Marcolongo v Chen
[2010] HCATrans 253
[2010] HCATrans 253
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Sydney No S114 of 2010
B e t w e e n -
LEONILDA MARCOLONGO
Appellant
and
YU PO CHEN
First Respondent
LYM INTERNATIONAL PTY LIMITED
Second Respondent
FRENCH CJ
GUMMOW J
HEYDON J
CRENNAN J
BELL J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON THURSDAY, 30 SEPTEMBER 2010, AT 10.00 AM
Copyright in the High Court of Australia
MR T.A. ALEXIS, SC: May it please the Court, I appear with my learned friend, MR D.H. MITCHELL, for the appellant. (instructed by Dunstan Legal)
MR T.S. HALE, SC: If the Court please, I appear with my learned friend, MR D.J.A. MACKAY, for the second respondent. (instructed by Unsworth Legal Pty Ltd)
MR L. MACHEE: If the Court pleases, I appear as a personal representative of Mr Paul Chen. (instructed by the first respondent)
FRENCH CJ: Mr Machee, the Court has read the written submissions filed on behalf of Mr Chen, and we will not require your further assistance. You are obviously welcome to remain in Court, but there is no need to remain at the Bar table because we will not be calling on you.
MR MACHEE: Thank you, your Honour.
FRENCH CJ: Thank you. Yes, Mr Alexis.
MR ALEXIS: With respect to the written submissions from Mr Chen, behind tab 2 we noticed an affidavit that seems to have been sworn by Mr Chen in more recent times. Your Honours will see the date, 4 May 2010. It seems to have been prepared in respect of certain proceedings in the High Court of New Zealand. Clearly enough, not an affidavit that was before the primary judge of the Court of Appeal, and your Honours will rightly disregard it, but we just thought we should bring that to your Honours’ attention.
For over 400 years, the Statute of Elizabeth and its modern representatives have been applied as one for the suppression of fraud. His Honour the President in the New South Wales Court of Appeal, with whom Justice Giles agreed, held that section 37A of the Conveyancing Act (NSW) requires proof of an element of dishonesty. If that holding be correct the section, in our respectful submission, may well be less effective on the suppression of fraud and may well deprive the section of its intended application.
GUMMOW J: The problem seems to emerge at paragraph 9 of the President’s reasons which, at first blush, may mistake what the 19th century cases were doing.
MR ALEXIS: Yes. The issue, of course, on the appeal is whether a transfer of property with the intent to defraud creditors within the meaning of the section requires actual dishonesty or whether the section is satisfied by demonstrating, as we did before Justice Hamilton, the primary judge, that a real or actual intent to delay, defeat or hinder creditors ‑ ‑ ‑
GUMMOW J: Well, why is that not dishonest?
MR ALEXIS: Well, it can be but the difficulty with respect to the Court of Appeal’s approach is that it rather elevates dishonesty as an essential ingredient or an essential element.
GUMMOW J: What did the Court of Appeal say was the content of this superadded notion of dishonesty?
MR ALEXIS: With respect, their Honours did not and that is one of the difficulties with the judgment because whilst there are, what we may say, fleeting references to the concept of dishonesty it was never explained, never adequately defined. For example, one could take the expression as nothing more than intending a conscious application of one’s mind to effect the impugned transaction although one does not necessarily get that sense when one reads the reasons of the judgment of his Honour the President.
If, on the facts of this particular case, particularly in light of the admission by the directing mind of the corporate disponor, a Ms Yang, that a reason for transferring the property was expressly the avoidance of the $600,000 damages claim that was then pending in a court against Lym International is not engaged by this section then it is our submission that the decision of the court below has the effect of significantly reducing the scope of application of this important remedial provision, particularly with respect to dispositions for part consideration.
Before dealing with the proper construction of the section and the authorities which are said to justify the element whether it is superadded or otherwise of dishonesty, may I take the Court through the circumstances of the transaction and take your Honours to the critical findings of fact by the primary judge.
FRENCH CJ: I think you can take it that we are all familiar with the actual background.
MR ALEXIS: Yes, of course, and I merely wish to emphasise that they were made - the elements which preceded the critical events that led to the completion of the contract. First, the subject property at Mona Vale – a valuable piece of real estate near the beach on the northern beaches of Sydney – was Lym International’s only hard asset in Australia. Its earlier property development which had caused the extensive damage to Mrs Marcolongo’s property next door had all been sold. The units in that development had been sold well before.
In the proceedings that had been commenced in the District Court against Lym International for damages there was, as the primary judge found, considerable correspondence recording endeavours by Mrs Marcolongo to restrain the sale of units in the property development that was pending at the time and in that correspondence, as the primary judge found, Mrs Marcolongo was seeking to obtain a Mareva injunction to freeze the disposition of the subject property. Her claim, that is Mrs Marcolongo’s claim for damages, was increased by an amendment to the statement of claim on 5 September 2005 significantly to a sum of $600,000 which was the precise sum referred to in the dialogue that occurred between Ms Yang and Mr Chen.
In May 2006, Ms Yang’s husband, a Mr Liu, became detained by authorities in China. His arrest warrant, or rather a translation of that arrest warrant, is in the appeal book No 3 at 1161. I refer to it only because it is dated 11 May 2006. As the primary judge found, Ms Yang became concerned about the steps the Chinese authorities might take, not only against her, but relevantly against her assets both in New Zealand and Australia, and to avoid what she was concerned about, particularly the prospect of tracing with respect to those assets, Ms Yang transferred certain moneys from bank accounts into a bank account of Heard Park, a company controlled by Mr Chen.
She also transferred shares in various family companies to Mr Chen to be held by him on trust. The relevant declaration of trust is in the third appeal book at page 1155. That is dated 12 May 2006. If your Honours perhaps go that, 1155, your Honours will see that it provides ‑ ‑ ‑
GUMMOW J: Has this been stamped, or do they not worry about these things in New South Wales any more?
MR ALEXIS: Well, I am not sure that - it was a matter that concerned his Honour the primary judge. They were shares in New Zealand companies and I refer your Honours to it only because between lines 30 and 40 on 1156 your Honours can see three entities there in respect of which the shares were transferred and relevantly the Rotorua International Company and the Dacha International Company owned a hotel and a holiday resort respectively that were acquired for some millions of dollars in 2002 and 2003. Of course, these transactions need to be appreciated in the context that, at this point in time, Mr Chen was a trusted friend of Ms Yang and she, clearly enough, came to rely upon, not only his friendship, but also his business expertise at these difficult times.
The next relevant point is that in relation to Australian property, that is the property at Mona Vale owned by Lym International, Ms Yang executed the power of attorney on 24 July 2006. Finally, the balance sheet of the company as at 30 June 2006 showed a deficiency of assets over liabilities. Your Honours will find the balance sheet at page 1381 of book 3.
It was then that Mr Chen and Ms Yang had the critical conversations as found by the primary judge at book 3, page 1446, and if I could take your Honours to the following key elements of the primary judge’s judgment. Starting at 134 his Honour set out the conversation that occurred prior to the execution of the contract in the transfer. Of course, without reading it to your Honours, your Honours will see the reference in the fourth line to all the properties having been sold, the purchasers of those properties have decided to sue because of quality problems, the builder has gone into liquidation:
Your company will be solely liable for a damage of more than $0.6 million -
Of course, as his Honour found, a reference to Mrs Marcolongo’s claim, albeit he there refers to “purchasers”. Then, importantly, the following occurred –if you are going to:
transfer the development property, you must do it quickly, the plaintiffs will freeze any dealing in relation to the development property. If that is the case, the company will suffer a big loss.
Before the judge, there was objective proof of the builder being bankrupt. There was also the objective proof that I referred to earlier with respect to the correspondence concerning the application pending for a Mareva injunction. Importantly, we would ask your Honours to note the language employed by Mr Chen, “if you are going to transfer the property” as opposed to “if you are going to sell the property”. There is further discussion at 136 and 137 of the judgment, again emphasising the need for speed:
You can transfer the project to me, and then neither the company nor you can then be liable for any money to the purchasers, otherwise the company will be liable to these purchasers ‑ ‑ ‑
GUMMOW J: The finding by his Honour at paragraph 141, is that challenged in the Court of Appeal? It is not, is it?
MR ALEXIS: No.
GUMMOW J: It appears from paragraph 22 of your written submissions that your client did recover a judgment subsequently. Do we know how much the costs were? We have a figure there, but it seems it does not include costs.
MR ALEXIS: Yes. The judgment is just under $400,000 with interest. The costs of the trial in the District Court are substantial. The trial itself, with expert evidence and the like, went for about three weeks. It was concluded in December of last year and on instructions, if I may, the costs would be in the order of $600,000 to $800,000. Your Honours have the critical finding of the primary judge at the foot of page 1448, line 52 and following. Importantly, over on the top of 1449, the divestiture of the asset:
as a matter of urgency in order to deflect that liability from the company ‑ ‑ ‑
FRENCH CJ: What is the finding in relation to her state of mind or belief concerning the proceeds of the transfer, because there was a non‑negotiated price, in effect, of $15 million, was there not?
MR ALEXIS: Yes. I need to deal, if I could respond to your Honour the Chief Justice this way, I need to deal with how Ms Yang understood the debt that was created after the mortgage to Kingsway had been discharged. I needed to step your Honours through the findings of the primary judge in relation to that and then I wish to contrast that with how their Honours on the Court of Appeal interpreted that finding.
FRENCH CJ: All that the transfer does of itself is to take the property beyond the reach of Mareva process.
MR ALEXIS: Quite, your Honour, but the important element of the transaction – and I will come to the detail in a moment – when the discussions occurred, there was no discussion about price. There was no discussion about payment. When Ms Yang came to execute the contract in the solicitor’s office in New Zealand on 31 July, there was a very brief conversation which involved Mr Chen’s wife, Amanda, during which, as the judge found ‑ ‑ ‑
FRENCH CJ: She said “you will get some money”.
MR ALEXIS: ‑ ‑ ‑ she understood that she would get a debt. The difficulty with that proposition, in terms of answering the 37A claim, is that there were no arrangements for the payment of that debt at all and ‑ ‑ ‑
FRENCH CJ: Did Amanda say anything more than “you will get a debt”, or did she say something about the company getting money?
MR ALEXIS: No. That, with respect, is the important difference between the finding of fact of the primary judge and the way their Honours on the Court of Appeal interpreted that finding. But ultimately, as I will come to, the question is not so much why did Ms Yang transfer the property, but why did she transfer it on the terms that she did, and the critical term was completely absent any arrangement with respect to the payment of the debt. Of course, that is entirely consistent with what we submitted below was the intent of the transaction because it meant that the payment of the debt was entirely at the discretion of Ms Yang and Mr Chen.
At paragraph 143 of the primary judge’s reasons for judgment at 1449 of book 3 his Honour refers to what follows as containing significant admissions as to the intent with which the transaction was entered into. If I may, I would like to take the Court to the passage within which the extracted passages appear so that your Honours see the full context in which what is set out in 143 appeared. If I could take your Honours to book 1 at page 33.
FRENCH CJ: Did you say 33 or 34?
MR ALEXIS: If I could start at the bottom of page 32, appeal book 1, starting at line 40. Your Honours see:
Q. He told you, didn’t he, that the company, that is Lym International, had been sued because of quality problems with the first project?
A. INTERPRETER: He told me the first project of Lym International has quality problems and the builder has gone into liquidation so the purchasers will sue Lym International.Q. And was it in reference to that that he told you that the company, that is Lym International, will be liable for damages?
A. INTERPRETER: Yes, he said since the builder has been bankrupted they will sue them.
Then if I could just pass over the next couple of questions to the question commencing at line 18 on the next page:
Q. Ms Yang, what did you understand Mr Chen was referring to when he said that there will be a freeze of any dealing in relation to the [second] property?
A. INTERPRETER: He is referring to my second project.Q. Yes and what did you understand was meant by him referring to there being a freeze on the second project?
A. INTERPRETER: To my understanding, since we owed debt regarding the first project my second project, the current one, may be a freeze. That is what I understood.
Your Honours’ appreciate this is through an interpreter. So there is clear linkage there between the debt arising in respect of project one as having the implication of a freeze on project two. Then your Honours see in the next question:
Q. And by “freeze” you understood that Lym International would not be able to deal with or sell the units in the second development. Is that right?
A. INTERPRETER: Yes.Q. And you understood that if that occurred, Lym International would suffer a big loss, is that right?
A. INTERPRETER: Yes.Q. And so was it during one of these conversations that Mr Chen said to you that the title to the second property needs to be transferred out of Lym International’s name?
A. INTERPRETER: Yes, it is his suggestion.Q. Did you understand that if the property was to be transferred out of Lym International’s name, then there would be no asset or no moneys available to meet claims being made against the company?
A. INTERPRETER: Well, Paul just told me that I need to transfer it as soon as possible. He said otherwise Lym International will suffer a big loss. I didn’t realise what result it would lead to.
There, we submit, she is effectively saying, “Look, I did not ultimately appreciate how claims against Lym might be affected”, but it is plain by ‑ ‑ ‑
BELL J: That evidence is consistent with Ms Yang’s understanding of freezing in paragraph 134 of the primary judge’s reasons as distinct from the suggestion that her understanding of the project being frozen related to the expiry of the construction licence.
