluntary alienation of property.
The High Court allowed the appeal, finding that the transfer was indeed made with the intention to delay, hinder, or defraud creditors. The court reasoned that the critical mind for assessing intent was that of Ms Limin Yang, a director and shareholder of Lym, whose decisions were pivotal. In light of the ongoing litigation and substantial judgment against Lym, coupled with Ms Yang's personal concerns about Chinese authorities potentially targeting her assets, the transfer of the property, which was Lym's only significant Australian asset, to Mr Chen was viewed as a deliberate act to place it beyond the reach of Mrs Marcolongo. The court emphasised that s 37A requires a liberal construction and that intent could be inferred from the circumstances, particularly where a voluntary alienation occurs in the face of existing or prospective creditor claims. The court accordingly set aside the orders of the New South Wales Court of Appeal and reinstated the orders of the primary judge, which had found in favour of Mrs Marcolongo.
Orders
Orders of the court
1. Appeal allowed.
2. Dismiss the summons filed by the second respondent seeking to file a notice of contention out of time.
3. Set aside paragraphs 1, 2, 3, 4 and 5 of the order of the New South Wales Court of Appeal made on 12 November 2009, and in their place order that:
(a) the appeal to the New South Wales Court of Appeal be dismissed;
(b) Yu Po Chen pay Leonilda Marcolongo's costs in the New South Wales Court of Appeal; and
(c) the sum of $60,000 paid into the New South Wales Supreme Court by Yu Po Chen as security for Leonilda Marcolongo's costs in the New South Wales Court of Appeal, together with interest thereon, be paid out forthwith to Leonilda Marcolongo's solicitor.
4. The first and second respondents pay the appellant's costs of the appeal to this Court.
5. The second respondent pay the appellant's costs of the summons filed by the second respondent seeking to file a notice of contention out of time.
Background
Background to the litigation
The first submission by Lym should be rejected. Before turning to its second submission something more should be said of the facts.The facts Lym was involved in two property developments at Mona Vale, on the northern beaches of Sydney; the first was at 1 to 5 Darley Street ("Project 1") and the second was at 34 to 36 Golf Avenue ("Project 2" and "the subject property"). By mid‑2006, Project 1 was completed and the units in the development had been sold. Mrs Marcolongo owned and lived on the property adjacent to Project 1. In 2004 she instituted an action in the District Court of New South Wales for damages for the removal of support during the building operations for Project 1. Eventually, after a lengthy trial, on 26 November 2009 Mrs Marcolongo recovered a judgment against Lym for $388,643.62 with costs. After the units in Project 1 were sold, the subject property remained the only asset of substance held by Lym in Australia. During 2004 and 2005 there had been correspondence between the solicitors for Mrs Marcolongo and Lym concerning her District Court litigation and the prospect of an interlocutory motion for an assets preservation order[73] in respect of Project 2 to protect her position. On 27 August 2004 the District Court had refused a motion by Mrs Marcolongo that Lym retain in the trust account of its solicitors $500,000 from the proceeds of sale of the units in Project 1. However, the correspondence continued into 2006.[73]See Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 399‑401 [41]‑[44]; [1999] HCA 18. On 5 September 2005 Mrs Marcolongo filed an amended Statement of Claim in the District Court proceedings, which increased the amount claimed to $600,000. In December 2005 the estimated value of the subject property once completed was $18.5 million. This was exceeded by Lym's liabilities. On 15 August 2006, Lym transferred the subject property to Mr Chen. Ms Limin Yang had been a director of Lym since 1998. At the hearing before Hamilton J she was cross‑examined by counsel for Mrs Marcolongo and counsel for Mr Chen. Ms Yang resided in New Zealand and was an equal shareholder in Lym with a Mr Mao. Mr Mao had been managing Project 2 until his return to China in February 2006. Ms Sandy Lai was appointed to manage the project in Mr Mao's absence. In early March 2006, the builder