Royal v El Ali
[2016] FCA 782
•5 July 2016
FEDERAL COURT OF AUSTRALIA
Royal v El Ali [2016] FCA 782
File numbers: NSD 1731 of 2013
NSD 771 of 2014Judge: DAVIES J Date of judgment: 5 July 2016 Catchwords: BANKRUPTCY – voidable transactions – dispositions of real property – whether intent to defraud creditors – relevant principles – whether properties held on trust –where transferees purported to have been appointed as trustees – relevance of subjective belief of bankrupt that properties were held on trust – whether properties had no value – relevance of subjective belief of bankrupt as to value – whether transferee acted in good faith – Conveyancing Act 1919 (NSW) s 37A
BANKRUPTCY – voidable transactions – dispositions of real property – whether alienation of property – where properties held by companies controlled by bankrupt – where company executed transfer of property before settlement of purchase of the property – Conveyancing Act 1919 (NSW) s 37A
BANKRUPTCY – voidable transactions – transfers of shares – whether intent to defraud creditors – relevant principles – where assets of companies claimed to be held on trust – whether shares had no value – whether transferee acted in good faith – Conveyancing Act 1919 (NSW) s 37A
BANKRUPTCY – voidable transactions – transfers of shares – relevant principles – main purpose of transfers – where assets of companies claimed to be held on trust – whether shares had no value – whether defence under s 121(4) available – whether transferee had notice of main purpose of transfer – whether transferee had notice of insolvency – Bankruptcy Act 1966 (Cth) s 121
Legislation: Bankruptcy Act 1966 (Cth) ss 116, 121, 302B
Conveyancing Act 1919 (NSW) ss 7, 37A
Duties Act 1997 (NSW) s 54(3)
Property Law Act 1958 (Vic) s 172
Explanatory Memorandum, Bankruptcy Legislation Amendment Bill 1996 (Cth)
Cases cited: Agusta Pty Ltd v Provident Capital Ltd (2012) 16 BPR 30,397; [2012] NSWCA 26
Ashton v Prentice; in the matter of Jury [1999] FCA 671
Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34
Cannane v J Cannane Pty Ltd (in liquidation) (1998) 192 CLR 557; [1998] HCA 26
Chen v Marcolongo (2009) 260 ALR 353; [2009] NSWCA 326
Coghlan v Alexander (1905) 5 SR NSW 441
Commissioner of Taxation v Oswal (2012) 91 ATR 684; [2012] FCA 1507
Deputy Commissioner of Taxation v Haritos (2014) 287 FLR 136; [2014] VSC 379
Dwyer v Ross (1992) 34 FCR 463
Hall v Poolman (2007) 215 FLR 243; [2007] NSWSC 1330
Jew v Holloway [2013] VSCA 260
Kafataris v Deputy Commissioner of Taxation (2008) 172 FCR 242; [2008] FCA 1454
Leedale (Inspector of Taxes) v Lewis [1982] 3 All ER 808
Lewis v Condon (2013) 85 NSWLR 99; [2013] NSWCA 204
Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 3
PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515
Re Burton; Wily v Burton (1994) 126 ALR 557; [1994] FCA 1146
Royal v El Ali, In the Matter of the Bankrupt Estate of El Ali [2014] FCA 834
Westpac v The Bell Group (No 3) (2012) 270 FLR 1; [2012] WASCA 157
Wentworth v Rogers [2004] NSWCA 430
Yazbek v Commissioner of Taxation (2013) 209 FCR 416; [2013] FCA 39
Date of hearing: 27–30 April 2015, 1 May 2015 and 8–9 July 2015 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 234 Counsel for the Applicants: Dr C Birch SC with P Thew Solicitor for the Applicants: Watson Mangioni Lawyers Pty Limited Counsel for the First Respondent: R Carey Solicitor for the First Respondent: D Massey Counsel for the Second–Fifth Respondents in NSD 1731 of 2013 and the Second and Fourth Respondents in NSD 771 of 2014: D Barlin Solicitor for the Second–Fifth Respondents in NSD 1731 of 2013 and the Second and Fourth Respondents in NSD 771 of 2014: Bartier Perry Counsel for the Sixth Respondent in NSD 1731 of 2013 and the Third and Fifth Respondents in NSD 771 of 2014: A Fernon Solicitor for the Sixth Respondent in NSD 1731 of 2013 and the Third and Fifth Respondents in NSD 771 of 2014: Yates Beaggi Lawyers ORDERS
NSD 1731 of 2013 BETWEEN: PETER PAUL ROYAL
First Applicant
JUDITH LOUISE ROYAL
Second ApplicantMICHAEL GREGORY JONES IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF NATHAN EL ALI
Third ApplicantAND: NATHAN EL ALI
First Respondent (and others named in the Schedule)
NSD 771 of 2014 BETWEEN: MICHAEL GREGORY JONES IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF NATHAN EL ALI
Applicant
AND: NATHAN EL ALI
First Respondent (and others named in the Schedule)
JUDGE:
DAVIES J
DATE OF ORDER:
5 JULY 2016
THE COURT ORDERS THAT:
1.The parties provide, by way of email to Chambers, proposed short minutes of order to give effect to these reasons on or before 26 July 2016.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
DAVIES J:
INTRODUCTION
On 16 December 2011 Nathan El Ali (“Mr El Ali”) was made bankrupt on the petition of Peter Royal and Judith Royal (“the Royals”). The Royals are creditors of Mr El Ali pursuant to a judgment debt in the sum of $1,099,456.74 together with costs (“the judgment debt”). Michael Jones (“the Trustee”) is the Trustee of his bankrupt estate. In these proceedings, which have been heard together, the Trustee and the Royals (collectively “the applicants”) seek declarations that various transactions are void or voidable as against the Trustee pursuant to s 37A of the Conveyancing Act 1919 (NSW) (“the Conveyancing Act”) and/or s 121 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”).
The transactions in issue in chronological order are:
(a)The transfer of the shares owned by Mr El Ali in Isaac & Jacob Pty Ltd (“Isaac & Jacob”) to John Nazloomian (“Mr Nazloomian”) on 19 October 2010.
(b)The Deed of Appointment of New Trustee dated 15 December 2010 by which Ottoman Investments Pty Limited (“Ottoman”) resigned as trustee of the Ottoman Investments Unit Trust and Otsi Stojanovski (“Mr Stojanovski”) was appointed the new trustee.
(c)The transfer by Ottoman of the property at Unit 2, 4 Hogben Street, Kogarah (“the Kogarah Unit 2 property”) to Mr Stojanovski on 16 December 2010.
(d)The Deed of Retirement and Appointment of New Trustee executed on or around 21 or 28 April 2011 by which Ottoman resigned as trustee of the Ottoman Investments Unit Trust and Mahmoud Zreika (“Mr Zreika”) was appointed the new trustee.
(e)The transfer by Ottoman of the property at 2 Woodlands Road, Taren Point (“the Taren Point property”) to Mr Zreika on 21 April 2011.
(f)The transfer of the shares owned by Mr El Ali in Ottoman to his nephew Mahmoud El Ali (“Mahmoud”) on 22 August 2011.
(g)The transfer of the shares owned by Mr El Ali in EasyChoice Home Loans Pty Ltd (now ACN 092 879 733 Pty Limited) (“EasyChoice”) to Mahmoud on 7 September 2011.
(h)The transfer of the shares owned by Mr El Ali in Saracen Holdings Pty Limited (“Saracen”) to Mahmoud on 1 November 2011.
(i)The Deed of Retirement and Appointment of New Trustee dated 8 December 2011 by which Saracen resigned as trustee of the Voyager Point Unit Trust and Mr Zreika was appointed the new trustee.
(j)The transfer by Saracen of the property at 1 Sirius Road, Voyager Point (“the Voyager Point property”) to Mr Zreika on 8 December 2011.
(k)The transfer by Saracen of the property at 1A McDonald Lane, Potts Point (“the Potts Point property”) to Mr Nazloomian on 22 November 2012.
OVERVIEW
Isaac & Jacob, Saracen, Ottoman and EasyChoice were each owned and controlled by Mr El Ali before the challenged share transfers. EasyChoice was the vehicle through which Mr El Ali conducted his mortgage broking business. Saracen and Ottoman were the vehicles through which Mr El Ali acquired and owned properties. Isaac & Jacob was, and still is, the sole unitholder of the Voyager Point Unit Trust, the Helensburgh Unit Trust and the Ottoman Investments Unit Trust. Saracen was the trustee of the Voyager Point Unit Trust and the Helensburgh Unit Trust. Ottoman was the trustee of the Ottoman Investments Unit Trust. Isaac & Jacob holds the units in the Voyager Point Unit Trust and Helensburgh Unit Trust as trustee for the Elali Family Trust, a discretionary trust of which Mr El Ali is a specified beneficiary, and holds the units in the Ottoman Investments Unit Trust as trustee for the Second Elali Family Trust, a discretionary trust of which Mr El Ali is within the designated class of beneficiaries. Mr El Ali, at all relevant times, was, and still is, the appointor of both family trusts. As appointor, Mr El Ali has, under the terms of both family trusts, the power to remove and appoint the trustee.
In March 2010 the Royals commenced proceedings in the Supreme Court of New South Wales against Mr El Ali on a debt claim for the payment of the sum of $925,000 plus interest (“the debt proceedings”).