MR ALEXIS: Correct, and I think our learned friends seek to rely upon that, but the evidence is clear, in our respectful submission. She understood “irrelevant freeze” and the affectation of that in terms of dealing with the property related entirely to the first project. Nothing to do with a construction licence. Then over the page, if I may, very briefly, page 34, line 10.
Q. So the judge should understand that when you came to sign the contract in Tim MacAvoy’s office –
and Mr MacAvoy was the solicitor in New Zealand –
you did so because you wanted to get the property, the second project, out of Lym International’s name and away from those who might be making a claim against the company.
That is one of the reasons, and she then enumerates other reasons clearly enough. Perhaps just coming back to your Honour Justice Bell’s question about the freeze, one sees towards the end of the answer in line 18 that there is a reference there to “freeze” but that may be a reference to the effect of the construction licence, but it is not to be confused with the clear appreciation of the freezing effect of a Mareva injunction. So, it is clear, in our respectful submission, that Ms Yang accepted here that the important object of the transaction was to get the property out of Lym’s name and away from those making a claim against the company. The point was further elaborated on on page 36 where at line 7 and following it was put to her that he, that is Mr Chen, telephoned:
said that you can transfer the project to him, then neither the company, that is Lym International, or you would be liable for any money to the purchasers?
A. Yes . . .
Q. He also said otherwise the company, Lym International, will be liable to those purchasers?
A. He says Lym International will be in big trouble ‑ ‑ ‑
GUMMOW J: At line 30, she talks about “other things”. One of the other things is the building licence.
MR ALEXIS: Yes.
GUMMOW J: On line 35.
MR ALEXIS: Yes. Then finally at 26 and following:
Q. We should understand, should we, that you signed the contract –
and the page is a reference to the contract for sale –
so as to avoid the company, Lym International, suffering a big loss, is that right?
A. Yes.
Now, just while I have your Honours in the transcript, could I provide your Honours with a reference on page 37 to the fact that there was no discussion as to price. Your Honours will see that at lines 21, 22 and following. Then while again we are in the transcript, could I invite your Honours to look at page 38 from line 40. This bears on the evidence concerning the debt.
Q. Didn’t you have any conversations at all with Mr Chen before you came to sign this contract . . . about when Mr Chen would be paying to Lym International $7.4m?
A. No, didn’t have such discussion.Q. What about with Amanda Chen, any discussions with her?
A. No, didn’t have such discussion.Q. What about after you signed this contract at . . . did you have any conversations with either Mr Chen or Mrs Chen about when he would pay the debt of $7.4m to Lym International?
A. After signing the contract I talked to Paul, I said, “We should sign a document”, he agreed but he didn’t do that.Q. Was there ever any discussion about when he would pay that debt to Lym International after you signed the contract?
A. No, he was in Sydney –
et cetera. Then ultimately your Honours see the next question and answer:
Q. Did he ever say to you he would pay that money to Lym International in two weeks or two months or two years or on some other basis?
A. No, he didn’t say that.
FRENCH CJ: That appears, I think, at 44 of your submissions.
MR ALEXIS: It does, yes.
FRENCH CJ: Do I take it from 45 and following that it is a limb of your contentions that the intention to transfer, to put the property beyond the reach of a Mareva injunction independently of questions of payment, is of itself enough to bring you within a 37A?
MR ALEXIS: Yes. It is a plain act of defeating, delaying or hindering and if not defeating, ultimately, certainly ‑ ‑ ‑
FRENCH CJ: Even if one made the assumption that the overall asset pool of this potential debtor remained unchanged?
MR ALEXIS: Yes. So when one articulates the two elements of the requisite intent, it was to avoid the liability, it was also to avoid the consequence of a Mareva injunction. Your Honours have the plain evidence that appreciated with the implication of a freezing order would be.
FRENCH CJ: This is also on the premise that the Court of Appeal was correct to infuse 37A with this notion of dishonesty?
MR ALEXIS: If the Court of Appeal is correct in that respect, it should not matter on the facts because we got there anyway and dishonesty, whatever that actually means – and if it is, for example, dishonesty as between the relationship of debtor and creditor and nothing more, then plainly, in our submission, that was satisfied and should have been readily inferred.
Could I just invite your Honours’ attention to the ultimate finding following what his Honour said were the significant admissions at page 1450 of the third book, at the bottom of 1450 and to the top of 1451; reason for entering into the contract, avoidance of the claim. Could I also draw attention to the important finding that, in our respectful submission, the Court of Appeal appears to have overlooked on timing. If your Honours would go to page 1411, in paragraph 42, Justice Hamilton found, if your Honours see the second sentence, a reference to the information that was conveyed, and then his Honour says:
It was in these conversations that it was agreed that Mr Chen would buy the subject property from Lym International. There is no doubt that the price of $15 million was specified by Mr Chen and was not the subject of any negotiation.
Then his Honour refers in the next paragraph to the 27 July and the submission of the contract for sale. Could I ask your Honours to go to page 1220 of book 3 to illustrate the basis upon which the contract was submitted for execution. I am sorry, could I start at 1222. Your Honours will see there an email from Mr MacAvoy’s secretary, a Susan Joe, 27 July at 14:38 and she conveys to Mr MacAvoy:
Amanda said Middleton is faxing us a S&P Agreement now (it hasn’t arrived just yet).
She wants to come in to see you this afternoon to sign the Agreement, so we can fax it back to Middletons this afternoon.
Then in that vein, if your Honours come back to 1220, your Honours will see the email that came from Mr Everitt at Middletons to Mr MacAvoy later that day at 20:49, 8.49 pm. It refers, at lines 20 to 30, to the attached transfer and contract and then your Honours will see the request at line 30 expressed “as soon as possible”. So that rather underlies the urgency that was apparent from the conversations that I have taken the Court through.
GUMMOW J: Where do we see that the transfer was registered? There was a mortgagee to be paid out, Westpac to come in.
MR ALEXIS: Your Honour will find the registered transfer at 1147, and perhaps I should draw attention to the searches at 1149 and 1151, which illustrates that prior to registration of the transfer ‑ ‑ ‑
GUMMOW J: Sorry, 1151?
MR ALEXIS: Pages 1149 and 1151. Yes, I need to correct myself.
GUMMOW J: It does not give the date though. It does not give the date of registration, does it?
MR ALEXIS: No. What I can indicate is that stamp duty, the $810,000 stamp duty was paid on 15 August, according to the stamp at page 1147. The title search after registration at 1149 is dated 24 August 2006, and I will get my junior to find a document to establish the actual date of registration.
GUMMOW J: What is the current state of the title?
MR ALEXIS: The current state of the title is, as your Honour will see it at 1149, 1151, it is still registered in Mr Chen’s name. It is still subject to a mortgage to Westpac, and the amended orders in the Court of Appeal in the other appeal that was brought by Mr Chen against the claim of Lym International provided that the property is to be transferred back to Lym International upon discharge of the mortgage.
GUMMOW J: That has not happened?
MR ALEXIS: That has not happened.
GUMMOW J: So, so far as the assets of Lym International are concerned, against which your client has a judgment, if the order in the other case is implemented, the asset will be restored to Lym.
MR ALEXIS: It will.
GUMMOW J: Regardless of her success or otherwise on this appeal.
MR ALEXIS: Yes, although we have lost the benefit of the relief that we obtained from the primary judge, which effectively gave us a measure of control over the way in which Lym International dealt with the property.
GUMMOW J: Where do we see that?
MR ALEXIS: Yes. If your Honours go to Justice Hamilton’s orders at page 1470, just passing over the declaration and orders for recision and setting aside of the sale, order 7 ‑ ‑ ‑
GUMMOW J: Order 3 would no longer be necessary if you are successful in this appeal, would it?
MR ALEXIS: Yes, and that is because it mirrors the order that was made in the other proceedings.
But, importantly order 7, your Honours will see that Mr Chen was restrained whilst holding the property from further encumbering and by these orders he became obliged to place the proceeds of sale into a controlled moneys account – subparagraph (b) – and similarly order 8, imposed a corresponding regime on Lym International. It was restrained from further encumbering the units and similarly placing all proceeds of sale after moneys due to Westpac into the controlled moneys account that is there referred to.
GUMMOW J: At the moment, is there any caveat protecting this situation?
MR ALEXIS: No. I should draw attention to order 9 of the primary judge which provided that the respective injunctions did not prevent Lym International or Mr Chen from selling the units at prices that equalled or exceeded valuation prices, leasing on a commercial basis, or satisfying the orders.
GUMMOW J: Order 9(c) is important for you.
MR ALEXIS: Yes, it is. That was the important element of the relief that was obtained before the primary judge pending, of course, the hearing of the building case in the District Court. I was emphasising the primary judge’s finding at paragraph 42 about the timing of the agreement and in that connection, I was emphasising the fact that there had been no discussion or agreement on price at that point in time.
Then there was the event of 31 July when Ms Yang executed the contract for sale in Mr MacAvoy’s office. That was the first time that she saw $15 million on the documentation and that is the first time that she appreciated what the intended sale price was and I need to come to the detail of the implication of the finding of debt, and I will do that. The executed contract your Honours will find at 1283 and your Honours will note the completion date at line 21 is expressed as “subject to clause 32”. If your Honours come through to that condition at page 1296, special condition 32 provided:
completion must occur on the earlier of the day specified . . . or such other date nominated by the Purchaser.
Then we have special condition 33 that provided that:
The purchaser must pay the Purchase Price -
by paying out the existing mortgage expressed at $7.625 million and then, importantly, paragraph (b):
the balance to be applied to the debts owed to the Purchaser by the Vendor or a related entity . . . of the Vendor.
FRENCH CJ: This was the whole purpose of, according to the findings of Mr Chen, entering into this arrangement.
MR ALEXIS: Yes.
GUMMOW J: It does not say there is no temporal connection it owed, no further identification of what the debts are, or no indication of when the application is to take place.
MR ALEXIS: It suffers all those problems. It also suffers this significant problem. It provides for a setting off of debts owed to the purchaser and Mr Chen’s difficulty, of course, was that he was advancing a case before the primary judge that all of his related entities had advanced a lot of money to entities associated with Ms Yang and her husband, Mr Liu, and was seeking to demonstrate that he was entitled to the set‑off. In light of that special condition he had to rely upon an oral authorisation to establish the requisite setting off, and the judge rejected his evidence on that.
FRENCH CJ: Purchaser or related entities.
MR ALEXIS: Yes. The case may well have been different if it provided for that. Now, as your Honours would have appreciated by now, none of the balance was paid on completion which occurred on 15 August 2006, nor importantly, we say, was it requested by Ms Yang, and I will come to the evidence on that in a moment. There was no settlement statement. There was no accounting regarding the application of the balance of the proceeds of sale and in the result his Honour found - and if I could take your Honours to page 1464. At about line 43 on the page, your Honours will see:
In the end, Special Condition 33 was not put into effect . . . It could not be –
because of the reason I have just outlined –
It would seem that, apart from moneys paid in discharge of the Kingsway mortgage, the purchase price was satisfied by being credited to debts owed by the Liu and Yang interests to interests associated with Mr Chen, probably Heard Park.
Then, as I indicated a moment ago, his Honour found that there was no such authorisation in that respect. The complementary document to what happened in fact is a form of resolution which your Honours should see at page 1304 and, between lines 25 and following, your Honours can see that Mr Chen and his wife confirmed by their execution of this form of resolution an offset with respects to debts due to Heard Park from the purchase price, $1.289 million, in the second paragraph, and $5.3‑odd million in the third paragraph. As I say, his Honour found that that was not authorised.
His Honour the President, with whom Justice Giles agreed as I have indicated, found that dishonesty had to be established in the course of establishing the actual intent to deprive creditors of their rights or the fruits of their rights. His Honour said that this was clear from the decision of this Court in Cannane. In our submission, it is not clear at all, with respect to his Honour, and is not so supported by that authority.
Justice Young held at paragraphs 299 to 304 at page 1554 to 1555 - if I could take your Honours to that - his Honour in those paragraphs effectively held, we would submit, that it was necessary to establish real, actual fraud which in the ordinary case, though not always, his Honour says, “involves some element of dishonesty”.
That is closer to our proposition because it does not emphasise as an essential element or as an essential ingredient this concept of dishonesty. In our respectful submission, dishonesty is not to be regarded as a separate element at all. Proof of dishonesty as a separate element should not be decisive to the application of the section. Indeed, it is our submission that a search for dishonesty in ascertaining the real or actual intent is a distraction.
FRENCH CJ: When you reject the need to establish dishonesty what are you rejecting? What content are you giving to it?
MR ALEXIS: The role of honesty or innocence or, indeed, ignorance of the disponor may be relevant in a particular case as a factor that informs the existence of the important intent which the authorities demonstrate, in our submission, must be demonstrated as a real or actual intent.
FRENCH CJ: Let us assume you have an intention on the part of a debtor by a transaction to deprive a creditor of access to the debtor’s assets in order to satisfy the debt. That is the subjective intention of the debtor.
MR ALEXIS: Yes.
FRENCH CJ: What more is needed to establish the dishonesty that you would reject?
