Noakes v J Harvy Holmes & Son

[1979] FCA 75

NOAKES v. J. HARVY HOLMES & SON (1979) 37 FLR 5
Execution

COURT

FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
Brennan(1), Deane(2), Fisher(3) JJ.

CATCHWORDS

Execution - Judgment debt - Registration in Norfolk Island - Voluntary transfer of shares by debtor with intent to defraud creditors - Burden of proof - Void or voidable - Consequential orders - Effect on transferee - 13 Eliz. I c. 5.

HEADNOTE

By a summons dated 9th December, 1977, the respondent sought the appointment of a receiver of the appellant's property in Norfolk Island for the purpose of obtaining equitable execution against the assets of the appellant in satisfaction of a judgment debt registered in Norfolk Island, and further seeking an order that: "The 9,993 shares (in Transworld Trading Ltd., a company trading and registered in Norfolk Island) shown in the annual return as at 6th December, 1976, as standing in (the appellant's) name be vested in the said receiver forthwith by virtue of the order of this Court." This summons was directed to the appellant and the company but the company was not served.

On the hearing of the summons it appeared that on 13th December, 1976, the appellant had transferred 9,991 of his shares to his wife ("Mrs. N."). By a further summons dated 12th December, 1977, directed to the appellant, the company and Mrs. N., the respondent sought that the transfer of the shares to Mrs. N. be set aside "as a conveyance to defeat creditors".

On the summons dated 12th December, 1977, the court made an order that the transfer of the 9,991 shares be set aside as a voluntary conveyance made with intent to defraud creditors. Pursuant to the summons dated 9th December, 1977, the court made certain consequential orders including the appointment of a receiver of the shares, orders empowering the receiver to sell the shares, to be manager of the company and to apply the company's funds, inter alia, by satisfying the judgment debt and interest thereon.

On appeal against the orders made on both summonses,

Held: (1) The inevitable result of the transfer of shares by the appellant to Mrs. N. on 13th December, 1976, was to delay or defeat any attempt to execute judgment in Norfolk Island. In the absence of evidence from the appellant showing what consideration was paid to him on the transfer, and taking into account all the circumstances of the case, the respondent had satisfied the burden of proving that the transfer was voluntary and in fraud of the respondent. The transfer was therefore within the prohibition laid down in 13 Eliz. I. c. 5 as extended to Norfolk Island.

Freeman v. Pope (1870), LR 5 Ch 538, applied.

Williams v. Lloyd; In Re Williams (1934), 50 CLR 341, considered.

(2) A transfer expressed to be for "consideration received" may nevertheless be a voluntary disposition.

Walker v. Burrows (1745), 1 Atk 93; 26 ER 61, applied.

(3) A transfer found to be "voluntary" is not saved from contravention of 13 Eliz. I. c. 5 because the transferor and transferee were husband and wife.

(4) A voluntary transfer of shares made with intent to defraud creditors is treated as voidable and not void notwithstanding the precise words of the statute 13 Eliz. 1 c. 5.

Brady v. Stapleton (1952), 88 CLR 322, followed.

(5) As the appellant had effectively divested himself of the shares, even though he acted with intent to defraud creditors, the court could not make consequential orders purporting to deal with such shares on a summons to which Mrs. N., the transferee, was not a party.

In Re Mouat: Kingston Cotton Mills Co. v. Mouat, (1899) 1 Ch 831; Reese River Silver Mining Co.v. Atwell (1869), LR 7 Eq 347, considered.

Orders of Joske J. made on 23rd December, 1977, varied in part.

HEARING

Melbourne, 1978, November 2; 1979, August 3. #DATE 3:8:1979

APPEAL.