On 1 October 2010, the Royals obtained freezing orders (“the freezing orders”) in the debt proceedings against Mr El Ali and Saracen. The terms of the freezing orders against Mr El Ali restrained him from disposing of, dealing with, or diminishing the value of any of his assets up to the unencumbered value of $925,000 plus interest (quantified in the sum of $229,417.50). Exclusion was made for paying his ordinary living and reasonable legal expenses and dealing with, or disposing of, his assets in the ordinary and proper course of his business. The terms of the freezing orders against Saracen restrained it from disposing of, dealing with, or diminishing the value of any of its assets up to the unencumbered value of $1,099,456.17 and had similar exclusions. Mr El Ali was ordered to file and serve an affidavit setting out his assets and liabilities within 14 days from the making of the freezing orders.
In both orders the term “assets” was defined to include:
(1) …
(a)all your assets whether or not they are in your name and whether they are solely or co-owned;
(b)any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions); and
(c) …
(2)the value of your assets is the value of the interest you have individually in your assets.
It was not in dispute that the shares held by Mr El Ali in Isaac & Jacob, Saracen, Ottoman and EasyChoice, as well as the properties owned by Saracen and Ottoman, were “assets” covered by the terms of the orders.
At the time that the freezing orders were made, Saracen was the registered proprietor of the Voyager Point and Potts Point properties and Ottoman was the registered proprietor of the Kogarah Unit 2 property (as well as units 1 and 3) and had entered into a contract to purchase the Taren Point property. It was not in dispute that Saracen owned the Potts Point property in its own right. In dispute is whether Ottoman and Saracen owned the other properties in their own rights (as the applicants contended) or in their capacities as trustees of the respective trusts (as the respondents contended).
On 19 October 2010 Mr El Ali transferred his shares in Isaac & Jacob and Ottoman to Mr Nazloomian (who was described in evidence as a friend of Mr El Ali). The transfers were for nominal consideration and were purportedly effected as security for outstanding loans from Mr Nazloomian to Mr El Ali and his companies, including Ottoman. Mr Nazloomian also replaced Mr El Ali as the sole director of both companies. The applicants’ case (which was denied by Mr El Ali) was that Mr El Ali effected the transfer of the Isaac & Jacob shares in knowing breach of the freezing orders and with intent to defraud his creditors. The applicants have not sought to impugn the transfer of the Ottoman shares to Mr Nazloomian as the shares were later transferred back to Mr El Ali.
On 22 November 2010 (after the share transfers and outside the time ordered) Mr El Ali affirmed his affidavit of assets and liabilities. He disclosed that he was the director and shareholder of Saracen and EasyChoice (as well as other companies that are not presently relevant). He listed in his assets and liabilities the Voyager Point and Potts Point properties, as well as a property at Helensburgh (“the Helensburgh property”) (also owned by Saracen), as follows:
Details Extent of Interest Value Encumbrances/Liabilities [Helensburgh property] Saracen $3.6 m NAB Mortgage $1,540,000
[Voyager Point property] Saracen $4.5 m CBA Mortgage $1,384,466.62
[Potts Point property] Saracen $700,000 Nil
He also disclosed that until 19 October 2010 he had been a director of, and held shares in, Ottoman and Isaac & Jacob. He deposed that the reason he had resigned as director of those companies was:
… due to the credit defaults which have been recorded against me personally. This prevented me from borrowing funds to purchase real estate. The transfer of the shares … was part of the overall transaction replacing me as director of the companies referred to … above [which included Ottoman and Isaac & Jacob].
He deposed that Ottoman was the registered proprietor of Kogarah Units 1, 2 and 3 which he valued at $670,000 each and that Units 1 and 3 (but not Unit 2) were mortgaged, each securing the amount of $545,000. He also deposed that Ottoman had entered into two contracts for the purchase of property as follows:
(a)on 23 July 2010, a contract to purchase a property at Lot 3, Stonny Batter Road, Minto (“the Minto property”) for the purchase price of $3.8 million, on which a deposit of $38,000 had been paid with completion due on 30 November 2010; and
(b)on 15 September 2010, a contract to purchase the Taren Point property for the purchase price of $2.025 million with a deposit paid of $50,625 and a completion date 130 days after the date of contract.
On 26 November 2010 the freezing orders were varied by consent to allow Mr El Ali to sell two residential properties (which are not presently relevant).
On 14 December 2010, Mr Nazloomian resigned as the director of Ottoman and transferred the shares in Ottoman back to Mr El Ali, who was also re-appointed sole director.
On 15 December 2010 (or thereabouts) Ottoman purported to appoint Mr Stojanovski as the new trustee of the Ottoman Investments Unit Trust and on 16 December 2010, Ottoman transferred the Kogarah Unit 2 property to Mr Stojanovski for $1. The transfer was said to be effected as security for an advance of $1 million from Mr Stojanovski to Ottoman to fund the balance due on the purchase of the Minto property. The applicants’ case (which was denied by Mr El Ali) was that these transactions were effected by Mr El Ali in knowing breach of the freezing orders and with intent to defraud his creditors.
The debt proceedings were heard by Macready AsJ on 11–13 April 2011 with judgment reserved.
On or around 21 April 2011 Ottoman purported to appoint Mr Zreika as the new trustee of the Ottoman Investments Unit Trust in place of Ottoman and a transfer form for the transfer of the Taren Point property from Ottoman to Mr Zreika for consideration of $1 was stamped at the Office of State Revenue (“OSR”). On 29 April 2011, the Ottoman purchase of the Taren Point property was completed. On 5 May 2011, Ottoman was registered as the owner on the title. On the same day, the transfer from Ottoman to Mr Zreika was also registered. The applicants’ case (which was denied by Mr El Ali) was that these transactions were effected by Mr El Ali in knowing breach of the freezing orders and with intent to defraud his creditors.
Judgment in the debt proceedings was delivered on 3 June 2011. Macready AsJ found Mr El Ali liable to the Royals in the sum of $1,099,456.74. On 23 June 2011, orders were entered giving effect to the judgment delivered on 3 June 2011. The orders included the continuation of the freezing orders against Mr El Ali and Saracen for a period of 28 days and a stay on the judgment for a period of 28 days pending the filing of an appeal foreshadowed by Mr El Ali. Mr El Ali filed a notice of intention to appeal but ultimately did not appeal.
The freezing orders and the stay were due to expire on 21 July 2011. On 18 July 2011, on the Royals’ application, McDougall J in the Supreme Court of New South Wales continued the freezing orders “until further order”. The orders were made ex parte in the absence of Mr El Ali and Saracen.
On 13 August 2011 the Royals served a bankruptcy notice on Mr El Ali. On 22 August 2011, Mr El Ali resigned as the director of Ottoman and Saracen and transferred the shares in those companies for nominal consideration to his nephew, Mahmoud, who was also appointed the sole director of each company. On 7 September 2011, Mr El Ali also resigned as the director of EasyChoice and transferred the shares in that company to Mahmoud, who was also appointed the sole director of that company. The applicants’ case (which was denied by Mr El Ali) was that these transfers were made by Mr El Ali for nominal consideration in knowledge of the judgment against him and the extension of the freezing orders, and done with the intent of defrauding Mr El Ali’s creditors. Mr El Ali has denied that he knew about the extension of the orders at the time that the transfers were effected. He claimed that he did not become aware of the extension of the freezing orders until about 12 September 2011. He has also denied that the transfers were effected with the intent of defrauding his creditors, claiming that the shares in EasyChoice were transferred to Mahmoud because Mahmoud wanted to take over EasyChoice and recapitalise it, and that the shares in Saracen and Ottoman were transferred to Mahmoud because Mr El Ali did not consider that either Saracen or Ottoman had any value left in them.
On 12 September 2011, the Royals’ solicitors, Holman Webb, wrote to Mr El Ali putting him on notice that the Royals were in the process of enforcing the judgment debt against him and “anticipate[d] that as a result a trustee in bankruptcy will be appointed in respect of all [his] assets”, and also putting him on notice that the transfer of the shares in Saracen was “in all likelihood” in breach of the freezing orders made in October 2010 and July 2011, and demanding that Mr El Ali rectify the “likely breach” by immediately taking all necessary steps to have the shares transferred back to him.
The Royals filed a creditor’s petition against Mr El Ali on 20 September 2011.
On 23 September 2011, Holman Webb wrote a letter to Mahmoud in similar terms to the 12 September 2011 letter to Mr El Ali.
On 8 October 2011, the creditor’s petition was served on Mr El Ali. The petition was originally listed for hearing on 3 November 2011 but for reasons that were left unexplained in the evidence the petition was not heard until 16 December 2011.
On 10 October 2011, Holman Webb sent follow up letters to Mr El Ali (through his solicitors) and to Mahmoud seeking an undertaking that all necessary steps be taken to have the shares in Saracen transferred back to Mr El Ali. On 11 October 2011, Holman Webb sent another letter to Mr El Ali’s solicitors enclosing various court documents, including the freezing orders of 18 July 2011.
On or about 17 October 2011, the Saracen shares were transferred back from Mahmoud to Mr El Ali. On or about 24 October 2011, Mr El Ali’s solicitors informed Holman Webb that this had happened.
On 4 November 2011 Holman Webb wrote again to Mr El Ali’s solicitors, this time demanding that the shares in EasyChoice be transferred back to Mr El Ali. That did not happen.
On 8 November 2011 there was a hearing of the creditor’s petition. The evidence did not explain what transpired at the hearing save that a sequestration order was not made that day.