MR ALEXIS: Nothing would be our response to your Honour’s question.
FRENCH CJ: You say it is all in the words “intent to defraud”.
MR ALEXIS: Correct, yes.
CRENNAN J: This was never put as a necessary effect case, was it?
MR ALEXIS: No, because we had the benefit – and this is perhaps why this case is ‑ ‑ ‑
CRENNAN J: All those findings.
MR ALEXIS: ‑ ‑ ‑ atypical, if I may put it like that, but we had the benefit of ‑ ‑ ‑
GUMMOW J: A lot of the old cases are cases of voluntary settlements.
MR ALEXIS: Yes. Here we had from the mouth of the disponor, “I am transferring this property quickly to achieve this result” avoiding the implication of the liability and the Mareva injunction. It may be that one does not get it any clearer. Before going to the judgment of this Court in Cannane may I briefly examine the important authorities that preceded that decision and may I start with the decision of this Court in Williams v Lloyd (1934) 50 CLR 341. The issue in that case of course involved a disposition that was said to be voidable within section 37A of the Conveyancing Act (NSW). If I could start at page 370, your Honours will see about six lines up from the bottom that his Honour Justice Dixon refers to the finding of the primary judge.
GUMMOW J: Why not start with Justice Starke at 360?
MR ALEXIS: Yes. Thank you, your Honour.
GUMMOW J: It makes the point that we were just putting to you. The learned judge in bankruptcy did not rely on any presumptions. He found specific facts.
MR ALEXIS: Yes. Thank you, your Honour. Then if I could, by introduction at the bottom of 370 to what the judge held, draw attention to what Justice Dixon says at the bottom of 371:
that the findings of the learned Judge were not warranted –
and at the top of 372 his Honour refers to the:
subsequent conduct and events form an insufficient basis for a finding –
and then we have, at about point 7 on page 372 the often sighted passage –
A real intent to defeat or delay ‑ ‑ ‑
GUMMOW J: What was the difference between the majority and the minority in this case, because Justice Starke was dissenting, I think?
MR ALEXIS: Yes. Well, in relation to this issue, there was little difference at all, in our submission. Justice Dixon’s judgment was agreed with by Justice Rich at 357, Justice Evatt at 377 and Justice McTiernan at 378 and we observe that there is ‑ ‑ ‑
GUMMOW J: I think Justice Dixon’s decision turns on, the bottom of 371:
I am of opinion that the findings of the learned Judge were not warranted by the circumstances proved.
MR ALEXIS: Yes. Could I now go to the decision of this Court in Hardie v Hanson 105 CLR 451. The case involved the application of section 281, as it then was, of the Companies Act (WA). His Honour, the Chief Justice, at 455 described the section as “obscure”. It is a section that sought to impose assessorial liability on a director for debts or liabilities of a company in liquidation. Your Honours see, of course, the reference to the director being knowingly involved. It is in that context, of course, that the comments of their Honours, with respect to cheating and swindling, should be understood. But further and more importantly, may we observe that neither Chief Justice Dixon or Justice Kitto or Justice Menzies refer at all in any of their judgments to the earlier judgment of the Court pronounced 27 years earlier in Williams v Lloyd and, your Honours, it may be that their Honours in Hardie did not regard Williams v Lloyd as being of an assistance to the proper construction of section 281 of the Companies Act.
FRENCH CJ: This was in a sort of insolvent trading context, was it not?
MR ALEXIS: It was, yes. We then have at page 456 of the judgment of the Chief Justice the passage, at about point 8 on the page, that was cited by Justice Brennan and Justice McHugh and, indeed, your Honour Justice Gummow in Cannane, and importantly, we would respectfully submit, in seeking to understand what was intended by this passage one derives some real assistance by the fact that the reference to “cheated of their rights” follows the words “if the intent is effectuated”. The reason why we submit that is important is because the reference to creditors being “cheated of their rights” is descriptive of the effect or the result of the transaction and does not bear and was not intended to bear upon the intention which might be said to have preceded the effecting of such a transaction.
FRENCH CJ: The intention is that outcome, is it not, by the means adopted by the debtor?
MR ALEXIS: Yes, but not necessarily so, is our submission. That seems to have been picked up certainly by their Honours in the Court of Appeal as indicating that. Over on page 463 in the judgment of Justice Kitto at point 10 on the page, his Honour’s reference there to “An actual purpose, consciously pursued, of swindling creditors” is a passage that your Honour Justice Gummow cited in Cannane. Again, in our submission, that is intended to be referring to the effect of the transaction, referred to as descriptively as it is there, although we must accept that perhaps that point is not as clear as it is with respect to the way Chief Justice Dixon expressed himself, although, one does get some indication by the last sentence at the foot of page 463, because there his Honour is contrasting, by reference to these words:
It was not enough for the respondent to prove that the appellant acted with blameworthy irresponsibility, knowing that he was gambling (in effect) with his creditors’ money –
In other words, his Honour is contrasting the fact that negligence or irresponsibility is not enough. Could I then invite brief attention to the decision of the English Court of Appeal in Lloyds Bank v Marcan [1973] 1 WLR 1387.
GUMMOW J: You rely on this passage at 1390, do you not, the last paragraph on 1390?
MR ALEXIS: Yes. If dishonesty is to be regarded as an essential element, then it is to be understood in that light, is our submission. The case, of course, dealt with a Statute of Elizabeth representative in the form of section 172 of the Law of Property Act and in further answer to Justice Gummow’s observation, if I could draw attention to the judgment of Lord Justice Russell at the top of page 1391 where his Honour describes the conduct in issue as “sharp practice”. That seems to be consistent with the way in which his Lordship described “dishonesty” on the previous page.
The important judgment though, for present purposes because of how it has been treated in Australia, is the judgment of Lord Justice Cairns on page 1392 and there his Lordship says, at about line C:
In my opinion, fraud involves dishonesty and I cannot go with Pennycuick V.-C. in his observation [1973] 1W.L.R. 339, 344 that the word “defraud” in section 172 “is not intended to be confined to cases of fraud in the ordinary modern sense of that word, i.e., as involving actual deceit or dishonesty.” It is clear enough that deceit is not a necessary element, but in my view dishonest intention is, at any rate when the conveyance is for consideration.
GUMMOW J: What Lord Justice Cairns says at paragraph D is important in understanding Freeman v Pope.
MR ALEXIS: Yes, it is.
FRENCH CJ: Because what he says about dishonesty has to be understood in the context of the facts and his observations about them at paragraph F, I think.
MR ALEXIS: Yes, indeed.
FRENCH CJ: Which rather collapses it down ‑ ‑ ‑
MR ALEXIS: Ultimately, his Honour took the view that executing the lease in these circumstances there was the requisite dishonesty.
GUMMOW J: When Lord Justice Cairns is saying that it is easier in note D there on page 1392, it is easier because the case is through the onus of proof – the other way round – so the voluntary settlor had to justify what was done.
MR ALEXIS: Yes.
GUMMOW J: But you did not seek that sort of dispensation. You met it full on, you say, led the evidence and shouldered the burden yourself.
MR ALEXIS: Yes. The next case I wish to take the Court to is the decision of the Full Federal Court in PT Garuda v Grellman 35 FCR 515. This case like Cannane involved section 121 of the Bankruptcy Act in the form that it was before the 1996 amendments. The judgment of the court, comprising Justice Wilcox, your Honour Justice Gummow and Justice von Doussa relevantly commences at page 523 with a reference to Williams V Lloyd, then refers to the substantial body of authority in decisions upon the Elizabethan statute.
FRENCH CJ: This is all about inferred actual intent, is it not?
MR ALEXIS: Yes, it is.
FRENCH CJ: It is just about the way in which you get to a finding of intent, rather than the character of it.
MR ALEXIS: I do not need to rely upon that. I refer to this decision only for the purpose of demonstrating ‑ ‑ ‑
GUMMOW J: The third-last paragraph on 522 sought to make the point. You have to tread carefully ‑ ‑ ‑
MR ALEXIS: Yes, your Honour.
GUMMOW J: ‑ ‑ ‑ when you are looking at these various statutes.
MR ALEXIS: Could I draw attention directly then to what appears at the bottom of page 524 where the court there refers to the difference of opinion in the United Kingdom on section 172 of the Law of Property Act. There is reference to Lloyds Bank Ltd v Marcan and your Honours see at the foot of that page and over the next page that the interpretation advanced by Lord Justice Cairns has been the subject of criticism. Clearly enough it was not followed in this case and was not followed in Cannane.
GUMMOW J: Maybe all that Justice Cairns was saying is you do not have the benefit of the presumption where you are not in the realm of a voluntary settlement on relatives.
MR ALEXIS: Yes. In this Court’s judgment in Cannane v Cannane 192 CLR 557 there is no apparent discussion concerning the section requiring any infused or added element of dishonesty and their Honours in the Court of Appeal seem to have come to the position that the references to the earlier judgment of this Court in Hardie v Hanson were to have that effect. Can I ask your Honours to go to page 565 where, in the judgment of Chief Justice Brennan and Justice McHugh at paragraph 10 at the foot of that page, there is a reference to Williams v Lloyd. It clearly establishes a party seeking to avoid a disposition, actual intent by the disponor at the time of the disposition to defraud creditors.
Then if we come to page 567, in our respectful submission, the reference to what Chief Justice Dixon said in Hardie v Hanson needs to be looked at in the context with which that reference is introduced, because at paragraph 14 their Honours said:
Section 121 is not enlivened merely by showing that the disposition has reduced the assets available to the creditors when the disponor is adjudicated bankrupt. It is the disponor’s intent to deprive creditors of assets against which (or against the proceeds of which) they would otherwise be entitled to prove their debts that enlivens the operation of s 121. As Dixon CJ said in Hardie v Hanson.
So it is the disponor’s intent to deprive creditors, that is, the effect of the transaction, so that if the intent is effectuated, then in the result creditors are cheated of their rights.
FRENCH CJ: That means nothing more in that context than deprived of their rights.
MR ALEXIS: Yes, but, of course, that would only arise at the point in time when they are entitled to prove their debts. In a similar context, we observe that in Justice Gaudron’s judgment at page 572 where her Honour deals with the requisite intent in paragraph 31, her Honour appropriately, of course, refers to Williams v Lloyd. There is no reference there at all in her Honour’s discussion on this to any infused or added element of dishonesty. Similarly in your Honour Justice Gummow’s judgment commencing at page 573, particularly at 578 when your Honour refers to those passages from Hardie v Hanson. Ultimately, it seems that the argument there being considered was not based on any reference to the absence of proof of dishonesty and, as your Honour ultimately says at the end of paragraph 56 on page 579:
The consequence was that the transfers were not made with an intention to deprive creditors of Mr Cannane and JCPL of anything to which they were “entitled”.
GUMMOW J: Can you just look at paragraph 39 for a minute, on page 574, the second sentence?
MR ALEXIS: Yes.
GUMMOW J: Has there been any argument to that effect against you in this case?
MR ALEXIS: Our learned friends have sought to raise a preference point in a contention. I understand that is not to be pressed.
GUMMOW J: No, not the preference point, the point in the second sentence in paragraph 39:
The Elizabethan statute had been so interpreted that the mere preference of one creditor over another or others did not attract –
the operation of the Elizabethan statute.
MR ALEXIS: The answer to your Honour’s question is no.
GUMMOW J: Because there are some 19th century cases that said you constituted these with a representative action.
MR ALEXIS: If I can return to the judgment of his Honour the President in the court below. In our submission, his Honour’s finding is not supported by the decision of this Court in Cannane. It seems to us, with respect, that his Honour seems to have equated the reference to creditors being cheated or swindled of their rights with a disponor necessarily having to manifest a dishonest intention and ‑ ‑ ‑
FRENCH CJ: The problem with words like “cheated” and “swindled” is it may mean no more than deprived, but it is the moral overlay that generates the question, what else?
MR ALEXIS: Yes. With all respect to their Honours, it is a provocative way to put the point that does not really assist in distilling what one actually means by it and that is why we submit, properly understood, they are referring to the consequence of the transaction, not necessarily the pre‑existing intent. The President’s holding, in our submission, is consistent with the effect of the criticised interpretation in Lloyds Bank v Marcan, although ‑ ‑ ‑
GUMMOW J: Are you going to take us to Regal Castings, the New Zealand case which Justice Young referred to, I think?
MR ALEXIS: Yes, I am, certainly.
GUMMOW J: It is in [2009] 2 NZ 433.
MR ALEXIS: Yes. That was a case where section 60 of the Property Law Act 1952 (NZ) was in issue. The terms of that your Honours will find set out in the judgment of his Honour the Chief Justice at 442.
FRENCH CJ: Her Honour the Chief Justice, I think.
MR ALEXIS: Yes.
GUMMOW J: Paragraph [53]:
It is not necessary to show that the debtor wanted creditors to suffer a loss, or that it was his purpose to cause loss. It is, however, necessary to show the existence of an intention . . . the debtor has accordingly acted dishonestly.
MR ALEXIS: Yes, accordingly acted dishonestly.
FRENCH CJ: I wonder whether, when you read what Lord Justice Cairns said in the Lloyds Bank Case, that in the context in which you are speaking, he did not use “dishonesty” as anything more than a synonym for intent to defraud.