On 30th July, 1973, the respondent obtained a default judgment against the appellant in the Supreme Court of Queensland, which judgment was unsatisfied. On 11th December, 1975, the respondent applied to have the judgment registered in the Supreme Court of Norfolk Island pursuant to the Service and Execution of Process Act 1901, and it was so registered; the respondent had by this time an interest in a business venture in Norfolk Island. An application by the appellant to have the judgment in the Supreme Court of Queensland set aside was dismissed on 9th December, 1976, so far as it related to the appellant himself. On 20th May, 1977, the appellant applied to the Supreme Court of Norfolk Island to set aside the registration of the judgment. On 27th May, 1977, this application was dismissed. The respondent on 9th and 12th December, 1977, then issued the summons pursuant to which various orders were made by Joske J. in the Supreme Court of Norfolk Island. Pursuant to special leave granted by Joske J. on 15th March, 1978, the appellant appealed against certain of the orders, the details whereof are set out in the judgment of Brennan J.

P. Mandi, for the appellant.

P.C. Heerey, for the respondent.

Cur. adv. vult.

Solicitor for the appellant: R. G. B. Skinner.

Solicitor for the respondent: Craig W. Baxter.

D. LEVIN

JUDGE1

August 3.

The following judgments were delivered.

BRENNAN J. (His Honour set out the details of the proceedings prior to 9th December, 1977, and then continued:) (at p6)

1. On 9th December, 1977, Mr. McIntyre, solicitor for the respondent judgment creditor, caused a summons to be issued out of the Supreme Court of Norfolk Island directed to the appellant and to the company seeking the appointment of a receiver of the appellant's property in Norfolk Island: "For the purpose of obtaining equitable execution against the assets of (the appellant) in satisfaction of the judgment . . .", and seeking an order that: "The 9,993 shares shown in the annual return as at 6th December, 1976, as standing in (the appellant's) name be vested in the said receiver forthwith by virtue of the order of this Court." Mr. McIntyre swore an affidavit in support showing that the shares were the appellant's only asset of net worth in Norfolk Island against which the judgment might be executed. (at p7)

2. The application came on for hearing before the Supreme Court of Norfolk Island (Joske J.) on 12th December, 1977. There were other applications connected with the judgment heard simultaneously, but they were dismissed and are of no present relevance. The respondent was represented by Mr. McIntyre, and the appellant by his solicitor, Mr. Skinner. The company did not appear; indeed, it had not been served. Mr. McIntyre called Mr. Adams, an accountant, to give evidence and to produce some documents. Mr. Adams gave evidence that until 13th December, 1976, the appellant held 9,993 shares in the company, Mrs. S.J. Noakes (the appellant's wife) held two shares, and the remaining five shares were held by trustees for the appellant and Mrs. Noakes or one of them. However, it appeared from Mr. Adams' evidence and from certain documents which he produced that on 13th December, 1976, four days after the dismissal of the appellant's application to set aside the judgment, the appellant transferred to Mrs. Noakes 9,991 of the shares which he held in the company. At 10.30 a.m. on that day the appellant chaired a meeting of the directors of the company on Norfolk Island, and it had then been resolved that the transfer "be approved". So it appeared that the appellant had disposed of most of the shares in respect of which the application was made. Mrs. Noakes had acquired them. (at p7)

3. The court adjourned the further hearing of the application shortly before noon on 12th December, 1977. Mrs. Noakes was on Norfolk Island at that time, having arrived from New Zealand the day before. However, she left the island on the afternoon flight to Sydney on 12th December. The airline booking centre on the island told Mr. McIntyre, as he deposed, that: "At approximately 1.15 p.m. today 12th December, 1977, the said Sheilagh Julie Noakes arrived at that office without prior notice, and purchased a ticket from Norfolk Island to Sydney on East-West Airlines on the flight departing at 2.15 p.m. that day and travelled on that flight to Sydney at that time." (at p7)