In the meantime, Mr El Ali had, on 1 November 2011, re-transferred the Saracen shares back to Mahmoud. Consideration of $17,500 was said to have been given. On 21 November 2011 Holman Webb sent another letter to Mr El Ali’s solicitors and to Mahmoud noting that subsequent to 17 October 2011, Mr El Ali had again transferred the shares in Saracen to Mahmoud. The applicants’ case (which was denied by Mr El Ali) was that the share transfer was made by Mr El Ali in knowledge of the judgment against him and the extension of the freezing orders and done with the intent of defrauding Mr El Ali’s creditors.
On 24 November 2011, Mr El Ali’s solicitors informed Holman Webb that the only asset of Saracen was the Potts Point property which currently had a value of $25,000, there was a caveat on the property supporting a loan of $22,500 in relation to the purchase of the property and Saracen was a “mere trustee” in respect of the Helensburgh and Voyager Point properties. They also stated that their instructions were that Mr El Ali had sold his shares in Saracen to Mahmoud for $17,500 which “appears to be at better than estimated market value” and that Mr El Ali required the funds to enable him to continue to fund his defence of the proceedings and believed that he was entitled to have sold his shares for that purpose.
On 8 December 2011, Mahmoud, in his capacity as the sole director of Saracen, executed a Deed of Retirement and Appointment appointing Mr Zreika in place of Saracen as trustee of the Voyager Point Unit Trust. Also on 8 December 2011, Saracen transferred the Voyager Point property to Mr Zreika for $1. The applicants’ case (which was denied by Mr El Ali) was that these transactions were effected by Mr El Ali in knowing breach of the freezing orders and with intent to defraud his creditors.
On 16 December 2011, a sequestration order was made against the estate of Mr El Ali.
The remaining disposition that has been challenged by the applicants as a disposition with intent to defraud Mr El Ali’s creditors occurred in November 2012 when Saracen transferred the Potts Point property to Mr Nazloomian for $30,000, purportedly in reduction of the loan amounts then outstanding to Mr Nazloomian.
THE PROCEEDINGS
There are two proceedings which have been heard together, with evidence in one being evidence in the other.
In proceeding NSD 1731 of 2013 the Royals and the Trustee are the applicants and Mr El Ali, Mahmoud, Mr Zreika, Saracen, Ottoman and Mr Stojanovski are the respondents. The transactions the subject of this proceeding are, in chronological order:
(a)The resignation of Ottoman as trustee, and the appointment of Mr Stojanovski as the new trustee, of the Ottoman Investments Unit Trust on 16 December 2010.
(b)The transfer by Ottoman of the Kogarah Unit 2 property to Mr Stojanovski on 16 December 2010.
(c)The resignation of Ottoman as trustee, and the appointment of Mr Zreika as the new trustee, of the Ottoman Investments Unit Trust on 21 April 2011.
(d)The transfer by Ottoman of the Taren Point property to Mr Zreika on or about 21 April 2011.
(e)The transfer by Mr El Ali of his shares in Ottoman to his nephew Mahmoud on 22 August 2011.
(f)The transfer by Mr El Ali of his shares in Saracen to his nephew Mahmoud on 1 November 2011.
(g)The resignation of Saracen, and the appointment of Mr Zreika as the new trustee, of the Voyager Point Unit Trust on 8 December 2011.
(h)The transfer by Saracen of the Voyager Point property to Mr Zreika on 8 December 2011.
In proceeding NSD 771 of 2014, the Trustee is the applicant and Mr El Ali, Mahmoud, Mr Nazloomian, Saracen and Isaac & Jacob are the respondents. The transactions the subject of this proceeding are, in chronological order:
(a)The transfer by Mr El Ali of his shares in Isaac & Jacob to Mr Nazloomian on 19 October 2010.
(b)The transfer by Mr El Ali of his shares in EasyChoice to his nephew Mahmoud on 7 September 2011.
(c)The transfer by Saracen of the Potts Point property to Mr Nazloomian on 22 November 2012.
In both proceedings, the Trustee and the Royals were represented by Dr Birch SC and Ms Thew of counsel. Mr Carey of counsel appeared for Mr El Ali. Mr Barlin of counsel appeared for Mahmoud, Mr Zreika, Saracen and Ottoman, and Mr Fernon of counsel appeared for Mr Nazloomian, Mr Stojanovski and Isaac & Jacob.
OUTLINE OF THE APPLICANTS’ CASE
The applicants’ case was that Mr El Ali alienated the shares in the three companies and the properties owned by Saracen and Ottoman with the relevant intent to defraud creditors within the meaning of s 37A of the Conveyancing Act. Section 37A of the Conveyancing Act provides as follows:
(1)Save as provided in this section, every alienation of property, made whether before or after the commencement of the Conveyancing (Amendment) Act 1930, with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced.
(2)This section does not affect the law of bankruptcy for the time being in force.
(3)This section does not extend to any estate or interest in property alienated to a purchaser in good faith not having, at the time of alienation, notice of the intent to defraud creditors.
In relation to the transfers of shares, the applicants, in addition, also relied on s 121 of the Bankruptcy Act. Section 121 of the Bankruptcy Act relevantly provides:
Transfers to defeat creditors
Transfers that are void
(1)A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor's bankruptcy if:
(a)the property would probably have become part of the transferor's estate or would probably have been available to creditors if the property had not been transferred; and
(b) the transferor's main purpose in making the transfer was:
(i)to prevent the transferred property from becoming divisible among the transferor's creditors; or
(ii)to hinder or delay the process of making property available for division among the transferor's creditors.
Showing the transferor's main purpose in making a transfer
(2) The transferor's main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.
Other ways of showing the transferor's main purpose in making a transfer
(3) Subsection (2) does not limit the ways of establishing the transferor's main purpose in making a transfer.
Transfer not void if transferee acted in good faith
(4) Despite subsection (1), a transfer of property is not void against the trustee if:
(a) the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property; and
(b)the transferee did not know, and could not reasonably have inferred, that the transferor's main purpose in making the transfer was the purpose described in paragraph (1)(b); and
(c)the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.
OUTLINE OF THE RESPONDENTS’ CASE
The respondents have denied that the applicants are entitled to relief under either s 37A of the Conveyancing Act or s 121(1) of the Bankruptcy Act.
The four primary defences are that:
(a)there was no intent to defraud creditors;
(b)the real estate (save for the Potts Point property) was not property that would have been available to Mr El Ali’s creditors, if those properties had not been disposed of, because the properties were the trust property of the Ottoman Investments Unit Trust and the Voyager Point Unit Trust and Mr El Ali did not hold any beneficial estate or interest in those properties at any material time;
(c)in the alternative, if those properties do constitute property divisible amongst his creditors, the properties at the time of disposition were encumbered to such an extent that there was no relevant value in those properties at the time of disposition and, accordingly, the properties and the shares in Saracen and Ottoman were worthless and there was no diminution of the property available to creditors by reason of those dispositions;
(d)the shares in EasyChoice were also worthless at the time of disposition and there was no diminution of the property available to Mr El Ali’s creditors by reason of the transfer of those shares.
Mr Stojanovski and Mr Nazloomian also relied on the defence under s 37A(3) of the Conveyancing Act.
Mr Stojanovski contended that he acquired Kogarah Unit 2 by way of security for a loan that he made to Ottoman and entered into the transaction in good faith without notice of an intention to defraud creditors.
Likewise Mr Nazloomian contended that he acquired the shares in Isaac & Jacob as security for loans that he made to Mr El Ali and/or his related companies and entered into the transaction in good faith without notice of an intention to defraud creditors. He contended also that he acquired the Potts Point property for valuable consideration and entered into the transaction in good faith without notice of an intention to defraud creditors. He also relied on the defence under s 121(4) of the Bankruptcy Act with respect to his acquisition of the shares in Isaac & Jacob, contending that he acquired the shares in Isaac & Jacob for value and did not know, or have reason to believe, at the time of the transfer that Mr El Ali was insolvent or about to become insolvent.
An alternative defence was raised on behalf of Mr Stojanovski in closing submissions in relation to the transfer of the Kogarah Unit 2 property to him and leave of the Court is required to amend the defence. As the proposed amendment was opposed it is appropriate to deal with the question of leave when considering the other defences advanced by Mr Stojanovski.
CREDIT ISSUES
Mr El Ali, Mahmoud, Mr Zreika, Mr Stojanovski and Mr Nazloomian each gave evidence-in-chief by way of affidavit and the credit of all of them was put into issue by the applicants. The applicants submitted that the Court should make adverse credit findings against each of them and should largely reject their evidence concerning the reasons for the transfers. Given the serious nature of the allegations, their evidence is to be tested by reference to the principles in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 and a very high level of satisfaction should be reached before making the findings urged by the applicants.
THE EVIDENCE RELATING TO THE TRANSFERS OF MR EL ALI’S SHARES IN ISAAC & JACOB AND OTTOMAN TO MR NAZLOOMIAN
Mr El Ali and Mr Nazloomian described each other in evidence as friends. Mr El Ali stated that he had known Mr Nazloomian for many years and “had come to think very highly of him”. Mr Nazloomian deposed that he had developed a “very close and trusting commercial relationship” with Mr El Ali and they generally had “care towards each other’s financial and personal wellbeing”. Mr Nazloomian described Mr El Ali as a “very honourable man” and stated that he trusted him.
They first met in the 1990s when Mr El Ali, then a lending manager at Sunway Metcorp, handled Mr Nazloomian’s application for an extension of credit. After Mr El Ali started up EasyChoice in 2000, Mr Nazloomian kept in contact with him and had regular business dealings with him, which included lending money to Mr El Ali and his companies for various ventures. It was uncontroversial that as at October 2010, Mr Nazloomian was owed approximately $1.2 million in respect of those loans.