MR ALEXIS: Yes. If that is how it was intended, the difficulty with the decision of the Court of Appeal, with respect, is that it rather articulates, as a separate additional element, an element of dishonesty, and one can see immediately, with respect, how that might impair the proper operation of the section.
May I now go to the findings of fact that were made by the Court of Appeal, and I should say by way of introduction, your Honours, that it does not in fact appear that the element of dishonesty played a decisive role in, ultimately, the way in which the Court of Appeal dealt with the facts. The primary judge, of course, did not make any express finding of dishonesty, which perhaps is the reason why the point achieved so much prominence in the Court of Appeal. His Honour, of course, did find that there was an alienation of property with the requisite intent at paragraph 182 of the primary judge’s judgment. Justice Allsop at paragraph 19, if I may go to that ‑ ‑ ‑
GUMMOW J: What was the basis on which this was being done in the Court of Appeal? Was it said that the primary judge had overlooked illegal element and that therefore had not found the facts which would establish the element, one way or the other?
MR ALEXIS: The appeal to the Court of Appeal proceeded on the basis of the findings of fact of the primary judge and, of course ‑ ‑ ‑
GUMMOW J: Why was it being set aside?
MR ALEXIS: Your Honour, that is one of the essential matters in respect of which we complain because the Court of Appeal seems to have engaged in an exercise of reassessing the facts and provided some unwarranted emphasis to the evidence concerning and the judge’s finding concerning the debt that Ms Yang thought she was receiving in the transaction.
BELL J: I think the President and Justice Giles approached it upon the basis at paragraph 25 of the President’s reasons that the primary judge had failed to direct himself to the central question ‑ ‑ ‑
MR ALEXIS: To the critical question, yes.
BELL J: ‑ ‑ ‑ which was whether there was an actual and real intention to defraud.
MR ALEXIS: Yes. That paragraph very much had in focus paragraph 182 of the primary judge’s judgment at page 1466.
GUMMOW J: But I still do not understand it. I look at page 1477, and I see a complaint that the primary judge erred in:
Holding that section 37A . . . was enlivened despite making no finding that the Appellant had been dishonest.
Was the case conducted before the primary judge on the footing that you could not succeed, unless the judge were to make a relevant finding, which has now turned out to be critical in the Court of Appeal? Do you see what I mean?
MR ALEXIS: Yes, your Honour.
GUMMOW J: It is not a good handling of the work of primary judges to devise what is said at the top of 1477 and just leave it in the air.
MR ALEXIS: Yes, your Honour. Could I just complete my response to Justice Bell’s question concerning what their Honours in the Court of Appeal had in mind at paragraph 25. It was really paragraph 182 of the primary judge’s judgment where his Honour, we would submit, rather efficiently ultimately made the finding. Your Honours see in the second sentence, “Turning to the words of s 37A of the CA, I find”. That perhaps, as we have said in our written submissions, can be explained by really two things. One, at trial Lym International, for whom Mr Hale appeared, took a neutral position, in other words, they did not actively contend that they were not engaged in a transaction with the intent to defraud creditors and, secondly, in the Court of Appeal they filed a submitting appearance.
So in those circumstances, it was really Mr Chen’s case that there was no breach by Lym International of section 37A, his Honour rejected that, and the efficient way with which it is dealt with, of course, can also be explained by reason of the findings in the other case, because there were two cases being heard at the same time, namely, the breach of fiduciary duty case brought by Lym International. Could I deal with Justice Allsop’s finding at paragraph 19 and at page 1497 at 19 his Honour refers to Ms Yang as having “a belief that the sale would produce some ‑ ‑ ‑
GUMMOW J: What does this phrase “inoperative intention” mean, do you know? Is that disclosed?
MR ALEXIS: No. His Honour there refers to:
a belief that the sale would produce some financial benefit . . . It was to obtain what she saw as value.
Now, that is founded on the terms of the conversation that the primary judge accepted had occurred in Mr MacAvoy’s office at the time the contract was executed on 31 July 2006 and we challenge that finding on the basis that his Honour appears to have overlooked two critical things. The first is the primary judge’s finding at paragraph 42 that I have taken your Honours to which found that Ms Yang and Mr Chen had already agreed that Mr Chen would buy the property on the terms discussed at that point, that is, a quick sale to avoid the liability to Mrs Marcolongo to avoid the consequence of the Mareva injunction. As your Honours know, the contract was sent by email on the 27 July for execution as soon as possible.
GUMMOW J: Now, the critical passages seem to be paragraphs 24 and 25?
MR ALEXIS: Yes.
GUMMOW J: Where the primary judge is said not to have directed himself to the central question?
MR ALEXIS: Yes.
GUMMOW J: My question is, was it a central question in the case run in the Equity Division? Do we know?
MR ALEXIS: There was certainly very much a question as to whether or not the conversations that ‑ ‑ ‑
GUMMOW J: No, no, paragraph 24, whether:
Ms Yang had an actual and real intention to defraud –
That is said to be the central question for section 37A to be available.
MR ALEXIS: Yes.
GUMMOW J: Now, was that litigated before the primary judge?
MR ALEXIS: Yes.
HEYDON J: The trial judge found an intention to defraud. Any intention to defraud must be an actual and real intention to defraud.
MR ALEXIS: Yes.
HEYDON J: The words are sort of periphrastic or superfluous.
MR ALEXIS: Yes.
GUMMOW J: That is why this expression “operative intention” which appears at paragraph 19, which seems to morph into “actual and real intention”, paragraph 24, seems a bit mysterious.
MR ALEXIS: Yes, it is. I was providing some emphasis to the terms that had been agreed at the time of execution of the documents and I was seeking to note that when the agreement was reached there was no discussion about the price or arrangements for payment of the balance and it is the lack of arrangements in that respect which, in our submission, emphasises the intention that the primary judge found. Justice Allsop also, with respect, appears to have overlooked the findings the judge made which were qualified as to the terms of the discussion on 31 July.
Could I go to the judgment of the primary judge at page 1441 because there his Honour deals with the subject of those conversations, and at 122 on page 1442, his Honour sets out Mrs Chen’s version as to what it was that Mr MacAvoy explained and importantly, on her version between lines 30 and 40, your Honours see that Mrs Chen attributed to Mr MacAvoy the words:
With this arrangement, you will not receive any money into your personal bank account or Lym International’s bank account for the transfer of the property.
On her version she has Ms Yang, there referred to as “Mrs Liu” acknowledging that. Then in 123 his Honour refers to Mr MacAvoy’s cross‑examination. The sentence at the foot of page 1442 over to the top of 1443 is not insignificant because he concedes that he may have said that Ms Yang would not receive any money into her accounts or Lym’s accounts. Then in 124 your Honours have Ms Yang’s version and about halfway through that dialogue at about line 32, Ms Yang said that Amanda Chen said:
‘Can you explain it?’ Amanda then read the page –
that is, the special conditions page –
and said ‘It says here $7.6m is to repay the loan and the balance is owed by Paul to Lym’.
Then in 125 the primary judge refers to Jasmine’s evidence, who was also in attendance at the meeting. Jasmine is the daughter of Mr Liu and Ms Yang. At the top of 1444 ‑ ‑ ‑
FRENCH CJ: Just before you leave 1442, that is what I think I referred to earlier in a question to you, there was the proposition by Amanda that Lym would get money out of it.
MR ALEXIS: Yes. Well, that is as high as the evidence goes.
FRENCH CJ: Yes.
MR ALEXIS: That is our submission.
FRENCH CJ: You put to me before it was just the best she was expecting is a debt, but the evidence was that she was told there would be money of some kind. It was unspecified, of course, as to the amount.
MR ALEXIS: Yes. At 124 it is referred to as “the balance is owed by Paul”. At the top of 1444, on Jasmine’s version, it is referred to as “a debt due by Paul Chen to Lym International”. Then from 127 the judge says, “On this confused evidence, I make the following findings”. Then, relevantly, at 131 from line 40 and following there is reference to the discharge of the mortgage. Then in 132 his Honour says:
If it were necessary, I should be prepared to find, on the evidence of Ms Yang and Jasmine, that Amanda did say that the balance of the purchase price would be a debt due by Paul Chen to Lym International. However –
Then his Honour proceeds to make a number of qualifications which can be encapsulated in these terms. One, Mrs Chen was not authorised; two, there was no evidence that Mr Chen himself had expressed such a proposition; and, three, there was no finding that such a representation should be attributed to Mr Chen. The finding, however, that Ms Yang understood that the balance is owed by Mr Chen or that there is a debt due by Mr Chen, in our submission, says absolutely nothing about Ms Yang having a belief of a financial benefit or a value to Lym International.
That, in our submission, must be so when one considers the following propositions. First, there were no arrangements after execution of the contract for Mr Chen to pay the money. Secondly, she gave no evidence, either in re‑examination or otherwise, of any actual belief that the debt had value or would be collected and thus a debt that might actually be available to the creditors of Lym International. Of course, if she did advance any evidence like that, it would have been inconsistent with the clear objective that motivated her actions in the first place, namely, to avoid the liability.
More importantly still, and this is a matter that, in our respectful submission, the Court of Appeal appears to have overlooked completely, a belief on the part of Ms Yang that Mr Chen would owe $7.4 million to Lym International did not dilute her evidence of intention at all, and that seems to be what the Court of Appeal has found, because when one understands her intention to avoid the liability and avoid the consequences of the Mareva injunction, the fact that there was an extant debt is entirely consistent with that.
GUMMOW J: A consequence of the Mareva injunction would be to disrupt the sale of the units.
MR ALEXIS: Yes.
GUMMOW J: But the critical thing is the finding, I think at 1448 between lines 40 and 50, that “there was in fact only one potential source of debt”. What he was referring to was the 600,000 claim. That is the creditor you want to get displaced.
MR ALEXIS: Yes. There was a disconnect between the reference in the conversation to “purchasers” as opposed to “neighbour” but the common element was the amount of the debt and his Honour found ‑ ‑ ‑
HEYDON J: It does not really matter whether Mr Chen was lying or he was merely being misunderstood. The fact is there was an intent, to put it mildly, defeat the $600,000 creditor whether it be a purchaser or Mrs Marcolongo.
MR ALEXIS: Yes.
HEYDON J: Can I just ask you a question, unless you are in the middle of something?
MR ALEXIS: Yes, of course, your Honour.
HEYDON J: I just want to get this completely straight. At the trial Mr Hale in the first action was representing Lym International Pty Limited and two other plaintiffs?
MR ALEXIS: Yes.
HEYDON J: It was a key task in that trial to contend, was it, that Mr Chen was in breach of fiduciary duty?
MR ALEXIS: In his case or in Lym International’s case, yes.
HEYDON J: In the second action he was appearing for Lym International?
MR ALEXIS: As the first defendant.
HEYDON J: But is it right to say that he did not really play a vigorous part in that litigation? It was a matter of indifference to Lym International whether or not 37A of the Conveyancing Act was attracted. is that correct?
MR ALEXIS: When the significance of the position taken was ultimately presented to the Court, the response was a neutral position. Whether it is indifference perhaps is a matter for my learned friend to address, but they took a neutral position. They did not actively contest the existence of the requisite intent.
HEYDON J: Does that perhaps explain why this intense concentration of the Court of Appeal on the precise mental element arises for the first time because it was not concentrated on at the trial? You were concentrating on satisfying 37A and you got findings that do verbally satisfy it.
MR ALEXIS: Yes. The nub of the contest, if I can put it like that, was very much the completely contradictory versions between Ms Yang and her daughter on the one hand and Mr Chen on the other. Mr Chen, of course, was contending, “Everything I did was utterly authorised, no breach of fiduciary duty, because you owed my entities, or your family owed my entities, in excess of $8 million”. That was the matter essentially in contest. Your Honours have read, no doubt, the findings as to credibility in that regard which underpin the findings of fact.
To answer your Honour Justice Heydon’s question, there was no doubt at the trial that Mr Chen wished to rely upon a 37A(3) defence of good faith without notice purchaser, but that relied entirely upon the judge accepting his version of events. As far as the trial judge was concerned, it was very much a matter of resolving that substantial contest of fact. The consequences that followed legally were not largely in issue.
FRENCH CJ: Do you accept that 37A requires:
an actual intent to deprive creditors of their rights or the fruits of their rights.
I am reading from what the President says at paragraph 17 on page 1496.
GUMMOW J: I think, just before you answer that, you should read paragraph 9 which I referred to earlier this morning. The source of this real and actual description, I think, is to resist any suggestion that what is sometimes called constructive fraud is enough.
FRENCH CJ: We are now talking about actual fraud, whether it be inferred, as I put to you earlier, or admitted or in some other way. I think the term used was “actual proof”, but really that is just pathways to the same conclusion. The conclusion at 17 seems to be the requirement of:
an actual intent to deprive creditors of their rights or the fruits of their rights.
My impression was that you would not disagree with that proposition.
MR ALEXIS: No.
FRENCH CJ: What the President seems to be doing at 17 is equating that with dishonesty rather than stating that dishonesty is some miasma which sort of swirls around it.