4. Mr. McIntyre caused a further summons to be issued that afternoon, seeking the setting aside of the transfer of the shares to Mrs. Noakes "as a conveyance to defeat creditors". The summons was directed to the appellant, the company, and Mrs. Noakes. That afternoon, Mr. McIntyre obtained ex parte from his Honour an order that the summons issued on 12th December be returnable at 9.30 a.m. the following morning, 13th December, and that in the alternative to personal service of that summons and related documents on Mrs. Noakes, service of those documents on her be effected by serving them on Mr. Skinner. Mr. McIntyre served them on Mr. Skinner. Notwithstanding the making of the order for substituted service, it may be doubted whether Mrs. Noakes was or became subject to the jurisdiction of the Supreme Court of Norfolk Island, for she had left the island when the summons was issued on 12th December, and the summons was not available for service out of the jurisdiction. (See Laurie v. Carroll (1958) 98 CLR 310 ). She did not apply to set aside the order for substituted service of the summons, but neither did she appear to submit to the court's jurisdiction. She does not appeal to this Court, whether against the order for substituted service or against any other order. She is not a party to this appeal, and the determination of this appeal leaves her rights - for good or ill - precisely as they were when the orders appealed from were made. What is material to this appeal is that the appellant, a party to the proceedings in which the order for substituted service was made, did not seek the setting aside of the order for substituted service, though he had the standing to do so for reasons to which Gillard J. referred in Bradvica v. Radulovic (1975) VR 434, at p 440 . Although Mrs. Noakes' interests are unaffected by the appellant's appeal, for the purposes of that appeal the proceedings for the setting aside of the transfer of shares to Mrs. Noakes instituted by the summons of 12th December stand as proceedings between the judgment creditor on the one hand, and the transferor and transferee on the other. The hearing of those proceedings commenced on 13th December, 1977, in accordance with the order for short service. Mr. McIntyre and Mr. Skinner appeared respectively for the respondent and the appellant. Again, the company was not served and was unrepresented, though the evidence given by Mr. Adams on the previous day showed that Mr. and Mrs. Noakes were the only directors of the company and between them held the beneficial interest in its issued shares. (at p8)

5. After hearing submissions, his Honour made several orders, one of which was made upon the summons issued on 12th December, 1977. That order was that the transfer of the 9,991 shares should "be set aside as a voluntary conveyance made with intent to defraud creditors". Other orders were also made, consequential upon the setting aside of the transfer, the consequential orders being made "pursuant to the summons issued by the plaintiff dated 9th December, 1977, for the appointment of a receiver to the shares of (the appellant) in the capital of Transworld Trading Ltd.". The consequential orders included the appointment of a receiver of the shares, and orders empowering the receiver to sell the shares, to be manager of the company and to apply the company's funds, inter alia, by satisfying the judgment debt and interest thereon. The appellant appeals against both the order setting aside the transfer and against the consequential orders. (at p9)

6. His Honour ordered that the transfer of shares be set aside because he found that the transfer was voluntary and in fraud of the judgment creditor and that it fell accordingly within 13 Eliz. I. c. 5 the provisions of which were extended to Norfolk Island by a proclamation of Governor Strickland of 23rd December, 1913, and kept on foot by the Norfolk Island Act 1913, s. 4 and the Norfolk Island Act 1957, ss. 12 and 13. (at p9)