Mr Nazloomian deposed that in or about October 2010, he was pressing Mr El Ali for repayment of his loans and Mr El Ali asked him to consider being the director and shareholder of Isaac & Jacob and had a conversation in which Mr El Ali told him to the effect that:
That way you will control the assets it holds, and have some comfort that you are in control of all the assets available. It would give you comfort about the outstanding loan accounts you have.
Mr Nazloomian deposed that he was aware at that time that Isaac & Jacob was the trustee of the Elali Family Trust and the Second Elali Family Trust and that its sole function was to act as the trustee of those trusts. He deposed that he was “extremely honoured by the level of trust” that Mr El Ali had in him and that Mr El Ali was “prepared to hand over control to give [Mr Nazloomian] comfort and security over outstanding loans [he] held”. Mr Nazloomian deposed that he thought that he would be able to carry out the duties required in managing the trusts, and that “to oversee the management of the assets” would give him some security and so he decided to accept Mr El Ali’s offer.
Unsatisfactorily Mr Nazloomian left wholly unexplained why the shares in Ottoman were also transferred to him and why he assumed the role as sole director of that company. Nor did he give any evidence as to why he transferred the Ottoman shares back to Mr El Ali on 14 December 2010 and resigned as director of that company. The only evidence about these share transfers came from Mr El Ali.
Mr El Ali gave a different version of events. Mr El Ali deposed that he retired as the director of Isaac & Jacob and Ottoman in October 2010 because he did not consider that it was in the interests of either company or the beneficiaries of the two Elali family trusts or the Ottoman Investments Unit Trust “who were ultimately my family” for him to continue as a director of either company at that time. He also considered that it was not in the interests of individuals such as Mr Nazloomian who had loaned money to Ottoman “or indeed any of Ottoman’s creditors” for him to remain as its sole director and secretary. He deposed that he formed that view on the basis that he became aware, in about July 2010, that his own credit history was impacting upon the ability of Ottoman to secure funding which Ottoman needed to complete the purchase of the Minto property. He deposed that he recalled that he was provided with a credit report on himself by one lender which recorded that he had a very low credit score and a number of defaults recorded against his name and that his directorship of Ottoman, EasyChoice, Isaac & Jacob and Saracen was also recorded in the report. He deposed that he had been required to provide a director’s guarantee for each loan made to Ottoman and was aware that lenders were generally reluctant to lend to single director private companies in circumstances in which the director has a poor credit history. He further deposed that the due date for completion of the Minto property contract was 15 November 2010 and Ottoman was, by the middle of October 2010, still not in a position to complete as it had not yet obtained finance. He also deposed that he was “becoming increasingly distracted at this point by litigation”, referring to the debt proceedings as well as a dispute with the Commonwealth Bank of Australia (“CBA”). Mr El Ali deposed that both he and Saracen had become involved in a dispute with the CBA which involved two sets of proceedings also commenced in the Supreme Court of New South Wales in 2010 in relation to the possession of the Voyager Point property as well as residential properties that he owned himself and owned together with his partner. He deposed that he considered that “these distractions” were impairing his ability properly to look after the affairs of both Ottoman and Isaac & Jacob and therefore came to the view by around mid-October 2010 that Ottoman was more likely to obtain finance to complete on the Minto property contract if someone else was the director of those companies. He deposed that he asked Mr Nazloomian if he would become the director of both Ottoman and Isaac & Jacob because he had known him for a long time and “had always thought highly of him and [he] trusted him”. Mr El Ali deposed that also, in his opinion, Mr Nazloomian was “very prudent and calculating” and to Mr El Ali’s knowledge “held good assets, stable employment, a good credit rating and was not involved in any litigation”. He deposed that in his opinion Mr Nazloomian was “therefore more likely to be viewed favourably by potential lenders”.
Mr El Ali’s account of the conversation that took place between Mr Nazloomian and him was that when he asked Mr Nazloomian to take on both roles, he said words to the effect of:
John, I am not going too well with all the litigation and lack of income to complete the purchases that would add equity to the family trusts and to repay the debts we owe to you and others. Would you take over?
This way you could look after Elali family interests and your own.
Mr Nazloomian was said to have agreed and to have said:
I am honoured by the level of trust that you and your family have bestowed upon me.
Mr El Ali further deposed that in retiring as the director of Ottoman and Isaac & Jacob, it was not his intention to defraud anybody or to transfer or diminish his assets. He gave two reasons. First, he did not consider that the properties held by Ottoman were his own assets but belonged to the Ottoman Investments Unit Trust and ultimately to the Second Elali Family Trust. Secondly, he was not intending to diminish the assets of those trusts but to the contrary, by removing himself as a director of both companies, he intended to increase them. That evidence, however, left wholly unexplained why he transferred the shares as well as resigning as director and why he transferred the shares for the nominal consideration of $1.
As to why in December 2010, Mr El Ali re-assumed the position as director of Ottoman and Ottoman shares were transferred back to him, Mr El Ali deposed that throughout November and early December 2010, Ottoman had been experiencing difficulty in arranging completion of the Minto property contract due in part to its inability to obtain finance but also as the result of the vendor’s unwillingness to provide its prompt consent to Ottoman’s development application in relation to the Minto property. He deposed that settlement had been due on 15 November 2010. On 30 November 2010, the vendor of the Minto property served a notice to complete under the Minto contract but Ottoman did not have finance in place and was unable to complete. Mr El Ali deposed that it was looking increasingly like the acquisition of the Minto property would fall through and he expected that Ottoman would likely be sued by the vendor of the Minto property as a result. He deposed that in those circumstances he did not consider that he could prevail upon Mr Nazloomian to continue as the director of Ottoman and they had a conversation in the following terms:
[Mr El Ali]:John, it looks like the receivers for the Minto property are not willing to talk, they want more money and are probably aware of the increase in value for the property if Ottoman’s development proposal is approved. It is very likely they will rescind the contract, retain the deposit and pursue the company and possibly its director. This is not what you would have expected and it is not fair. I’ll resume the directorship and try to defuse the situation.
Mr Nazloomian: I’ve tried to help you and your family. I did not and would not want to be sued especially when it was you who entered into the contract and all that I have done is trust you. Yes it would be better for you to take Ottoman back but I will hang on to Isaac & Jacob; there is no legal action against it.
I do not think that either witness gave candid evidence, nor did I find their evidence credible.
I do not accept Mr Nazloomian’s explanation that he “felt [he] would be able to carry out the duties required in managing the trusts, would be able to oversee the management of the assets which would give [him] some security, and so [he] decided to accept [Mr] El Ali’s offer”. That explanation was not supported by the evidence and is contradicted by his own conduct. According to Mr Nazloomian, taking up Mr El Ali’s offer put him in a position to monitor his loans to Saracen and Ottoman by knowing what assets were being sold. In cross-examination Mr Nazloomian stated that:
… it gave me a window into the assets, and if they were coming and going, so that I would at least know if there was any profits made from any sales, then I could say “Hey, Nathan. Here’s some money that has come in. How about retiring some debts with me?”
However, when challenged in cross-examination on what he knew about the property dealings by Saracen and Ottoman, he admitted that he had no knowledge that Saracen and Ottoman had disposed of properties between 2010 and 2012 (save for the Potts Point property which Mr Nazloomian acquired from Saracen in 2012). He also admitted that he had not reviewed the financial accounts of Saracen or Ottoman or seen their books. It was then put to him that it was not true that he was holding the Isaac & Jacob shares because he would have some commanding view of the arrangements of Mr El Ali and could protect his interests. He denied this. It was also put to him that he did not have very much knowledge about what either company was doing. He denied this also. But both denials have no credibility in light of his earlier answers and his responses to further questions that were put, in which he agreed that he did not know whether Saracen held a property at Voyager Point and did not know that Ottoman had transferred Taren Point. It is clear that he had no idea about what either Saracen or Ottoman were doing and clear that Mr Nazloomian did not use his position as shareholder and controller of Isaac & Jacob “as a window” into Saracen’s and Ottoman’s affairs, when that was his ostensible purpose for taking the shares. Nor did the evidence show that Mr Nazloomian managed the two family trusts of which Isaac & Jacob was the trustee.
I infer that Mr Nazloomian’s role was essentially to do as instructed by Mr El Ali. Other than to sign documents presented to him for signature, there was no evidence that Mr Nazloomian otherwise performed any duties as director of Isaac & Jacob, notwithstanding his assertion that he was “in control”. Mr Nazloomian could not recall ever reading the trust deed of either family trust, did not know who the beneficiaries of those trusts were, other than that the trusts were Mr El Ali’s “private trusts”, and his only knowledge about the trusts came from what he was told by Mr El Ali. Tellingly, when in December 2011 he signed the Deed of Retirement and Appointment as director of Isaac & Jacob, by which Saracen resigned as trustee of the Voyager Point Unit Trust and Mr Zreika was appointed as the new trustee, he did so simply at the direction of Mr El Ali. His signature as director of Isaac & Jacob was required under the terms of the trust deed for the Voyager Point Unit Trust, which provided that the change of trustee could only be effected with the consent of the unitholder, viz: Isaac & Jacob. Mr Nazloomian gave consent on behalf of Isaac & Jacob when he had never met Mr Zreika, and was unable to explain the commercial purpose of the change. He denied that he had no idea when he signed the document what its commercial purpose was but when challenged in questioning, he claimed Mr El Ali had told him what the commercial purpose was behind the change in trustee, but he could not recall the details of the conversation. His answers given to that line of questioning were evasive and unconvincing. I do not accept that Mr Nazloomian knew what the commercial purpose was when he signed and find that the document was signed by him simply at the direction of Mr El Ali. There was no evidence to indicate that Mr Nazloomian, as the director of Isaac & Jacob, exercised any independent judgment concerning the change in trustee. To the contrary, the evidence showed, and I find, that Mr El Ali remained in effective control of Isaac & Jacob and directed its affairs.