MR ALEXIS: Yes. Your Honour, we must accept that that may be so, but it is the ‑ ‑ ‑
FRENCH CJ: Then you go to say, well, on this case, the actual intent was made out.
MR ALEXIS: Correct. The difficulty arises because of the way, with respect to his Honour, it is expressed as “an element of dishonesty”.
BELL J: Although in paragraph 17 his Honour says it is not a superadded requirement, it is an integral aspect of the operation of the section speaking of fraud, consistently with the way the Chief Justice was putting it to you.
MR ALEXIS: Yes, and if that is the way it is understood then there is no difficulty with that. Your Honours, I was emphasising the apparent understanding of the existence of ‑ ‑ ‑
GUMMOW J: A notion of constructive fraud is attached to equitable notions of constructive notice and so on. That is a world away from section 37A.
MR ALEXIS: It is, yes, we accept that.
GUMMOW J: It is something of a straw man that starts walking across the stage.
MR ALEXIS: I was seeking to give emphasis to the existence of the debt as Ms Yang is found to have understood it and to the contrary way in which the Court of Appeal regarded it. It shows a seeming preparedness to transfer this property to Mr Chen without making any arrangements for that payment. The absence of any arrangement does beggar belief when one has regard to the significant sum of money involved and can only be rationally explained, in our submission, as being part of the transaction to effect the intended result.
As I indicated earlier, the critical question here is why it was transferred on the terms that she did and it was plainly, in our submission, so as to enable the collection of that debt to be left entirely at the discretion of Mr Chen, her then trusted friend, and her, to deal with, and to deal with to the detriment of creditors but particularly Mrs Marcolongo.
So in that way the debt was clearly put out of the reach of her with respect to the pending $600,000 claim. Of course, that conduct was entirely consistent with the steps that had previously been taken only a month or two before when she actively took steps to conceal her New Zealand assets by transferring the shares in the hotel companies and transferring moneys out of bank accounts to Mr Chen and entities controlled by him.
FRENCH CJ: Just going back for a moment to the question of the intention with respect to the Mareva relief that might be lurking over the horizon, at paragraph 21 at 1497, the President says:
Any desire on Ms Yang’s part to avoid the “freezing” of assets can be seen as one capable of being held by someone who had no intention to deprive a creditor of the benefit of its rights.
You would not accept that proposition?
MR ALEXIS: No. There are two problems with that proposition.
FRENCH CJ: It does not matter that this was a collateral purpose – a real intent – sorry, her primary purpose was to avoid disruption of the program?
MR ALEXIS: The fundamental problem, with respect, to his Honour’s observation is that it seems to ignore the fact that Ms Yang’s intent had a dual purpose.
GUMMOW J: No, it is worse than that, is it not? It is not only a question of intention to deprive, it is defeat or delay?
MR ALEXIS: Yes, correct, and that is the second criticism, namely, it seems to overlook that important aspect of the application of the section.
FRENCH CJ: Well, on the narrow basis, no intention to deprive. You would say well that might be right but it does not answer 37A.
MR ALEXIS: Correct. Yes, your Honour. The other matter I need to deal with is what his Honour the President says at paragraph 20 where his Honour says at 1497 that:
money may be a more liquid asset and easier to move to defeat Mrs Marcolongo –
The difficulty with that is that it seems to assume that Lym International would actually receive the $7.4 million and there was simply no warrant for that assumption because Ms Yang confirmed, in the passages that I have already taken the Court to, that there were no arrangements for payment and it therefore suffers the absence of any finding that there would be an actual receipt of money. In similar vein, can I draw attention to his Honour’s finding in paragraph 23 on page 1498 where his Honour says that:
Amanda Chen also told Ms Yang that the company would receive funds form the transaction.
The difficulty with that finding seems to us to be that it is just not supported at all by what the primary judge found. I have taken your Honours to the finding which is either the money is owed or there is a debt, but there was no finding that Lym would actually receive funds.
HEYDON J: There seems to be a theme in this part of the President’s reasoning that Ms Yang had a very large number of problems. This question of freezing orders was just one of them and in a way it was a sort of trivial or at least non‑material part of the forces preying on her mind.
MR ALEXIS: Yes.
HEYDON J: I think that Mr Hale made something of that in his submissions. What do you say to that?
MR ALEXIS: He does. He picks up what Justice Young says at paragraph 236 at page 1539. This is the proposition that Justice Young put:
if the primary purpose of the transaction was to remove Ms Yang from the trauma of holding the property and the effect on creditors including Mrs Marcolongo was “merely incidental”, is that sufficient to bring the case within the section?
The difficulty with the application of that proposition is that there was no warrant for any finding that dealing with the liability that she perceived to Mrs Marcolongo was merely incidental. She, that is Mrs Yang, in giving her evidence and enumerating her reasons, did not characterise her intention to avoid the claim which she accepted as a liability or the injunction as merely incidental. There was in fact no evidence that she afforded any priority to any of her reasons at all. Of course, when one looks at the concession that she gave at page 33 of the first appeal book, lines 30 to 35, where she said if the property development was to freeze:
Lym International would not be able to deal with or sell the units in the second development.
And “Lym International would suffer a big loss”, that, in our submission, rather suggests that the consequence of avoiding a Mareva injunction was one that was very much alive in her mind and one that she was wishing to actively avoid. If any primacy is to be ascribed to her reasons, well, that, in our submission, is clearly a very important one.
HEYDON J: Your argument here just turns on very factual considerations ‑ ‑ ‑
MR ALEXIS: It does.
HEYDON J: ‑ ‑ ‑ not on an analysis of what the precise test might be in some other case.
MR ALEXIS: Correct, and there is no warrant in our submission to elevate one above the other because it was clear that she relied upon a number of express reasons, one of which was clearly to avoid the liability and the prospective Mareva injunction.
GUMMOW J: You could, I suppose, have a situation whereby the intention was induced by misrepresentations by some fourth party. What would happen then?
MR ALEXIS: Well, I think our learned friend seeks to derive some assistance from Justice Young’s description of Mr Chen at paragraph 241 of his judgment at appeal book 3, page 1540 as the real fraudster and, I think, a submission is advanced to the effect that because Ms Yang was operating under Mr Chen’s influence that she could not have a predominant intention of defeating, delaying or hindering creditors.
GUMMOW J: Is that the basis of Justice Young’s reasoning? It may be. I do not know.
MR ALEXIS: It is not apparent that that particularly is, and it does not appear on our reading of his Honour’s judgment that his Honour actually answered the question his Honour posed.
FRENCH CJ: The last sentence in paragraph 241 seems to suggest that he is focusing on the actual intention of Lym ‑ ‑ ‑
MR ALEXIS: Yes.
FRENCH CJ: ‑ ‑ ‑ whether it was fraudulent, predominantly, or not.
MR ALEXIS: Yes. But, the difficulty, of course, and again this is one that is answered by the factual findings because the clear evidence shows that Ms Yang, whether operating under influence or not, knew of the pendency of the appellant’s claim in the District Court, she accepted in cross‑examination that it was not just a claim but a liability and I should indicate that Mr Mao, the other director of Lym International, gave evidence before the primary judge and he conceded that Mrs Marcolongo’s building case was a very strong one and the only issue for Lym International was upon whom they could pass on the liability, if anyone.
So Ms Yang accepted the liability. She knew how to defeat it because Mr Chen told her how to. She accepted, and was complicit in, effecting the transaction quickly as he asked her to do so as to achieve what he told her had to be done. So, in our submission, whether she was acting under the guise of influence or misrepresentation is, on the facts, not to the point because she actively participated in what was proposed.
GUMMOW J: The point – I am not saying it is a good point – but the point really is that the terms of the conveyance which - the conveyance undoubtedly having, you would say, the necessary intent to defeat or delay – the terms of the conveyance were then advantageous to this third party who counselled this particular course in the first place.
MR ALEXIS: Yes.
GUMMOW J: And involved a breach of a fiduciary duty by that third party.
MR ALEXIS: Yes.
GUMMOW J: The question is what is the flow on of that into the actual conveyance itself, vis-à-vis your client.
MR ALEXIS: Yes. The primary judge clearly made findings that Mr Chen operated in breach of fiduciary duty, but the resultant effect on that with respect to ascertaining the requisite intention is that it does not affect or dilute the finding at all because Ms Yang embraced the proposition and she actively participated in it. In evidence, she acknowledged the significance of what she was doing, so any influence, for present purposes, had an irrelevant effect.
Your Honours, finally I need to deal with some of the findings of fact by Justice Young and I do so because his Honour the President said that his findings were based on the facts as explained by Justice Young. There are three paragraphs of Justice Young’s judgment I wish to take the Court to at page 1555 and 15556.
GUMMOW J: Paragraph?
MR ALEXIS: Paragraphs 307 to 309. In paragraph 307 his Honour refers to the finding of the primary judge and that the balance after the mortgage would be paid to Lym. and we again point to the actual finding which shows nothing more than either the amount would be owed or there would be a debt. So that finding, in our respectful submission, is unsupportable on the evidence. At paragraph 308 his Honour, with respect, seems to go one step further by saying that:
The judge’s finding was that Lym entered into this transaction because it was a way of the eliminating the trauma of Lym’s Australian assets and believing that there would be money over and above the amount needed to discharge the Kingsway Mortgage available to the company.
Again, in our submission, that finding is unsupportable. I have already dealt with the trauma point. Finally, in 309 his Honour seems to there be assuming without an actual finding that money may be flowing through to Lym International and, again, there is no evidential support for that either.
Our learned friend’s written submissions in paragraph 39 refer to the many reasons that motivated Ms Yang to transfer the property. There are five reasons set out. Reason number four in paragraph 39(d) of the written submissions tells us that “Ms Yang was unwell.” There is no doubt that in the course of her evidence she said at this point in time she was not very well, but she certainly did not articulate that as a reason for disposing of the property. Whilst dealing with this paragraph of the written submissions, may I refer to the omission of any reference to the consequence of the prospective Mareva injunction?
Your Honours, finally may I deal with three short points arising from Mr Chen’s written submission. In paragraph 13 of Mr Chen’s written submission he contends that he “was a purchaser for value” without notice and, as I have already said, I think, in answer to a question from Justice Heydon, section 37A(3) was not in play in the Court of Appeal for the reasons I have already given.
More importantly, in paragraph 14 there is a reference to stamp duty and the submission that was put below and is repeated here is that because Lym International was incurring a significant stamp duty liability, notwithstanding that it was the vendor, it seems improbable that there was an intent to defraud, in light of that liability, a claim for $600,000. The difficulty with that submission, of course, was that on the evidence there was nothing to demonstrate that Ms Yang had an appreciation that in due course Mr Chen would use Lym International’s money to pay the stamp duty. That cannot be a factor that detracts at all.
FRENCH CJ: Incidentally, was there any debate below about whether Mrs Marcolongo would have had any remedy in enforcement of a judgment in relation to the contractual debt owed by Mr Chen?
MR ALEXIS: No, there was not, but I am happy to deal with that now, if I may. I mean, if one was to postulate Mrs Marcolongo as a judgment creditor shortly after the transfer, and let us assume that following obtaining that judgment a statutory demand was issued and Lym International did not respond in a way that would be expected and therefore steps were taken to wind up Lym International on a deemed insolvency basis, a liquidator could then, seized with the contract, no doubt would soon ascertain that there would be potentially a debt which was collectable, Lym International being an unpaid vendor. No doubt the liquidator would have to then navigate defences with respect to the oral authorisation and the setting off of debts and all of that sort of thing, but assuming the liquidator ‑ ‑ ‑
FRENCH CJ: That would be one path, of course, not a path of the ‑ ‑ ‑
MR ALEXIS: ‑ ‑ ‑ managed to pass through all of that, alternatively it may be that there would then have to be, assuming Mr Chen challenged it, a claim by Lym International, in liquidation, as an unpaid vendor, and that may or may not enure a result. As Lord Sterndale said in the case In re Fasey, if a creditor has to be put to all of that it is difficult to understand what hindering a creditor is intended to mean. If that is ultimately the hurdles that were put in the way then, in our respectful submission, it is a plain case of the requisite intent being established. There was a final reference ‑ ‑ ‑
FRENCH CJ: Liquidation is one way, other forms of enforcement ‑ ‑ ‑
MR ALEXIS: Of course, your Honour, yes.
FRENCH CJ: In any event, your point is that depriving her of access to a particular remedy, the interlocutory remedy, is sufficient.
MR ALEXIS: Yes. But after the property was taken out of contention, then the only other remedy Mrs Marcolongo had was to enforce her debt against whatever assets could be brought back into Lym International, and that is, of course, the plain hindrance, in our respectful submission.
GUMMOW J: In re Fasey [1923] 2 Ch 1, pages 11 and 12, is it?
MR ALEXIS: Yes, and the reference that I just made was to his Lordship’s judgment at page 14, at about point 5:
If to put them to that way of getting their debts paid was not to hinder them, I do not quite know what hindering is.
Finally, in paragraph 15 of Mr Chen’s written submission he refers to the proposed transaction involving Lym International incurring a GST liability. For the same reasons that were given in respect of the stamp duty liability, there was really no evidence that Ms Yang appreciated that that would be a liability that Lym International would have to incur. There is no evidence to indicate what the amount of that GST liability would be, and that is an
important point to appreciate because, of course, Lym International as a property developer would get the benefit of input tax credits and, therefore, a GST liability arising from a $15 million sale may not necessarily be 1.5 million. If the Court pleases, those are our submissions.