7. His Honour's findings were challenged. It was said that the weight of evidence showed that the transfer was not voluntary, but for valuable consideration, and that there was no evidence of fraudulent intent. The appellant placed reliance upon the instrument of transfer itself, which had been tendered in evidence as part of the respondent's case. The instrument was partly printed, partly written and it reads as follows (the writing is italicized): "I, Raymond Brian Noakes of Norfolk Island (the transferor) in consideration of the sum of consideration received paid to me by Sheilagh Julia Noakes of Norfolk Island (the transferee) do hereby transfer to the said transferee 9991 Shares numbered 1 to 9991 inclusive in the undertaking called Transworld Trading Ltd. . . ." Consider the appellant's position on 13th December, 1976, when he executed this transfer: the judgment had been entered three and a half years earlier; it was unsatisfied; it had been registered in the Supreme Court of Norfolk Island since 11th December, 1975; although the appellant was the principal shareholder and a director of a trading concern on the island, he had done nothing to satisfy his liability under the judgment; four days earlier his attempt to have the judgment set aside had failed; he had no other available assets on the island against which execution would be effective, and he transferred the shares to his wife without specifying the consideration which the instrument of transfer asserts was paid to him. It was, of course, open to the appellant to show what consideration was paid to him, but he chose not to do so. He evidently hoped to convince his Honour that the respondent had not proved its case. The hope was misplaced, and his Honour's finding that the transfer was voluntary followed the approach of Lord Hardwick L.C. in Walker v. Burrows (1745) 1 Atk 93; 26 ER 61 . In that case, the terms of a conveyance to trustees "in consideration of five shillings and other valuable considerations" in trust for the settlor for life, to his wife for life, then to his eldest son, etc. was relied on to show valuable consideration when the deed was challenged as a conveyance not for valuable consideration, falling within 1 Jac. 1 c. 15, but the Lord Chancellor said: "It has been said, I must at this time take the deed in 1718 to be for a valuable consideration, because expressed to be for five shillings, and other valuable considerations. (at p10)

8. "But the consideration of five shillings, and other valuable considerations, does not oblige the court to hold it, at all events, to be for a valuable consideration, and can at most only let the defendant into proof that there were other valuable considerations" (1745) 1 Atk, at p 94; 26 ER, at p 62 . Nor did it suffice to point to the matrimonial relationship of the parties to the transfer, for a transfer by a husband to a wife made not in discharge of legal obligation but merely for natural love and affection or to make provision for a family, is yet a voluntary transfer for the purposes of 13 Eliz. I. c. 5 (Taylor v. Jones (1743) 2 Atk 600; 26 ER 758 ; Tweddle v. Atkinson (1861) 1 B & S 393, at p 399; 121 ER 762, at p 764 ). (at p10)

9. Consequently, there was nothing to show that the appellant had received any consideration for the transfer of the only asset against which the unsatisfied judgment creditor might execute. We were pressed with some observations in Williams v. Lloyd ; In Re Williams (1934) 50 CLR 341 where the court affirmed that the burden of proof that a transfer was made with a real intent to defeat or delay creditors is upon the party who so alleges. But that was a case where, at the time of the challenged disposition of property by a husband to his wife, he was in a sound financial position, and it was held that subsequent conduct and events were insufficient to show that the husband had at that time an intent to defraud creditors (see the judgment of Dixon J. (1934) 50 CLR, at p 372 ). In the present case, the inevitable result of the transfer of shares on 13th December, 1976, was to defeat or delay any attempt to execute the judgment in Norfolk Island. The case falls squarely within the line of authorities of which Freeman v. Pope (1870) LR 5 Ch 538 is the leading example, where Lord Hatherley L.C. said: "But it is established by the authorities that in the absence of any such direct proof of intention, if a person owing debts makes a settlement which substracts from the property which is the proper fund for the payment of those debts, an amount without which the debts cannot be paid, then, since it is the necessary consequence of the settlement (supposing it effectual) that some creditors must remain unpaid, it would be the duty of the Judge to direct the jury that they must infer the intent of the settlor to have been to defeat or delay his creditors, and that the case is within the statute" (1870) LR 5 Ch, at p 541 . That proposition does not trespass upon the rule as to onus of proof; it is a particular illustration of the discharge of the onus by inference from the known facts (cf. In Re Holland; Gregg v. Holland (1902) 2 Ch 360, at p 381 ). In this case, the inference is strengthened by the proximity in time of the failure to have the judgment set aside and the execution of the transfer of the shares. The challenge to his Honour's finding that the transfer fell within the statute of Elizabeth therefore fails. (at p11)