Also impacting on Mr Nazloomian’s creditworthiness was his lack of candour in his evidence. As stated he never explained why the shares in Ottoman were also transferred to him and why he subsequently transferred them back to Mr El Ali. Nor did he disclose in his evidence-in-chief that, at the time he was asked by Mr El Ali if he would be the director and shareholder of Isaac & Jacob and Ottoman, he knew that Mr El Ali was being sued by the Royals, and indeed had been given regular updates by Mr El Ali on the legal proceedings, and also knew that Mr El Ali was under financial pressure from other creditors. None of this was disclosed in his two affidavits. When it was put to Mr Nazloomian that when he “took the shares [he] took them because [he] knew that Mr El Ali was under financial pressure and he needed to put the shares for his private family trust into safe hands while he dealt with those problems”, Mr Nazloomian agreed. Mr Nazloomian agreed in cross-examination that he considers that Mr El Ali is “honour bound to do what he can for [Mr Nazloomian] in the future to repay” the money that Mr Nazloomian has loaned him and that he expects that Mr El Ali will ultimately repay him in full. I infer from his answer that by helping Mr El Ali out, Mr Nazloomian believes that ultimately he will get paid in full.
Mr El Ali was not candid in his evidence and I did not find him a witness of truth. He went to great lengths to explain why he resigned as director of Isaac & Jacob and Ottoman but he left wholly unexplained in his evidence-in-chief why he also transferred his shares in those companies to Mr Nazloomian. There is nothing at all in his affidavits about why he transferred the shares. Even if I were to accept that I should read his evidence as also dealing with the share transfers (ie even if I accept that the share transfers were “part of the overall transaction replacing [him] as director of [Ottoman and Isaac & Jacob]” as he deposed in his 22 November 2010 affidavit of assets and liabilities), I do not accept the reasons given by him in his evidence as to why he transferred his shares in Ottoman and Isaac & Jacob on 19 October 2010. I explain why in the following paragraphs.
First, I found Mr El Ali’s evidence about his knowledge of the effect of the freezing orders unconvincing and contrived. He admitted that he knew about the 1 October 2010 freezing orders before he transferred the shares in Isaac & Jacob and Ottoman to Mr Nazloomian on 19 October 2010. There is some evidence that he had also read the orders before then, although his evidence in this regard was unclear and contradictory. Nonetheless, it was clear from his evidence that he was aware of the terms of the orders when he disposed of his shares. When cross-examined on his understanding of the orders he stated that it was his belief that the Ottoman shares were not the subject of the freezing orders and not affected by the freezing orders because “Ottoman didn’t have much money and the freezing orders referred to equity” and also because “Ottoman was not part of the [debt] proceedings”. He asserted that it was his understanding at the time that he was only restrained from dealing with property that had equity in it, and he “did not give away equity” because he believed, when he transferred the shares, that Ottoman held its assets on trust. Mr El Ali claimed to believe that the company itself had nothing and therefore that the Ottoman shares were not affected by the freezing orders “because nothing out of nothing is nothing, so there was no value”. Mr El Ali was, however, unable to explain how he came to hold that belief which has no support in the terms of the orders themselves. Moreover, there was nothing said by him in any of his affidavits that he had the belief that the freezing orders did not prevent him from disposing of the shares, notwithstanding it was part of the case pleaded against him that he transferred the shares in breach of the freezing orders. I reject his evidence about his understanding of the freezing orders.
Moreover I find it implausible that the obtaining of the freezing orders against Mr El Ali and Saracen and the transfers by Mr El Ali of shares in Isaac & Jacob and Ottoman were independent, unconnected events and do not accept that the transfers are to be explained by the reasons asserted by Mr El Ali in his evidence. I have already rejected Mr Nazloomian’s version of events as credible. Mr El Ali’s version of events was also not credible. Critically and tellingly, contrary to Mr El Ali’s assertion that he transferred the shares because he considered that the distractions of the litigation then pending against him were impairing his ability properly to look after the affairs of the two companies, the evidence all pointed to Mr El Ali remaining actively involved in both companies’ affairs despite the change in control and ownership to Mr Nazloomian, including with respect to the Minto property purchase. The impelling matter that needed to be attended to was the finance to enable the Minto property purchase to be completed. It was not Mr Nazloomian, however, who was attending to that, but Mr El Ali (by his own admission), and it was because Mr El Ali was having difficulty in arranging the finance and it looked like the acquisition of the Minto property would fall through that Mr El Ali asked for the Ottoman shares back. Mr El Ali’s explanation as to why, in the first place, he asked Mr Nazloomian to take over Ottoman is contradicted by his own conduct in continuing to attend to the affairs of that company as if he was still the sole director and shareholder.
Thirdly, I do not accept the timing of the share transfers to be coincidental to the freezing orders that had been made on 1 October 2010. I note that the three Kogarah Units were acquired by Ottoman on 23 August 2010. Whilst Mr El Ali was not asked any questions about the timing of the share transfers with the completion of the acquisition of those properties, it is inherently unlikely that the decision to transfer the Ottoman shares was unconnected with the acquisition of valuable property by Ottoman.
Accordingly I reject the submission for Mr El Ali that he provided “an entirely reasonable explanation” for his decision to transfer the shares in Isaac & Jacob and Ottoman on 19 October 2010. I did not find Mr El Ali’s evidence in this regard reliable and his evidence about his understanding of the freezing orders, which I have also rejected, reflects generally on his creditworthiness. In the light of the rejection of the reasons given by Mr El Ali and Mr Nazloomian for the share transfers and the finding that Mr El Ali continued to remain in effective control of Isaac & Jacob and directing its affairs, I accept the submission for the applicants that the only plausible explanation for the share transfers to Mr Nazloomian in October 2010 was because he was a trusted friend who would mind the shares whilst Mr El Ali dealt with his creditors.
THE EVIDENCE RELATING TO THE TRANSACTIONS BETWEEN OTTOMAN AND MR STOJANOVSKI
Mr Stojanovski and Mr El Ali are business associates who first met sometime around 2006. The explanation given by both of them for the transfer by Ottoman of the Kogarah Unit 2 property to Mr Stojanovski was that it was conveyed as security for a loan of $1 million from Mr Stojanovski to finance completion of the purchase of the Minto property by Ottoman. That loan was said to have been made on 23 December 2010.
Ottoman was served with a notice to complete the Minto property purchase by the vendor’s solicitors on 30 November 2010. On 3 December 2010, Ottoman’s solicitors wrote to the vendor’s solicitors advising that Ottoman would endeavour to proceed to completion by 15 December 2010. On 14 December 2010, Mr El Ali was again appointed as sole director and shareholder of Ottoman. I have already rejected Mr El Ali’s explanation as to why he transferred those shares to Mr Nazloomian in the first place and found that the reason for the transfer to Mr Nazloomian was because he was a trusted friend who would mind the shares whilst Mr El Ali dealt with his creditors. The re-transfer to Mr El Ali is explained by the fact that finance was needed to complete Ottoman’s acquisition of the Minto property.
According to Mr Stojanovski, in or about early December 2010 he had a conversation with Mr El Ali to the effect that Mr El Ali told him that he had exchanged contracts on a property at Minto and was struggling to secure funding and asked whether Mr Stojanovski would be interested in “coming in on the purchase”. Mr Stojanovski asked how much was needed and was told $1 million. Mr Stojanovski asked what security he would get and was told that Mr El Ali could give him security over three commercial properties at Kogarah and a caveat over the Minto property. Mr Stojanovski deposed that he agreed, “as long as [he] [got] the caveats and security upfront” and Mr El Ali said he would “draft up a deed” that detailed their agreement and set out the terms. Mr El Ali gave no evidence-in-chief about this but confirmed in cross-examination that he had discussions with Mr Stojanovski about the possibility that he might advance some funds towards the purchase of the Minto property.
Mr Stojanovski deposed that he met with Mr El Ali sometime later in around mid‑December 2010 and that Mr El Ali told him that he would make him the trustee of the Ottoman Investments Unit Trust and transfer Kogarah Unit 2 to him as the new trustee, which would give him total control of the asset and that Mr Stojanovski said “that’s fine. As long as it is in my name.” Again Mr El Ali gave no evidence-in-chief about this but emails confirm that by 15 December 2010, Mr El Ali had instructed his solicitors to prepare, amongst other documents:
(a)a Deed of Appointment of New Trustee appointing Mr Stojanovski as the new trustee of the Ottoman Investments Unit Trust in replacement of Ottoman;
(b)three “consented caveats” over Kogarah Units 1, 2 and 3, showing the interest of Mr Stojanovski (and his brother) as a purchaser of Unit 2 from Ottoman; and
(c)a “consented caveat” over the Minto property showing the interest of Mr Stojanovski (and his brother) as a lender.
On 15 December 2010, the notice to complete the Minto property purchase was extended to 17 December 2010.