FRENCH CJ: Yes, thank you, Mr Alexis. Yes, Mr Hale?
MR HALE: Your Honours, to engage section 37A the appellant was required to prove the date of the execution of the contract on 31 July 2006 that the real and actual intent of Lym in transferring ‑ ‑ ‑
GUMMOW J: Where do you get these words “real and actual” from, Mr Hale? They are not in the statute.
MR HALE: I picked them up from Cannane and Williams v Lloyd.
GUMMOW J: They are not in the statute.
MR HALE: No, they are not in the statute but ultimately ‑ ‑ ‑
GUMMOW J: What is an intent that is not real?
MR HALE: Yes. At the end of the day what the authorities speak of is identifying whether there was an intention to defraud creditors, having regard to all of the circumstances of the case. Now, in many such cases that is relatively simple, particularly in the case, of course, as has been mentioned, of voluntary disposition or in circumstances when there is an immediate debt and again properties sold for very much an undervalue. But this was not such a case because of, amongst other things, the unusual circumstances and the complexity of it including, of course, the cultural problems, differences, if I might put it that way.
Summarising them, and I will go to it in greater detail, Ms Yang was, in a sense, tricked into signing the contract for the reasons or in the circumstances in which the primary judge found, in circumstances where he managed to persuade Ms Yang to grant powers of attorney both from her personally and the company and to go to Sydney to look at this property purportedly on her behalf as her fiduciary but, in fact, he was doing it for the sole purpose of trying to persuade her to transfer the property to him as he saw this as the only way he would be able to be repaid for the debts in respect of the debts he considered were owed to him by the Liu family interests.
So one needs to understand that those circumstances and her reliance, almost entire reliance, upon him, as the evidence discloses, both for reliance on English, she had no English, secondly, she had no business experience and Mr Chen in New Zealand had been in a position where he was able to gain influence with the family by virtue of his experience in commercial matters and his English and after Ms Yang’s husband was detained, she was deprived of the business experience at least her husband had. So one needs to consider, when one looks at all of the circumstances, the relationship between the parties and, in fact, what was happening which, of course, explains the very unusual circumstances of the contract.
Another aspect that makes the matter unusual is that the consideration was $15 million, which was not said to be an undervalue for the property, and what is uncontroversial, $7.6 million was due to discharge the existing mortgage. Now, your Honours have already been taken to some of the passages where the primary judge referred to the evidence and was prepared to accept that Ms Yang understood that the balance of the funds were to be repaid to Lym and what we ultimately see is when in, I think, September 2006 or late August 2006, she actually ascertains what the true meaning or the content of the contract was, she took almost immediate steps to recover the property, as a consequence of which, Lym commenced proceedings in October 2006 seeking the recovery of the property, and, indeed, the present proceedings by Mrs Marcolongo were not commenced until approximately a year later.
Now, when one comes to look at the circumstances of the case and whether or not or what the intent was of Lym, one needs to look at all of those factors and that is what Justice Young is referring to when he refers to, amongst other things, the trauma of the property or the difficulties associated with it; the need for her to spend another $3.4 million if the matter was to proceed, the problem of the licence. What ultimately and what his Honour the primary judge did was fix on one aspect of the circumstances, which was, as he made the finding, that one of the reasons or a reason was the avoidance of the $600,000 claim.
GUMMOW J: Is that not enough?
MR HALE: Well, ultimately, that feeds into what probably the two issues that we raise and that is, firstly, is it enough because, in our contention – and this comes back to Justice Gummow’s reference to the operative reason – ultimately, in our submission, is that when one looks in order to determine whether there was intent to defraud, one looks to all of the circumstances and all of the reasons in order to determine whether property characterised, it can be said, the conveyance was with intent to defraud.
BELL J: Given that his Honour has made the finding and when one goes to the transcript of Ms Yang’s evidence commencing at appeal book 33, one sees a basis for it, accepting that Ms Yang may have been the dupe of Mr Chen, and the other circumstances to which you have referred, it seems to me you have a difficulty. There is a clear basis for the finding and that is the finding that the primary judge made.
MR HALE: What his Honour found, and I will take your Honours – well, your Honour has been taken to the passages but also take you to the transcript, is what his Honour did is he said a reason. Based upon that reason he found section 37A made out. Now, our complaints are twofold. Firstly, one needs to look at that reason and that circumstance in the context of all the factors leading to her decision to execute the contract on 31 July.
What his Honour the President was referring to, and no doubt Justice Young when they referred to respectively operative reasons or predominant reasons, but looking at questions of causation in the sense that was that particular reason, one, causative. Now, what we ultimately put, and perhaps we can look at a number of different levels. Firstly, one needs to look at whether there was an awareness that if the transaction proceeded it may have an effect on the ability of creditors to recover debts from Lym International.
The second question – was this consequence a reason for the decision to sell and if it is a reason was it a reason that was operative or causative, if I might put it perhaps another way. If, although aware of the potential impact upon creditors she nonetheless would have gone ahead with the transaction because of all the other factors and even if there had not been such an advantage the question arises, in our respectful submission, whether it can be said that it was intent to defraud because that particular reason might be ancillary in the way Justice Young described it. But it was not in any way causative. It was not operative. It was something that did not, in fact, cause her to make the decision and that is, as we understand ‑ ‑ ‑
GUMMOW J: This is some notion of predominant cause, is it?
MR HALE: That is the way Justice Young described it and the President referred to it as operative, that is to say a view or an understanding which may not have caused the decision to execute.
GUMMOW J: Whenever people start talking about causation I, for one, get nervous.
CRENNAN J: I think Justice Young raises this in paragraph 236, 1539. He is raising a question of a primary purpose ‑ ‑ ‑
MR HALE: Yes.
CRENNAN J: ‑ ‑ ‑ and seems to be suggesting that other purposes might be merely incidental.
MR HALE: Yes, merely incidental. One of our complaints about the primary judge’s judgment is to simply look at that one matter in a sense to the exclusion of all the other circumstances, the authorities making reference to their need to take into account all circumstances, led him to that conclusion.
GUMMOW J: Is there any line of cases drawing this distinction?
MR HALE: I have been unable to find any.
GUMMOW J: There is another question, too, which may be a question of construction of the Act. The Act is talking about alienations of property with intent to defraud. It seems to be said on your side that it is significant if the alienation was in the form of a conveyance and then a transfer, which conveyance was voidable at the instance of the alienor by reason of some equitable ground, here breach of fiduciary duties. Why should the statute get entangled in all of that?
MR HALE: I was not quite suggesting that was the case. What I was ultimately suggesting is ‑ ‑ ‑
GUMMOW J: But you seek to translate that, I think, in the Lym motions of predominant cause.
MR HALE: Yes. Ultimately, our proposition is that, adopting the language of the President, looking at the evidence, one needs to characterise the intent in a particular way having regard to all the factors at play.
FRENCH CJ: The problem with this hierarchy of causes is that you seem to be treating intent as though it is a species of cause. What they are really talking about here is a person entering into a transaction with more than one object in mind, in other words, a number of intentions. To take a simple example, it might be my son’s birthday. I give him my house both as a birthday present and also because if I do not, somebody is going to take it away from me and, namely, somebody to whom I owe money, so there may be two intents. If here there be an intent, properly found, to put the property beyond the immediate reach, whether it is by way of Mareva injunction or otherwise, of Mrs Marcolongo and of intent to avoid a number of other difficulties that will arise if the property is retained, why does that not answer the description of an alienation of property made with intent to defeat, hinder delay, etcetera?
MR HALE: That was coming back to what I was putting earlier. When one talks about intent, presumably what one is talking about is the recognition of a particular state of affairs and what will or is likely to happen if that intent is effectuated ‑ ‑ ‑
FRENCH CJ: I intend, by doing this, to stop you from freezing my property.
MR HALE: Yes. If, ultimately, there is a recognition that that might stop you freezing the property but nonetheless, for example, the predominant reason, to adopt Justice Young’s approach, was because with all of these problems I am presently having in the circumstances of holding the property, what I want to do is to get rid of the property and while these might be one of many of the indicia or some of those matters which led to my trauma, my desire to get rid of the property, then the question is, can it be said that was the intention? That is the point. What the primary judge has done is pick up that one answer and relied upon that clearly as a reason, and I will take you to the context of it, but to the exclusion of all of the other factors, as a consequence of which, leading to the point about fraud having some element of dishonesty ‑ ‑ ‑
FRENCH CJ: Do you accept that it was one of her intentions in entering into this transaction, therefore the intention of Lym, attributable to Lym, to avoid the possibility of a freezing order on the property?
MR HALE: I accept that one of the reasons ‑ ‑ ‑
FRENCH CJ: Can we use the language of the statute. That is what I am putting to you.
MR HALE: Yes.
FRENCH CJ: We can slip through causes and reasons and ‑ ‑ ‑
MR HALE: I was trying to, as your Honour appreciates, avoid that.
FRENCH CJ: Yes.
GUMMOW J: Yes, that is right, and we are determined not to let you avoid it because we have to write a judgment.
MR HALE: Yes, but our proposition is the intent – and I am repeating myself and I apologise for that – ultimately one needs to look at intent as being an intended consequence of the transaction in that sense – and I appreciate all the difficulties about being causative – but an intended state of affairs was being sought to be brought about. But if that is an acknowledgement that that might be a state of affairs that might be brought about but nonetheless the transaction was motivated by more significant forces and had Ms Yang not been told of that factor the sale still would have gone ahead in those circumstances. In our submission, it would not be said that it was intent to defraud creditors.
Another aspect of the primary judge not focusing beyond that one finding - and this relates to this issue of fraud or the element of dishonesty – he never gave consideration to the fact that she understood that the balance of the purchase price of approximately $7.5 million was to be repaid to Lym. Now, in those circumstances where she anticipated that the money would be coming back to Lym, notwithstanding what has been said, how can it be said that the intent to defraud has in fact been established.
HEYDON J: Because of the answer she gave on page 34.
MR HALE: Because of the answer she gave, yes. Could I come to that at page 34 - it might be useful - and then go straight to what the President said?
HEYDON J: We do not still have an answer to the Chief Justice’s question. I think I can work out an answer from page 34. The answer to the Chief Justice’s question is there was an intended state of affairs of getting the property:
out of Lym International’s name and away from those who might be making a claim against the company.
That is so, is it not?
MR HALE: That is so.
HEYDON J: Then she went on to give what she called reasons, other intended states of ‑ ‑ ‑
MR HALE: That is so. Could I take your Honour ‑ ‑ ‑
CRENNAN J: Just before you go further, may I just direct your attention for a moment to Fasey’s Case [1923] 2 Ch 1 at page 14 - we did look at this before – in the judgment of Lord Sterndale. I was going to direct your attention to about point 7 of the page where his Lordship is discussing whether or not a “transaction comes clearly within the state”. He is referring to the fact that one of the creditors got a particular advantage in relation to the facts and he says:
the fact that one creditor, the solicitor, incidentally got a benefit does not seem to me to prevent the transaction from being void. It was not a transaction for the purpose of giving the solicitor a preference over other creditors; no doubt it did so incidentally, or might have done so, but that was not its object.
I do not know whether that sort of passage or any cases subsequently have led to some distinction being made between incidental purposes and the purpose which is covered by the statute, but the second point to be made, I think, is that once you have a purpose which satisfies the statute perhaps it does not matter too much if there are other purposes as well.
MR HALE: I suppose it comes back to what I was putting earlier.
CRENNAN J: You seem to be ranking the purposes somehow as though some are more important than others.
MR HALE: Ranking is probably not the correct way, but the proposition I am advancing is that if there are a multitude of reasons why the property or the contract was executed, then what one, in our submission, needs to do upon all the evidence is to determine whether it can be truly said that execution was with intent to defraud and therefore our proposition is, which seems to be adopted, the approach of the Court of Appeal, if one of those reasons is merely incidental, one of those reasons has limited operation on the minds of the disponor, then that would not fulfil the requirements of section 37A.
Generally speaking, what is unusual, of course, in this case is the fact that there are so many reasons whereas, generally speaking, one would simply see a claim, the alienation of property in circumstances where clear inferences could be drawn and that is not the case here and that is, amongst other things, we actually have the mind of the company giving the various reasons.
CRENNAN J: That is the sufficiency point, I suppose, which was raised by Justice Young at 236 and followed through at 241 where he says:
one must look to see the intention of Lym at the date of the disposition, whether it was fraudulent predominantly or not.
MR HALE: Yes. It links into the argument about dishonesty which we put is not a superadded requirement, but fraud carries with it a particular meaning which includes dishonesty or something like it and, in many cases, it will be quite apparent from the facts, the objective facts, that such an inference can be drawn, but here, in the unusual circumstances, if there is to be a finding of fraud, then one needs to go to the evidence to identify whether or not the state of mind here of Ms Yang is one which fits that description and has that element of honesty or lack of honesty.
FRENCH CJ: Do you accept what the President said at paragraph 17 at 1496 of the element of dishonesty:
It is an actual intent to deprive creditors of their rights or the fruits of their rights.