terminated its retainer with Lym for Project 2 and on 7 April 2006 a quantity surveyor estimated that it would cost around $3.4 million to complete Project 2. In May 2006, Ms Yang's husband, a Mr Liu, was detained by authorities in China; Ms Yang and her daughter, Ms Yang Liu, were concerned and fearful about steps that the Chinese authorities might take against them and assets of the family in Australia and New Zealand. Ms Yang became more dependent on Mr Chen and his wife, Amanda (who also lived in New Zealand), for friendship, business advice and assistance in attempts to conceal herself and her assets from the Chinese authorities. Ms Yang withdrew funds from bank accounts and deposited them in a bank account of one of Mr Chen's companies. She also transferred her shares in family companies to Mr Chen.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
FRENCH CJ, GUMMOW, CRENNAN AND BELL JJ
HEYDON J
The final point is that the limiting effect which Lym sought to place upon s 37A would be to deny it the liberal construction which the Elizabethan Statute has long been held to require.Conclusions and orders For these reasons the appeal should be allowed. Costs of Mrs Marcolongo's appeal to this Court should be paid by Mr Chen and Lym. The Summons by Lym seeking to file a Notice of Contention out of time was not pressed. It should be dismissed with Mrs Marcolongo's costs against Lym. Orders 1, 2, 3, 4 and 5 of the orders of the Court of Appeal made on 12 November 2009 allowing the appeal to that Court should be set aside and in place thereof the appeal to that Court should be dismissed, the costs of Mrs Marcolongo of the appeal to be paid by Mr Chen. The sum of $60,000 paid into the Supreme Court by Mr Chen as security for the costs of Mrs Marcolongo, together with interest thereon, should be paid out forthwith to her solicitor. The effect of the above orders of this Court will be to reinstate the orders made by Hamilton J and entered on 23 March 2009, save for order 12, which already is spent. Order 11 of those orders is a grant of liberty to apply to the Equity Division of the Supreme Court. Order 9(c) makes distinct provision for satisfaction of the judgment sum and costs of the District Court action, in which Mrs Marcolongo has succeeded. On 31 July 2006, Lym International Pty Ltd executed a contract to transfer 34-36 Golf Avenue, Mona Vale, to Mr Yu Po Chen. Was that contract (and the consequential transfer on 15 August 2006) liable to be set aside as having been made with the intention of defrauding creditors in breach of s 37A of the Conveyancing Act 1919 (NSW)? The critical period was the period leading up to the execution of the contract by Lym International Pty Ltd on 31 July 2006. The critical mind was that of Lym International Pty Ltd. In the critical period the critical human mental states corresponding with the critical mind were those of one of its directors, Ms Limin Yang, who was also a 50 percent shareholder. That is because it was her decision to enter the contract of sale and complete the transaction, and hers alone. The company's other director, Mr Weilin Mao, who owned the other 50 percent of the shares, was in China and was not shown to have participated in the relevant decisions. In evaluating Ms Yang's state of mind, the following events are relevant. Mona Vale is a suburb in the "Northern Beaches" area of Sydney. Mrs Leonilda Marcolongo owned a property adjoining a site at 1-5 Darley Street, Mona Vale. On that site Lym International Pty Ltd constructed a townhouse development. Excavation for the development removed support from Mrs Marcolongo's property and caused it damage in August 2002. Mrs Marcolongo commenced proceedings in the District Court of New South Wales on 9 August 2004 for damages in the amount of $400,000. The claim was increased to $600,000 on 5 September 2005. Meanwhile, on 3 May 2005, Lym International Pty Ltd had endeavoured to protect itself by cross-claiming against R C J Young, who carried out the excavation and development of 1-5 Darley Street, and also a company which was responsible for certain works connected with the excavation and development. Mr Young was bankrupt and in September 2005 Lym International Pty Ltd also cross-claimed against Mr Young's insurer.
Ratio Decidendi
Legal Principle Established
Established by:
FRENCH CJ, GUMMOW, CRENNAN AND BELL JJ,
HEYDON J