Also on 15 December 2010, Mr El Ali (on behalf of Ottoman) and Mr Stojanovski signed a number of documents. The documents included a Deed of Appointment of New Trustee, a transfer form for the transfer of the Kogarah Unit 2 property from Ottoman to Mr Stojanovski for $1, caveats over Kogarah Units 1 and 3 showing the interest of Mr Stojanovski as a purchaser of Units 1 and 3 from Ottoman and a caveat over the Minto property. Mr Stojanovski’s evidence was that he did not obtain any legal advice before signing these documents.
The Deed of Appointment of New Trustee prepared by Mr El Ali’s solicitors had left blank for completion the date of the Ottoman Investments Unit Trust deed and the number of the clause pursuant to which Ottoman was empowered to appoint a new trustee. It may be inferred that the solicitors did not review the trust deed for the purpose of preparing the document, although it does appear that the trust deed was requested from Mr El Ali. The significance is that the Deed of Appointment recorded cl 30, in handwriting, as the relevant clause empowering Ottoman to appoint Mr Stojanovski as the new trustee. In fact, Ottoman did not have that power as under cl 30, the appointment of a new trustee could only be made by the unitholder (ie, Isaac & Jacob).
The next day, Mr El Ali submitted the transfer form and the ineffective Deed of Appointment of New Trustee to the OSR. The transfer was stamped with $50 duty pursuant to s 54(3) of the Duties Act 1997 (NSW) (“Duties Act”) as a transfer made in consequence of the appointment of a new trustee. Mr El Ali in cross-examination agreed that he had pointed out cl 27 of the trust deed to the OSR but not cl 30. The transfer of Kogarah Unit 2 was stamped with nominal duty of $50 pursuant to s 54(3) of the Duties Act.
Section 54(3) provides that duty of $50 is chargeable in respect of a transfer made in consequence of the appointment of a new trustee if the Chief Commissioner is satisfied, relevantly, that:
…
(b)none of the trustees of the trust after the appointment of a new trustee is or can become a beneficiary under the trust; and
(c)the transfer is not part of a scheme for conferring an interest, in relation to the trust property, on a new trustee or any other person, whether as a beneficiary or otherwise, to the detriment of the beneficial interest or potential beneficial interest of any person.
Clause 27 of the Ottoman Investments Unit Trust deed provided that the trustee is “both absolutely and irrevocable (sic) prohibited from being a unitholder or otherwise directly or indirectly benefitting under this deed” save for its rights to reimbursement and remuneration. It may be inferred that the relevant officer was satisfied that both conditions were met (based at least upon cl 27) because only $50 duty was imposed. Having been stamped, the transfer was then registered with the Lands Title Office on 21 December 2010.
Mr El Ali initially disagreed in cross-examination that he was responsible for the documents submitted to the OSR but said that he believed he “assisted”. On pressing, he agreed that it would be a fair statement that he did the work. Mr El Ali also agreed that he had, by late 2010, considerable experience with the operation of the OSR. He had been involved in a number of property dealings before late 2010 and had also been involved in a mortgage broking business. He agreed that he was aware that stamp duty was levied on the transfers of property at a rate that was a percentage of the purchase price of the property. He agreed also that he was aware that a transfer made in consequence of the appointment of a new trustee was chargeable with only $50 in duty if the trustee did not benefit under the trust.
Ottoman did not complete the purchase of the Minto property by 17 December 2010 and on that day, the Minto contract was terminated by the vendor. According to Mr El Ali, negotiations still continued after that date, although the contract had been terminated.
Also on or around that date, Mr Stojanovski and Mr El Ali (on behalf of Ottoman) executed a Deed of Agreement which Mr El Ali had prepared. It was submitted for Mr Stojanovski that this deed contained the agreement for the provision of a loan of $1 million and for the Kogarah Unit 2 property to be assigned to Mr Stojanovski as security holder and entitled him to hold the property until he had been repaid.
The Deed of Agreement was expressed to be made on 13 December 2010 but it was accepted it was not made before 17 December 2010. The recitals recorded that Mr El Ali was the sole director of Ottoman, which was described as the nominated purchaser of the Minto property, and Mr Stojanovski was “an established investor with strong building experience”. The recitals also recorded that Mr El Ali invited Mr Stojanovski to participate in “the project” by providing a cash investment of $1 million to complete the proposed purchase of the Minto property and that Mr Stojanovski accepted the offer to participate and the parties had agreed “to form an affiliation in accordance with the terms of this deed”.
The document recorded that:
(a)the Minto property was to be purchased by Ottoman as trustee for the Ottoman Investments Unit Trust;
(b)the purchase price was $3.8 million and settlement was to have been effected on 30 November 2010. A development application to sub-divide the property was expected to be finalised by the end of January 2010 (but presumably meant 2011);
(c)a market valuation completed at 2 December 2010 reflected a value “as is” of $4.13 million and of $4.9 million with approval for three lots sub-division;
(d)the vendor had terminated the contract for sale on 17 December 2010;
(e)funding to complete the purchase price was expected to be generated as to $3 million from Mr El Ali “and associates” secured by way of a first registered mortgage over the Minto property and that Mr Stojanovski “and associates” were to provide a “direct Cash investment” of $1 million “secured in (sic) way of transfer ownership” of the Kogarah Unit 2 property and caveats over Kogarah Units 1 and 3 and a “consented Caveat” over the Minto property “in the event the purchase proceed (sic) to settlement”;
(f)under the heading “Security”, that Mr El Ali had agreed “to supply” Mr Stojanovski with a “written consent” for a caveat over the Minto property, “transfer ownership” of the Kogarah Unit 2 property, caveats over Kogarah Units 1, 2 and 3, and an executed contract for the sale of the Kogarah Unit 2 property; and
(g)also under the heading “Security”, that:
Any net sale proceeds to the value of $1,000,000 of the [Kogarah Units] are to be disbursed to or as directed by [Mr Stojanovski]. Any amount disbursed would be [utilised] to reduce [the] value of [the] initial [investment] by [Mr Stojanovski] and associates but it would not reflect or effect (sic) the agreed profit share of 25% of net profit before tax or 25% of net amount received as a result of negotiations with the vendor.
Further terms were that:
(a)Mr Stojanovski agreed to lodge a withdrawal of caveat to effect a sale of Units 1 and 3 “subject to the sale being in line with market expectation of greater than $700,000 for each and every floor”;
(b)Mr Stojanovski also agreed to provide an executed transfer to effect a sale of the Kogarah Unit 2 property “subject to the sale being in line with market expectation of greater than $700,000”;
(c)Mr El Ali agreed “to be held personally liable for” the initial investment by Mr Stojanovski and associates with Ottoman; and
(d)should Mr Stojanovski elect to recall the loan of $1 million on 1 May 2011 or later, Mr El Ali must within 30 days provide Mr Stojanovski with $1 million “in way of Cash plus interest calculated at 10% annually.”
Then on 21 December 2010, another Deed of Appointment of New Trustee was signed by Mr El Ali (on behalf of Ottoman) and Mr Stojanovski. This deed was identical to the Deed of Appointment signed on 15 December 2010. As best can be made out on the evidence, it appears that this document was executed along with transfer forms for the transfer of the Kogarah Units 1 and 3 from Ottoman to Mr Stojanovski, also for $1 each, and that this Deed of Appointment and the transfer forms for Units 1 and 3 were lodged with the OSR for payment of duty on 23 December 2010. Mr El Ali deposed that:
However the appointment was never finalised and Kogarah Units 1 and 3 were never transferred to [Mr Stojanovski] in his capacity as the trustee of the Ottoman Investments Unit Trust, because the [OSR] delayed stamping of the relevant documents and requested further information.
The reason given by Mr El Ali for the two Deeds of Appointment being executed was that the earlier deed had related to Kogarah Unit 2 and the later deed related to Kogarah Units 1 and 3, though he accepted in cross-examination that neither deed referred to any particular property. Mr Stojanovski in cross-examination stated that the 15 December version “was requisitioned by the LPI [Lands Titles Office], and then we had to sign a new trust around the 20th – around the 23rd. So there was another trust deed signed after this date”. Mr Stojanovski made no mention of this in his evidence-in-chief. Furthermore, wholly unexplained was why Units 1 and 3 were to be transferred to Mr Stojanovski when this was not recorded in the Deed of Agreement. I found neither explanation for the second Deed of Appointment satisfactory but in any event the fact is that Units 1 and 3 were not transferred to Mr Stojanovski.
Mr El Ali and Mr Stojanovski claimed that, in the meantime, on 23 December 2010, Mr Stojanovski gave Mr El Ali two bank cheques for $500,000. According to Mr Stojanovski’s evidence, Mr El Ali had phoned him on 23 December 2010 and said that now that he (Mr Stojanovski) had the security that he wanted, he (Mr El Ali) needed the cheques urgently. Mr Stojanovski stated in cross-examination that he was aware at the time that the vendors had terminated the Minto contract for sale, but he believed that Ottoman still had “two weeks” to complete the purchase and believed that there were “some negotiations going on” “to continue with [the contract]”. Mr Stojanovski’s evidence was that he believed that Mr El Ali was going to use the $1 million to settle on the Minto property. Mr Stojanovski deposed that at all times he believed that the transfer of the Kogarah Unit 2 property was as security for his loan to Ottoman as trustee of the Ottoman Investments Unit Trust. The Court was asked to reject that evidence.