MR HALE: Yes.
FRENCH CJ: Then it just collapses into the words of the statute.
MR HALE: Yes, and that, with respect, is the way one would approach Cannane and the reference going back to the earlier authorities. The reference to – I am sorry, words escape me for the moment, but words which identify or give reference to being cheated of their rights, swindling creditors and so forth.
FRENCH CJ: Cheated in that context, just means deprived, does it not? It does not mean anything more.
MR HALE: It has to be understood as more than just deprived. There must be some aspect to give rise to a description of fraud, and just dealing with Cannane 192 CLR 557, for example, if I might jump about a bit, if one goes to the joint judgment of the Chief Justice and Justice McHugh at paragraph 14 ‑ ‑ ‑
GUMMOW J: I think I can say to you, Mr Hale, none of the matters we are now debating were on the table in Cannane, I can assure you.
MR HALE: Well, there is certainly that passage not merely enlivened by ‑ ‑ ‑
GUMMOW J: You can go mining for any nuggets; you may find some.
FRENCH CJ: The very passage that is cited there is what I had in mind where Chief Justice Dixon spoke of “will, if the intent is effectuated, be cheated of their rights”.
MR HALE: Yes.
FRENCH CJ: In that context that means nothing more than deprived, because the intent is, by whatever they do, to deprive creditors of their rights. The word “cheated” does not actually add anything once you put it in that setting.
MR HALE: That, no doubt, is what, I think, Justice ‑ ‑ ‑
FRENCH CJ: It is a problem with words that carry that kind of moral overlay, that they can engender false issues.
MR HALE: Yes. That is consistent with what, I think, Justice Gaudron says at the top of page 572. But then one also, Justice Gummow at paragraph 57, in referring to the proper characterisation given by Justice Lehane, and:
The intention that the shares should be put out of the reach of creditors is not itself necessarily an intention that creditors be defrauded –
We know that from a number of cases, of which Cannane is one and Williams v Lloyd, I think, is another. There needs to be something which converts the shares being put out of reach, even if intentionally, into something which comes within the description of section 37A. That is what has been said in a number of the authorities to be that element of dishonesty which is a necessary component of fraud.
HEYDON J: The bit of Cannane in the argument which may bear on one of your earlier submissions, on page 560 Mr Bennett is making a submission, about two-thirds of the way down the page. It is before the words “Justice Kirby”. Mr Bennett said:
There is no evidence that he knew anything about his father’s affairs. [KIRBY J. Does that mean that if a person, in order to defraud his creditors, chooses a stooge or a person who is mute or cannot understand, he thereby immunises or quarantines himself from the consequences?] That may well be so. [KIRBY J. That cannot be right.]
What is wrong with Justice Kirby’s answer?
MR HALE: That would be consistent with wilful blindness being equivalent to knowledge, would it not?
HEYDON J: Your proposition was that the second plaintiff was deceived in a way by the man she was talking to, ignorant of business affairs, ignorant or at least gravely handicapped in dealing with people who could speak English in a foreign country and so on. Is she not in the same position as the person who is a stooge or cannot understand?
MR HALE: But is there not a difference between wilful blindness and blindness? That is probably ‑ ‑ ‑
HEYDON J: I think there is no problem about the wilfulness of Mr Chen. Your proposition is Justice Kirby is talking about Mr Chen, he is not talking about the second plaintiff?
MR HALE: Yes, I think that is what – what I would wish to do, if I might now, is to take the Court back to the relevant parts of the transcript which are in fact within a relatively short scope in volume 1. Relevantly, it starts at page 30, and this is dealing with the 60,000. You will see at the bottom of 30, the last line, reference to “Sandy” who was the person who was providing her with information and was asked court proceedings and she gives her answer at the top of 31 and when she – the way she said that she – and describes on page 31 at about line 15:
No, she has never told me about that, she just told me there is trouble and she has taken care of it, so I didn’t ask her about that –
Then Ms Yang learns for the first time about the claim for $600,000. As will be apparent, she misunderstood what it was about. That probably is not relevant. She was told by Mr Chen and clearly told this by Mr Chen as part of Mr Chen seeking to persuade her to execute the contract. That is again identified on page 32 from about line 42. Then we get from about line 45 the problem of the builder having “gone into liquidation” and the reference to “quality problems”. She understood that what she was being told was the purchasers of the first project had discovered quality problems and were seeking to sue Lym because the builder had gone into liquidation.
That is followed through at the top of page 33. Then from about 25 on page 33 the reference to the – what the “freeze” – understood a freeze. There of course has been reference to Mareva injunctions but one should look at the actual words, a reference to “a freeze” and going to about line 30:
Q. And by “freeze” you understood that Lym International would not be able to deal with or sell the units in the second development. Is that right?
A.INTERPRETER: Yes.
Q. And you understood that if that occurred, Lym International would suffer a big loss, is that right?
A. INTERPRETER: Yes.
Then we get two important questions:
Q. And so was it during one of these conversations that Mr Chen said to you that the title to the second property needs to be transferred out of Lym International’s name?
A. INTERPRETER: Yes, it is his suggestion.
This next question is important:
Q. Did you understand that if the property was to be transferred out of Lym International’s name, then there would be no asset or no moneys available to meet claims being made against the company?
A. INTERPRETER: Well, Paul just told me that I need to transfer it as soon as possible. He said otherwise Lym International will suffer a big loss. I didn’t realise what result it would lead to -
which again is significant. That ultimately leads to the passage which is the high point of the appellant’s case at page 34, the question at line 20:
because you wanted to get the property, the second project, out of Lym International’s name and away from those who might be making a claim against the company. Is that right?
A. INTERPRETER: That’s one of the reasons.
Then refers to some of the others, the need for “3.4 million” and there “will be freeze” and then there was the reference of the “construction licence”.
It is clear what she did say because of the $600,000. He wanted to get away from those who had made that claim against the company. Now, the cross‑examination does continue but what the President has said in relation to these passages, which is probably central to his judgment, is to be found in his judgment, volume 3 at 1498. Having set out parts of that passage to which I have taken the Court and also identified in paragraph 23 that Ms Chen also told Ms Yang the company would receive funds from its transaction, what his Honour concluded was that answer was insufficient in all of the circumstances to justify the finding because he goes on:
it was necessary, in my view, to take the matter further than was done in the last question . . . to avoid the transaction it was necessary to find that Ms Yang had an actual and real intention to defraud Mrs Marcolongo by depriving her of what Ms Yang appreciated to be Mrs Marcolongo’s rights and that this intention was operative as one of the reasons for the transaction.
FRENCH CJ: Does that add anything, by the way? The words “the intention was operative” as one of the reasons for the transaction, if she had an actual and real intention to defraud Mrs Marcolongo in the terms that his Honour expressed, what does it add to it to say that it was operative? That is really implicit, is it not, the fact that it is an intention?
MR HALE: It comes back to what I was putting before which is if she had an awareness that the consequence of the transfer would be that there may not be assets available to meet any claim that as I say is the first step.
FRENCH CJ: Well, that is an awareness, yes.
MR HALE: The second step is whether or not that awareness was something which influenced her decision and that is an issue of weight, in a sense, that we have been debating and, therefore, if the weight ‑ ‑ ‑
FRENCH CJ: His Honour has gone beyond awareness in the first thing that I just put to you. Once you find that she had an actual and real intention to defraud Mrs Marcolongo that, by definition, is operative, is it not?
MR HALE: Can I take your Honours back to – well, that is what I am trying to resist.
CRENNAN J: Getting back to the point Justice Young made which is this predominantly fraudulent idea, that is to say, if there are multiple purposes, you have to check whether an intention to defraud was really what was animating the transaction as distinct from a whole range of other purposes, does it not get back to this point of yours?
MR HALE: It does. That does that gets back to my point and that is the proposition we advance. If we actually go to the primary finding ‑ ‑ ‑
HEYDON J: If an intention to defraud exists, it is not trivial or incidental. People do not formulate those intentions without them being serious.
MR HALE: Yes, I understand what your Honour puts, but can I go back to – the central finding of the primary judge is at 1450 at paragraph 145. What his Honour has found, on the last two lines, it will be observed, is:
to admit that avoidance of the $600,000 claim was a reason for her entering into the contract –
Now, our proposition is there are many reasons – and it comes back to the point that Justice Crennan just articulated – he goes from “it was a reason” and then, if we go to page 1466 at paragraph 182, he picks up that finding at 145, because that finding:
renders the decision of the second proceeding comparatively simple.
So what his Honour has done is go from identifying a reason and having made that finding that that was a reason, one therefore concludes that the transaction was intent, with intent to defraud creditors. His Honour, in a sense, because he finds it comparatively simple, does not go the next step to determine whether that reason was one which had the effect of characterising the transaction in the way referred to in section 37A.
HEYDON J: The submission is put to his Honour for and against that next step? Did you submit, for example, that any finding that might be made on the strength of page 34 would only be a finding of something merely incidental and not really operative?
MR HALE: I cannot answer that question, party for the - as Mr Alexis explains, what was occurring - I was taking a relatively neutral position in that side of the case.
HEYDON J: It would be an open inference that no such argument was advanced to the judge then.
MR HALE: I do not know that your Honour can take ‑ ‑ ‑
HEYDON J: If you were neutral how can the argument have been advanced? It would have been you rather than Mr Prichard who had an interest in advancing.
MR HALE: That is right, because what in fact was happening was before Justice Hamilton, both my learned friend, Mr Alexis, and myself were, on behalf of our clients, seeking, in substance, the same relief but by a different route, namely, we were seeking orders for the retransfer of the property on the basis of breach of fiduciary duty - Mr Alexis by the 37A route and Mr Pritchard, of course, was resisting both.
As I recall, we made no submissions at all on section 37A, but ultimately orders for costs were made against us together with that of Mr Chen and then in the Court of Appeal again we filed a submitting appearance, again the argument was carried by Mr Pritchard. The consequence of the Court of Appeal’s decision was that in dismissing the appeal in the fiduciary duty case, that is to say the property was going to be transferred, as it were, maintained the status quo. The consequence of the appeal being allowed in the section 37A case was that the order for costs that had been previously made against us in the 37A proceedings was in fact revoked and replaced by an order for costs in our favour in the 37A case.
Ultimately, and this was one of the issues that was articulated on the special leave application, was our proposition - why leave should not be granted was dealing with the fact that this case is essentially now about costs. I hope that is not regarded as an irrelevance but that just explains how we are in our particular positions and my learned friend has taken you to the orders that had been made by Justice Hamilton as the primary judge into the various undertakings.
It must be said that the orders that were obtained in the Lym case, that is to say the other case, matched or mirrored those in the section 37A case. Now, that may be an irrelevance but it does explain the rather unusual circumstances in which we are here. My learned friend apparently says he wants the injunction, not only costs, but that is ultimately where we are, where we are seeking - we have the benefit of the orders in the Court of Appeal.
Now, I have taken your Honours to those passages and what the President had said and what we apprehend the President was saying is just to leave the nature of the – leave the cross‑examination in all the circumstances as it is, namely, that one of the reasons for the transaction was the claim is insufficient to characterise the intention as one under section 37A.
BELL J: That in circumstances in which Lym, by its defence, denied that the transaction had been undertaken with intent to defraud Mrs Marcolongo but took on this aspect, a neutral position, before the primary judge who had the evidence at page 34 of the transcript and no contention to the contrary being live, notwithstanding their pleadings, before him.
MR HALE: That must be said and we filed a defence but took a neutral position. That is why we ended up with a costs order against us.
GUMMOW J: What is the particular paragraph of your defence?
BELL J: Appeal book page 8 of volume 1, paragraph 4.
HEYDON J: Which answers the pleading in paragraph 4 on page 3 of volume 1.
MR HALE: I should also take your Honours to the transcript which refers to the fact that at the time of the execution Ms Yang believed that she was going to receive the balance, at least Lym would receive the balance of the sale proceeds.
FRENCH CJ: There was no actual finding to that effect, was there? The finding was there would be a debt due or she had been told there was to be a debt due?
MR HALE: Yes. The findings are to be found, going back to the primary judge’s judgment, at 1443 at 124 and 125. He sets out the passages of the evidence of both Ms Yang, or some of the passages from Ms Yang and her daughter, Jasmine, about the contract price.
FRENCH CJ: The findings at 131, I think, and following?
MR HALE: Yes, and 132 and she said “I should be prepared to find, on the evidence . . . Amanda did say”, and there is a further finding at paragraph 171 on page 1461. Probably the most significant, of the evidence itself, is to be found at volume 1, page 38 at about line 18:
Amanda told me that there is a clause stating that Paul has owed the balance to Lym International.
Now, in circumstances and it should be ‑ ‑ ‑
FRENCH CJ: Then at line 40 down the bottom no discussion about when he would be paying it.
MR HALE: Yes, there was no such discussion. All of her approach to the transaction at this time needs to be understood in the context of her complete reliance upon Mr Chen and her complete trust, much of which is summarised in his Honour’s judgment at page 1463, paragraphs 178 and 179, which identify or summarise his findings that Mr Chen took advantage of his position.