10. It does not follow, however, that the transfer of the shares was ineffective. The transfer of shares was completed, of course, before any attempt was made by a creditor to impeach the transfer; and the transfer was not then void, but voidable. As Dixon C.J. and Fullagar J. pointed out in Brady v. Stapleton: "The truth seems to be that, although the statute uses, and most emphatically uses, the word 'void', the courts have always treated a fraudulent assignment as effective unless and until a creditor or creditors intervene by levying execution or taking legal proceedings" (1952) 88 CLR 322, at p 333 . (at p11)

11. So Mrs. Noakes became both the legal and beneficial owner of the shares. The avoidance of the transfer did not revest either the beneficial or legal ownership of the shares in the appellant. As between Mr. and Mrs. Noakes, the transfer is of unchanged validity. The benefit of the statute enures for the benefit of the creditors, not for the benefit of the debtor. In Ex parte Butters; In Re Harrison, James L.J. said: "The bankruptcy law puts the trustee in the position of the representative of all the creditors of the bankrupt, and under the statute of Elizabeth creditors have a right to impeach transactions which the bankrupt himself could not impeach. The trustee, therefore, in seeking to set aside a transaction as fraudulent under the statute of Elizabeth is claiming by a higher and better title than the bankrupt himself, for the bankrupt is a party to the fraud" (1880) 14 Ch D 265, at p 267 . (at p11)

12. The court will make such orders consequential upon the avoidance of a transfer of property as are necessary to give effect to the superior title of the creditors claiming the benefit of the statute against the party whose title was acquired under the impeached transfer. The statute enures for the benefit of unsecured creditors generally; and not only existing but subsequent creditors are let in to participate rateably in the property which becomes available (May, Fraudulent Conveyances, 3rd ed., p. 39). Thus in a successful suit to declare a transfer void under the statute, the transfer is declared to be void as against all the creditors (Adames v. Hallett (1868) LR 6 Eq 468, at p 473 ); and see Seton, Judgments and Orders, 6th ed., p. 2345). Indeed a creditor's claim is properly to be made on behalf of himself and the other creditors (Reese River Silver Mining Co. v. Atwell (1869) LR 7 Eq 347 ). It may be made by a trustee in bankruptcy who represents the general body of creditors, as in Brady v. Stapleton (1952) 88 CLR 322 and Ex parte Butters (1880) 14 Ch D 265 . The statute is not for the benefit solely of the unsecured creditor who sues, and he cannot obtain an order which secures the available property to him alone, or indeed, to him in priority to other creditors. (at p11)

1. The title of the person claiming under the impeached disposition stands until the disposition is avoided. It is that title which the creditors must attack, and it will not avail them to pursue the debtor in litigation if they leave the assignee of the assets out of the suit. The issue falls to be determined between the creditors and the assignee, as Stirling J. noted in In Re Mouat; Kingston Cotton Mills Co. v. Mouat: "According to the law which has been laid down in the cases I have just cited, the assignments became void the moment the creditors claimed to treat them as such; and thereupon the property which was comprised in those assignments ceased, as against the creditors, to be the property of the assignee, and became assets for the payment of the creditors in such a way that they had a legal right to be paid out of those assets" (1899) 1 Ch 831, at pp 834-835 . The specific relief which may be given to creditors depends, no doubt, upon the nature of the asset in the hands of the assignee, and orders may be moulded to give appropriate effect to the creditors' rights as against the assignee. Thus in Brady v. Stapleton (1952) 88 CLR, at pp 339, 346 transferees of shares under an impeached transfer who had mixed those shares with other shares of an indistinguishable kind held by them were ordered to transfer to the trustee in bankruptcy the same number of shares as they had respectively received. But the creditors must seek their relief against the person whose title the creditors would supersede. They cannot claim relief against the debtor who, ex hypothesi, has parted with his title to the assets which the creditors would pursue. When the transferee of property is sued by a trustee in bankruptcy, it will often be appropriate and sufficient to direct the defendant to transfer the property to the trustee, but if creditors seek execution against property, a question may arise as to the precise entitlement of the creditors to the property in the defendant's hands (see Smith v. Hurst (1852) 10 Hare 30, at pp 48-49; 68 ER 826, at pp 833-834 ). Lord Romilly M.R. referred to an appropriate form of order in Reese River Silver Mining Co. v. Atwell (1869) LR 7 Eq 347 . In that case, a creditor, impeaching a voluntary settlement, sued the parties to and the beneficiaries under the settlement, and he obtained a finding that the settlement fell within the statute. He applied to amend so as to sue on behalf of himself and all other creditors. The Master of the Rolls said: ". . . as soon as the Court finds that a deed has been executed for the purpose of delaying, hindering, or defrauding creditors, and that it comes within the statute, it sets the deed aside, but it goes no further; and the Plaintiffs must take some independent proceedings if they wish to have execution against the property in this deed. I shall give leave to amend, by making the bill on behalf of all creditors . . . I shall declare that the deed of the 13th of February, 1867, is fraudulent and void as against the creditors; and I direct the trustees to do and concur in all acts necessary for making the trust property available to the creditors; . . ." (1869) LR 7 Eq, at p 352 . (at p13)