It was argued for the applicants that the explanations of Mr Stojanovski and Mr El Ali for the transfer of the Kogarah Unit 2 property were “riven with self-contradiction” and should not be accepted. It was submitted that on the one hand, they say that the property was transferred as security for the loan of $1 million but, on the other hand, say it was the consequence of the appointment of Mr Stojanovski as trustee of the Ottoman Investments Unit Trust. It was submitted that Mr Stojanovski and Mr El Ali either have misled the Court as to the reasons for the transfer or they wilfully misled the Chief Commissioner to claim a concessional duty on the transfer. Conversely it was submitted for Mr Stojanovski that the Court should accept that the loan transaction was the fundamental underlying basis for the transfer of property and that the Court should accept Mr Stojanovski’s evidence that the property was transferred to him as security for the advance of $1 million. I disagree with the latter submission.
I find that Mr Stojanovski did not in fact lend the $1 million to Ottoman (or otherwise). There is evidence that two bank cheques payable to the National Australia Bank (“NAB”) were drawn from funds in Mr Stojanovski’s account on 23 December 2010. The applicants did not dispute that the documentary evidence demonstrates the existence of those two bank cheques and that the photocopy of them bears the handwritten annotations of Mr El Ali to the effect that he received them. There is, however, no evidence that the cheques were ever banked by Mr El Ali. One of the key issues in the proceeding is whether, as the applicants alleged, consideration of $1 only was given for a property with a net value of $670,000. Mr El Ali’s evidence was that he banked the $1 million into the Saracen bank account on or about 23 December 2010, that the $1 million “assisted in many other ventures to pay deposits for other stuff as well”, including “the deposits for Wollongong, which we lost at the time” and the $1 million was thereafter “lost”. All that evidence was given in cross‑examination. In examination-in-chief, Mr El Ali deposed merely that “on 23 December 2010, [he] received two cheques, each in the amount of $500,000 from Stojanovski”. He did not depose to what he did with those cheques. I am prepared to infer from Mr El Ali’s failure to lead evidence on this critical issue that such evidence would not have assisted him. There are, in addition, other facts from which it may reasonably be inferred that the loan was not ultimately made.
First, completion of the Minto property never occurred. There was no need for the advancement of the funds.
Secondly, in April 2011, Mr Stojanovski was aware that settlement of the Minto property had not occurred. Yet Mr Stojanovski advanced an amount of approximately $400,000 to assist Ottoman to complete the purchase of the Taren Point property. I find it improbable that Mr Stojanovski would have advanced further funds had it been the case that he was owed the $1 million which, on his evidence, he had advanced for the purposes of the purchase of the Minto property when he knew that the Minto property had not been completed and when the fact was that, by that time, all negotiations had stopped. More so, given that Mr Stojanovski’s own evidence was that Mr El Ali had told him that Ottoman had also received a notice to complete for the Taren Point property and needed more money. It is an uncontroverted fact, nonetheless, that Mr Stojanovski made the advance of $400,000 to assist in the completion of the purchase of the Taren Point property when, on his evidence, he had already lent $1 million for a property purchase that had not proceeded.
Thirdly, it is also uncontroversial that Kogarah Units 1 and 3 were sold in 2014 and that Mr Stojanovski withdrew the caveats on Units 1 and 3 to enable those properties to be sold. Notwithstanding the terms of the Deed of Agreement which provided for Mr Stojanovski to be paid out of the proceeds of sale in relation to his loan of $1 million, no amount was paid to Mr Stojanovski from the sale of those units.
Fourthly, although the Kogarah Unit 2 property continued to be registered in his name, Mr Stojanovski took no steps to realise the property in order to recoup his loan amounts. On his evidence, he expected that the loan would be for a short term of three to four months and that he would be repaid within that time. Several years later, though he had still not been paid, he had not taken any steps to realise his security. Additionally, he has never put in a proof of debt in the estate of Mr El Ali for the $1 million loan, notwithstanding that the Deed of Agreement provided that Mr El Ali personally guaranteed the repayment of the loan.
Fifthly, whilst Kogarah Units 1 and 3 have been sold, Unit 2 has not been. Mr Stojanovski’s evidence was that Unit 2 had also been put up for sale but I do not accept that evidence. Mr Stojanovski admitted in evidence that he had never appointed an agent to sell Unit 2 and there is no objective evidence to show that he did put the unit up for sale.
Sixthly, in around October 2012, Mr Stojanovski entered into a lease with ECHL Pty Ltd (“ECHL”) (another company wholly owned by Mr El Ali and later by Mahmoud). The lease was signed by Mahmoud for ECHL and it was negotiated by Mr El Ali. The term of the lease was identified as three years with an option to renew for a further five years with rent to be $78,000 per year in monthly instalments. Mr Stojanovski agreed in cross-examination that ECHL had never paid any rental and there was no evidence that Mr Stojanovski took any steps to enforce payment of the rental. The context in which the lease was executed was that Mr Stojanovski was seeking a loan from the ANZ Bank. Although Mr Stojanovski denied that the lease was executed to lead the ANZ Bank to believe that he was receiving an income stream from the property, I reject that denial. Nothing in the evidence supports a finding that Mr Stojanovski ever expected an income stream from the lease.
Seventhly, it is also implausible that Mr Stojanovski would have left the property vacant without using it for income producing purposes since 2010 if it were the case that there was $1 million outstanding to him. Mr Stojanovski did not offer any explanation as to why no step was ever taken by him to realise the property or to use the property as an income stream.
Eighthly, not only did Mr Stojanovski agree to lend another $400,000 (on his evidence) but he also agreed to a first registered mortgage over the Kogarah Unit 2 property to secure a loan from Yasoo Drachma Pty Ltd (“Yasoo”) of around $600,000 which was used in the funding of the purchase of the Taren Point property in April 2011. I find it implausible that Mr Stojanovski would have lent an additional $400,000 when, according to him, his previous loan of $1 million had not been repaid and implausible that he was prepared to allow a first mortgage to be taken by Yasoo over the Kogarah Unit 2 property to secure the loan of $600,000 when that property, as at November 2010, had approximately a net value of $670,000 according to Mr El Ali’s November 2010 affidavit of assets and liabilities. In other words, if he was holding that property as security for the $1 million loan, it is inconceivable that he would permit it to be mortgaged to secure a loan from a third party to fund the Taren Point property purchase. Furthermore, as stated, by April 2011, the negotiations for the Minto property had ceased. It is implausible that Mr Stojanovski would have lent more funds in April 2011 if, as Mr El Ali asserted in his evidence, he had used the $1 million for other purposes.
Finally, Mr Stojanovski’s claim to be owed $1 million is implausible given that he was unaware at trial that Mr El Ali’s nephew, Mahmoud, had become and remains the director of Ottoman, which is the trustee of the Ottoman Investments Unit Trust. If there was $1 million owing to him by that trust, it would be expected that he would have made enquiries as to who was in control of the trust and taken steps to recover the debt owed to him. He has done neither.
Nor do I accept that Mr Stojanovski ever believed that his appointment as trustee had anything to do with giving him security over the property. Mr El Ali admitted in cross-examination that Mr Stojanovski “never took on the trusteeship”. His explanation was that it was because all the assets could not be transferred to Mr Stojanovski. I take this to be a reference to Units 1 and 3. However, there is no mention of the transfer of Units 1 and 3 in the Deed of Agreement, whether in consequence of the appointment of Mr Stojanovski as trustee or otherwise and indeed, there is no mention at all of the appointment of Mr Stojanovski as trustee as part of the arrangements relating to the advancement of monies by Mr Stojanovski for the completion of the Minto property purchase. In addition, putting to one side for the moment that Mr El Ali has conceded that both Deeds of Appointment were ineffective, there was nothing in the evidence to show that Mr Stojanovski ever performed any duties as trustee, believing that he had been duly appointed. The evidence that was elicited from him in cross-examination was to the contrary. Although Mr Stojanovski in cross-examination maintained that he believed that he had been appointed trustee, he admitted that he had not done anything in relation to managing the affairs of the trust. He was also asked whether he still considered that he was the trustee of the trust to which he replied “no”. When asked when he ceased to be the trustee of the trust, he stated “as soon as I ceased to carry out any activities on behalf of the trust – of the beneficiaries of the trust”. When further pressed, he stated in self-justification that there were no activities that needed to be carried out in December 2010. Given the control that Mr El Ali continued to exercise over the affairs of Ottoman and the Ottoman Investments Unit Trust, and the lack of any evidence to show that Mr Stojanovski at any time performed any duties as trustee, I reject Mr Stojanovski’s version of events as implausible. Moreover, Mr El Ali gave a different version of events. On his version of events, the change of trusteeship did not proceed because the OSR “sent further documents requiring further changes or additional requirements. [Mr Stojanovski] refused to take on the mortgages in his name because [Units 1 and 3] were mortgaged, and everything was, in [his] understanding of it, was called off”. It is salient, nonetheless, that Mr El Ali appeared not to regard Mr Stojanovski as ever holding the position of trustee of the Ottoman Investments Unit Trust. This is borne out by the fact that in April 2011, Mr El Ali had Mr Zreika appointed as trustee of the Ottoman Investments Unit Trust in lieu of Ottoman.
In summary, I reject the evidence of both Mr Stojanovski and Mr El Ali as to why Mr El Ali transferred the title to Kogarah Unit 2 (being the only unit which was not encumbered) to Mr Stojanovski. The examination of the evidence of both Mr Stojanovski and Mr El Ali did not present a plausible explanation for the transactions. Both witnesses were shown not to be credible and their accounts are not accepted. I find that Mr Stojanovski did not make the advance of $1 million, and find that Mr El Ali remained in effective control of the Kogarah Unit 2 property and the transfer was orchestrated by him to put that property beyond the reach of his creditors at a time when proceedings were pending against him and he was aware of the freezing orders against Saracen and him.