Some of those relevant considerations, and I might give the Court the passages in the judgment – at paragraph 11 of the judgment, 1400, is his finding she could not speak, read or write English, and relied upon Mr Chen ‑
due to his business experience in New Zealand and his fluency in English.
The finding at paragraph 24 at page 1405 that on her husband’s arrest she –
was deprived of the business advice and access to funds in China of [her husband]. She and her husband already depended on Mr Chen for financial advice in New Zealand. After her husband’s detention, Ms Yang became more dependent on Mr Chen and Amanda for friendship, business advice and assistance in attempts to conceal herself and her assets from the Chinese authorities -
Such was her trust that she advanced money to him so that she might be able to draw upon it, and when one comes to look at the transaction and her reliance upon Mr Chen, it was such that she provided him, as I have earlier said, with powers of attorney, both of the company and also herself, which enabled him, amongst other things, to draw upon her bank accounts and the company’s bank accounts, which he ultimately did by, as the judge found, misappropriating $1.2 million from her accounts and $120,000 from Jasmine’s account. So when one goes to the passages to which I have earlier referred one can see the dominance, as it were, and complete reliance that she placed upon him and in circumstances which led her to execute a contract.
FRENCH CJ: You are almost, therefore, attributing his purposes to the company – his intentions, via her.
MR HALE: Yes. That may be so, in that sense, but ultimately we are looking at what her intention was at the time of the execution of the contract on 31 July, and she was relevantly the controlling mind, we can talk of Ms Yang and, therefore, one needs to look at her intentions, her subjective state of mind at that particular time in order to determine whether or not she had the requisite intention. Now, we make the point that if it is the case, as the evidence would clearly indicate, that what she understood was occurring, she was ridding herself of the property and the company was to recover, as she was told the contract provided for, the balance in excess of $7 million, how in those circumstances, if one accepts that, can one conclude that in all of the circumstances she had the requisite intention to defraud the creditors?
GUMMOW J: This reference to “requisite intention” Mr Hale ‑ ‑ ‑
MR HALE: I am sorry?
GUMMOW J: I think we agreed earlier that seemed to be nothing in the earlier case law on this notion of predominance. There is a recent decision of the English Court of Appeal given by Lady Justice Arden in a case called Giles v Rhind [2008] 3 All ER 697 at 704 to 705. She is dealing with section 423 of the Insolvency Act 1986, but that is the Elizabethan statute in modern clothes. Her starting point, fairly enough I guess, is Lord Mansfield’s decision in Cadogan v Kennett (1776) 98 ER 1171, namely, that in looking at these questions of intent you have to approach the statute with a liberal interpretation in favour of the defeated party. That is the way the cases have gone and that may be why you cannot find an authority which you need to strap up this argument.
MR HALE: But at the end of the day, while predominant or operative words are used, they are nonetheless means of, as it were, enabling findings to be made on all the evidence as to whether or not there was that intent for the purpose of deception.
FRENCH CJ: That is a convenient time, Mr Hale. We will adjourn until 2.00 pm.
AT 12.43 PM LUNCHEON ADJOURNMENT
UPON RESUMING AT 1.59 PM:
FRENCH CJ: Yes, Mr Hale.
MR HALE: I have been dealing with the one reason that the primary judge relied upon. There are, of course, many other reasons to which reference has been made in our submissions but, of course, one of those was the fact that to complete the project required an additional $3.4 million which he simply did not have and therefore was not in a position to proceed with the project. There is the imminent expiry of the construction licence, the fact that in the circumstances she did not wish to continue with the development and, of course, she did not want assets which might be exposed to the Chinese authorities.
None of these were matters which the primary judge took into consideration amongst the relevant circumstances. Perhaps one matter even more critical is the fact that central to section 37A and intent to defraud creditors is the assumption that by transferring assets the disponor is doing so, recognising that as a consequence, there is likely to be insufficient assets to meet the claims of creditors. That central proposition was picked up in a slightly different way in Cannane at paragraph 13, which refers in paragraph 13 to the depletion of the fund against which to prove debts, either by the sale of an undervalue or not at a true value.
In the present circumstances, and I have already made reference to some of the passages, Ms Yang understood and believed that she was selling the property for its true value and that there would be a fund or the balance would be paid to Lym and I have already given the Court the reference at page 38. In the judgment the primary judge at paragraph 124 at 1443 sets out another passage of Ms Yang’s evidence which you will see the last sentence of that passage:
I would never have signed the contract if Amanda Chen had not said [sic] to me that Paul Chen would not pay the balance of the purchase price to Lym.
FRENCH CJ: That seems to be a mis‑transcription?
MR HALE: It does, it does, but the intent is clear. Now, the question must therefore be asked, if she did not believe there would be a depletion of the funds, how could it be consistent with the principles which underscore the Statute of Elizabeth, could it be said that the transfer was with intent to defraud creditors. This was the point both the President and Justice Young were referring to in their judgments. If I might take you first to the President at page 1497, paragraphs 19 and 20 and this, of course, should be read in the context of paragraph 17 where his Honour has said the passages of cross‑examination were insufficient. I am sorry, that was not paragraph 17, it was an earlier paragraph.
HEYDON J: Paragraph 24.
MR HALE: Yes, thank you. What we see in paragraphs 19 and 20 is the President drawing attention or giving consideration to that proposition that she thought what she was obtaining was value. Then at paragraph 20 the reference to liquid assets and it was never put to her that it was easier to move liquid assets than the real property, the land itself, which comes back to the proposition in paragraph 24. She was not challenged in any way on that. She understood that she, or Lym, would receive that additional sum of $7 million.
To similar effect is Justice Young’s judgment at 1555. At paragraph 307 at the bottom of that page and it refers to she believed:
that the mortgage would be paid out and the balance would be paid to Lym.
Then at paragraph 308 over the page, his Honour refers to the primary judge’s judgment and says:
believing that there would be money over and above the amount needed to discharge the Kingsway Mortgage available to the company.
309 Whilst it may well be that Ms Yang realised that there were claims and perhaps even Mrs Marcolongo’s claim . . .if money was going to flow through to Lym, there is no reason to find that she acted in fraud of Mrs Marcolongo or any other creditor.
So one asks the question, as indeed the Court of Appeal did, in all of those circumstances how can one identify the intention to defraud if she believed that there was no depletion of the assets.
CRENNAN J: What do you say about the appellant’s answer to these points which focuses upon the fact that there was no list of money that was going to flow back – there was no accounting in relation to matters of detail, those sorts of points that have been made in this context?
MR HALE: That is true and that, of course, was very much a function of her totally relying upon her fiduciary and having signed the contract and, as you appreciate, under the terms of the contract the fiduciary acted both for vendor and purchaser. Yes, there was no accounting and the primary judge made those findings. But, at the end of the day, the critical factor was she understood that there was a clause in the contract that Paul owed the balance to Lym and it was not suggested to her in cross‑examination that she had entered into this arrangement somehow to secrete or hide the balance of the funds.
She clearly believed that the funds would come back to Lym and when of course she found out the true position, she commenced proceedings for the reconveyance of the property. I think that is the answer to your Honour’s question. Also, there is reference to freezing and Mareva injunctions. One needs to read the passages of Ms Yang’s evidence and what Mr Chen said to her because it is apparent that he, to so some degree, was misrepresenting the position about freezing in order to persuade her to enter into the contract. The evidence about the Mareva injunction is to be found in volume 3 from page 1052 to 1120. Without wishing to take the Court to all of the pages, could I touch on 1052, which was the motion filed for security.
HEYDON J: Which paragraphs of your written submissions deal with ‑ ‑ ‑
MR HALE: I do not think we do.
HEYDON J: I think the references to evidence are pre‑eminently the sort of thing that is best dealt with analytically in written submissions.
MR HALE: I appreciate that, your Honour. I do not think we have made specific reference. At 1052 is the motion of 9 August, and if we go to 1066 we see that the various motions have by 27 August 2004 been refused and that is almost two years in advance. I should say the injunctions are in relation to the first project. The position in 2006 is to be found at 1120, which is a request for an undertaking in January 2006. There is no evidence of any response to that. So when one reads what has been represented to
Ms Yang about imminent freezing, it hardly accords with the factual position and again is indicative of the representations being made by Mr Chen in order to persuade Ms Yang to enter into the contract.
The final point I would wish to make deals with the issue of the component of dishonesty required in fraud and I think reference has been made to a number of authorities which indicate there must be some element in order to establish fraud. Could I simply make reference to two passages in Hardie v Hanson 105 CLR 451 which pick up the judgment of Justice Maugham in In re Patrick & Lyon. The Chief Justice at page 460, towards the bottom of the page, refers with apparent approval in the circumstances of that case to what Justice Maugham said is meant by “defraud” and “fraudulent purpose”, “actual dishonest” and so forth.
Justice Menzies at 466, towards to the top of the page, the first full paragraph makes reference to it, the authority, “actual dishonesty involving real moral blame”. Now, of course, In re Patrick & Lyon, as indeed Hardie v Hanson, must be seen in the context of the legislative framework then under consideration, but again it is indicative of fraud having as a component some element of dishonesty.
GUMMOW J: You have a notice of contention, do you not?
MR HALE: Yes, I do have a notice of contention. Having looked at it and seen my learned friend’s submissions, we do not propose to press that.
FRENCH CJ: Thank you, Mr Hale. Yes, Mr Alexis.
MR ALEXIS: The summons that travels with the notice of contention for leave to file it should, therefore, be dismissed with costs, in our submission. There is only matter arising by way of reply and that is the need to deal with our learned friend’s submission that he put to the Court to this effect that Ms Yang, if she had not been told what she had by Mr Chen, the sale would have gone ahead anyway.
With all respect to our learned friend’s submission, that runs head on into the finding of the trial judge at page 1406 of appeal book 3 at paragraph 26 and this is an important paragraph when one is considering a proposition of ascribing a priority to the reasons because in paragraph 26 at 1406, his Honour refers to what appeared as “little substantive work” to the project since January. Repayment of the secured debt to Kingsway or a reduction of it, I should say, to bring it down to $7.6 million. There is the personal guarantee. In light of that obligation, the apparent need for $3.4 million to complete the project, loss of support of husband, Ms Yang had made some inquiries concerning sale. Then your Honours see the important finding in the last sentence:
I do not find that she had by 24 July 2006 -
and that is the critical date upon which the power of attorney was given to Mr Chen -
made any firm decision to sell the subject property.
That, of course, then provides the significant context in which the conversations that his Honour set out at paragraph 134 and following occurred, and I have taken your Honours through those. When one looks at the matters that were at play prior to 24 July, as articulated in paragraph 26, and one then looks at what occurred after via Mr Chen, picked up in the various passages set out from paragraph 134, it is plain that what followed was the information concerning the $600,000 liability, the prospect of a Mareva injunction. As Ms Yang said in her oral evidence, she came to understand that a construction licence might cancel itself within two months, and there was the question of gaol. The question of gaol arose out of the conversation at 136 at page 1447 because Mr Chen told her about the need to transfer:
then neither the company nor you can then be liable . . . otherwise the company will be liable . . . and you could go to Gaol.
In our respectful submission, when one appreciates the context in which these conversations occurred, the context, as I say, as articulated in paragraph 26, it is plain that the matters of significance, save only for the construction licence prospectively cancelling in two months, had everything to do with the liability that was seen to be due to Mrs Marcolongo, and the prospective application for a Mareva injunction. I just wanted to put ‑ ‑ ‑
GUMMOW J: Looking at paragraph 26, what do you say about the gap between the letter of 25 January, at 1120, threatening an assets preservation order application and the failure to follow that up against ‑ ‑ ‑
MR ALEXIS: It is utterly irrelevant insofar as what was plainly exercising a concern in Ms Yang’s mind because what Mr Chen was telling her, the objective framework for that representation he made to her was a letter of January 2006. There was no actual application made between January and July but, in any event, that is what she was told and she reacted in the way, no doubt, Mr Chen wanted. It is clear that operated on her mind and motivated and actuated the transfer of the property.
GUMMOW J: What do you say about Mr Hale’s reliance on paragraphs 19 and 20 of the President’s judgment and, I think, paragraph 307 in Justice Young’s?
MR ALEXIS: As I said in my submissions in‑chief, the belief about the production of a financial benefit, the belief that she was to obtain what she saw as value, overstates the finding of the primary judge which was nothing more than the finding at paragraph 132 at page 1445 that Amanda Chen had said upon execution of the contract, “the balance of the purchase price would be a debt due” and that is underpinned by the reference in 124 to Ms Yang’s evidence about the balance being owed and her daughter’s evidence collected in paragraph 125 about a debt being due.
HEYDON J: Obtaining value in that sense is not inconsistent with delaying and obstructing creditors, is your point?
MR ALEXIS: That would be our submission, and I have put that already. Unless there are any other matters I can assist the Court with, those are our submissions.
FRENCH CJ: Thank you, Mr Alexis. The Court will reserve its decision and adjourns until 9.30 tomorrow morning in Sydney.
AT 2.20 PM THE MATTER WAS ADJOURNED
Key Legal Topics
Areas of Law
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Civil Procedure
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Negligence & Tort
Legal Concepts
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Appeal
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Causation
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Damages
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Duty of Care
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Negligence
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Reliance
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