2. In the present case the summons which sought the appointment of a receiver of the judgment debtor's property and other relief (i.e., the summons issued on 9th December, 1977) was not directed to, and was not served upon, Mrs. Noakes - understandably, for the transfer of the shares to Mrs. Noakes was then unknown to Mr. McIntyre, and the summons was intended to deal with the property of Mr. Noakes, not the property of Mrs. Noakes. Yet it was upon this summons that his Honour made the consequential orders. They cannot stand so as to affect adversely the title of Mrs. Noakes, who was neither a party to the proceedings in which they were made, nor entitled to be heard on 12th December when part of the evidence on this summons was taken. (at p13)

3. It may be argued that consequential orders could have been made pursuant to the summons of 12th December for which substituted service was ordered. Even if one allows effect to the order for substituted service and what was done in conformity with its terms, the consequential orders could not be supported. The judgment creditor was not shown to have such a title to the shares as would entitle him to have a receiver acquire and dispose of those shares to satisfy the judgment creditor, and to hold the excess if any for the fraudulent debtor. (at p13)

4. I should not wish to say what consequential orders might have been made against Mrs. Noakes on the assumption that she was subject to the jurisdiction of the court, except to note the orders made in the Reese River case (1869) LR 7 Eq 347 and in In Re Mouat (1899) 1 Ch 831 (the latter being an order for the preservation of the property pendente lite). (at p13)

5. That is not to say that the litigation and the making of the declaration have been barren exercises for the judgment creditor. If Mrs. Noakes is bound by the finding made by Joske J. or by some future judicial finding that the transfer was voidable, the respondent has effectively elected to avoid it. In that event, Mrs. Noakes, with the knowledge of the creditors' election to avoid the transfer, is subject to an equitable obligation not to deal with the shares in a manner which is inconsistent with the rights of the creditors. (at p13)

6. So far as his own position and rights are concerned, the appellant has entirely failed in this appeal. Even though the consequential orders be set aside, he has failed to uphold the validity of his transfer of the shares. The setting aside of the consequential orders follows from the necessity to remove from the records of the court orders made adversely to the interests of a person who was not a party. It is not, in a relevant sense, in relief of the appellant. Subject to the variations to his Honour's order next to be mentioned, I would dismiss the appeal with costs. (at p14)

7. In lieu of par. 4 of his Honour's order, a declaration should be made that the transfer of the 9,991 shares is fraudulent and void as against the creditors of Raymond Brian Noakes, and pars. 3, 5, 6 and 7 (b) should be deleted. The order for costs in par. 7 (a) is, having regard to the circumstances before his Honour, explained by argument on this appeal, an appropriate order which should not be disturbed. (at p14)

JUDGE2

DEANE J. I concur in the judgment of Brennan J. (at p14)

JUDGE3

FISHER J. I have read the judgment of my brother Brennan and I agree with his decision and the reasons he gives for that decision. (at p14)

ORDER

Orders accordingly.