THE EVIDENCE RELATING TO THE TRANSFER OF THE TAREN POINT PROPERTY FROM OTTOMAN TO MR ZREIKA
Mr Zreika is another business associate of Mr El Ali. They met about 10 years ago. Mr Zreika and Mr El Ali have claimed that the Taren Point property is held by Mr Zreika as trustee of the Ottoman Investments Unit Trust and that the property was transferred to him in that capacity.
The contract for the Taren Point property had been entered into in September 2010. Settlement was due in February 2011 but did not complete then. Various correspondence passed between the solicitors between February and April 2011 about settlement and on 8 April 2011, a notice to complete the sale of the Taren Point property was served on Ottoman requiring completion of the sale by 29 April 2011. Mr El Ali deposed that ultimately sufficient finance to complete the purchase of the Taren Point property was obtained but only with the assistance of Mr Stojanovski, Mr Zreika and Mr Nazloomian.
Mr El Ali deposed that he was told “at some point in April 2011” by a lending manager at Bankwest that the bank would not lend to him or to Ottoman the funds required to complete the purchase because of Mr El Ali’s poor credit rating, but the bank could lend 60% of the value of the property to Mr Zreika who was a customer of the bank. Mr El Ali deposed that he concluded from this that Ottoman was still unable to borrow on behalf of the Ottoman Investments Unit Trust because of him.
He deposed that he then spoke with Mr Zreika whom he had known for many years and who was a trusted friend who had also loaned money to him and to Ottoman and EasyChoice in the past. Mr El Ali’s evidence of the conversation with Mr Zreika was in the following terms:
[Mr El Ali]: [Mr Zreika] I’m in need of your help. Ottoman can’t raise the finance to complete on the Taren Point Contract. EasyChoice is not doing well and the bank will not lend to companies associated with me. My family needs someone else to take over as the trustee in Ottoman’s place.
[Mr] Zreika: Nathan I would like to help if I can but what do you want me to do?
[Mr El Ali]: I would like you to be the trustee for the Ottoman Trust. You would take over the Taren Point deal and see it through to completion and development. In doing so you would be looking after my family’s interest in the development, but also your own position as our ability to repay your loans will be improved if it succeeds and you could share in the profit.
[Mr] Zreika: What about the properties in Kogarah; aren’t they part of the trust?
[Mr El Ali]: Technically yes, but there is no value left in them. The trust has negative equity in those properties and they can stay with Ottoman. [Mr Stojanovski] has the title to level 2 as security for his loan. Levels 1 and 3 are mortgaged to Rapid Capital and I expect they will take possession any time now. The only asset of any value left is Taren Point. That’s what I’m asking you to look after.
[Mr] Zreika: Of course Nathan; you know I would like to help your family out.
Mr El Ali deposed that he “caused” Ottoman to transfer the Taren Point property to Mr Zreika for consideration in the amount of $1 and a Deed of Retirement and Appointment of New Trustee was entered into pursuant to which Mr Zreika replaced Ottoman as the trustee of the Ottoman Investments Unit Trust. Mr El Ali deposed that “again” it was not his intention to defraud anybody or to transfer or diminish his assets and he did not consider that any property held by Ottoman was his own or even Ottoman’s but belonged to the Ottoman Investments Unit Trust and ultimately to the Second Elali Family Trust. Furthermore, Mr El Ali deposed “in causing Ottoman to retire as trustee I was not intending to diminish the assets of those trusts. To the contrary, by removing myself and Ottoman from the equation I intended to increase them”.
On 21 April 2011, a transfer form for the transfer of the Taren Point property from Ottoman to Mr Zreika for consideration of $1 was stamped at the OSR with $50 duty. Curiously the transfer was signed before completion of the contract to purchase (which was on 29 April 2011) and, it appears, the Deed of Appointment appointing Mr Zreika as the trustee of the Ottoman Investments Unit Trust in place of Ottoman, which bears the date 28 April 2011. Mr El Ali explained that a Deed of Appointment appointing Mr Zreika as the trustee of the Ottoman Investments Unit Trust in place of Ottoman was executed on 21 April 2011 (but was undated) with Alan El Ali witnessing Mr Zreika’s signature, but he did not take a copy of that document. He thought he would need a second “original” to give to the OSR so he had another version executed, and the second time Peter Tan witnessed Mr Zreika’s signature because Alan El Ali was not available. Mr El Ali’s evidence did not explain why the copy witnessed by Alan El Ali was not signed by Mr Nazloomian (on behalf of Isaac & Jacob as the unitholder) whereas the version dated 28 April 2011 had Mr Nazloomian’s signature. This is yet another example of irregularity and inconsistency in the documentation relied on by Mr El Ali in this case.
Secondly, the majority in Marcolongo v Chen held at [57] that “the section does not postulate a mixture of motives from which there must be extracted what is identified as a predominant intent to defraud” and at [32], it is “unnecessary to show that the debtor wanted creditors to suffer a loss or that the debtor had a purpose of causing loss”. All that is required is an intention to hinder, delay or defeat creditors “and in that sense to show that accordingly the debtor had acted dishonestly”. Thus, a finding that Mr El Ali held the belief that the shares and the properties had no value would not necessarily displace a finding of the requisite intent to defeat creditors for the purposes of s 37A of the Conveyancing Act or s 121 of the Bankruptcy Act. In PT Garuda Indonesia Limited v Grellman (1992) 35 FCR 515, the Full Federal Court quoted with approval from Lewis’ Australian Bankruptcy Law that a dealing will be treated as fraudulent irrespective of the absence or presence of a conscious fraudulent intent if the necessary result of the dealing is to put the property beyond the reach of the debtor’s creditors.
Thirdly, and moreover, having regard to the whole of the evidence, I am not satisfied that Mr El Ali in fact held the belief he asserted that the Voyager Point, Kogarah Unit 2 and Taren Point properties were held on trust by Saracen and Ottoman. I have rejected Mr El Ali’s explanations for the property and share dispositions. I have found that the Deeds of Retirement and Appointment were not acted upon and, for the reasons already given, placed no weight on Mr El Ali’s asserted belief in making the finding that the properties were not held on trust as claimed by him. For those same reasons I reject his evidence about his asserted belief that the properties were held on trust, reject the contention that he had a sound and rational basis for such a belief and also reject his evidence that in effecting the disposal he was endeavouring to increase and/or preserve the assets of the trusts, not to diminish his own assets which would be available for present and future creditors.
The “no value” contention
Further, it was submitted that in order for the Court to infer the relevant intent because the dispositions were for nominal consideration, the Court must be satisfied that the shares and properties in fact had value at the time of disposition and that Mr El Ali knew or must have known that to be the case. That submission is contrary to Cannane (1998) 192 CLR 557 and Marcolongo v Chen (2011) 242 CLR 546 as discussed above.
In any event, Mr El Ali, in his affidavit of assets and liabilities sworn in November 2010, valued Saracen’s net equity in the Voyager Point property at around $3.1 million, valued the Potts Point property (which was not encumbered) at $700,000 and the Kogarah Unit 2 property, also not subject to a mortgage, at $670,000. The Taren Point property had not then been purchased. Mr El Ali agreed in cross-examination that as at December 2010 he considered that Saracen and Ottoman held “very substantial equity” in the parcels of real estate that they owned, albeit qualifying that answer “as trustee”. This evidence shows that Mr El Ali thought at the time that those properties, and by inference the shares, did have value.
WERE THE SHARES IN ISAAC & JACOB TRANSFERRED TO MR NAZLOOMIAN WITH INTENT TO DEFRAUD CREDITORS?
I have rejected Mr El Ali’s and Mr Nazloomian’s explanations for the occasion and timing of the share transfer and found that notwithstanding the share transfers and despite Mr El Ali’s resignation as the sole director of Isaac & Jacob, Mr El Ali remained in effective control of the company and was the person directing its affairs. Before the share transfer, the shares were held in Mr El Ali’s name; constituted “property” and therefore would have been divisible among his creditors under s 116 of the Bankruptcy Act. However, the effect of the transfer was to put those shares beyond the reach of Mr El Ali’s creditors at a time when litigation was pending in the Supreme Court against him, and both his assets and the assets of Saracen were subject to a freezing order. Given the absence of a credible explanation for either the occasion or timing of the transfer, I find that Mr El Ali made the transfer at that time for nominal consideration with the intent to defraud his creditors within the meaning of s 37A of the Conveyancing Act and find that the Royals, as creditors of Mr El Ali, were prejudiced by the transfer by reason of the divestiture of an asset that otherwise would have vested in the Trustee upon Mr El Ali’s bankruptcy. I also find that his main purpose in making the transfer “was to prevent the [shares] from becoming divisible among [his] creditors” and/or “to hinder or delay the process of making property available for division amongst [his] creditors” within the meaning of s 121 of the Bankruptcy Act.
Mr Nazloomian relied upon the defences under s 37A(3) of the Conveyancing Act and s 121(4) of the Bankruptcy Act. Mr Nazloomian bears the onus of proving that either subsection applies: Wentworth v Rogers [2004] NSWCA 430, [64]–[68] (s 37A(3) of the Conveyancing Act); Ashton v Prentice; in the matter of Jury [1999] FCA 671, [67] (s 121(4) of the Bankruptcy Act). To satisfy the onus under s 37A(3) of the Conveyancing Act, Mr Nazloomian must show that he purchased the shares in good faith, not having at the time the shares were transferred to him notice of the intent to defraud. There are three elements to s 121(4):
(a)the consideration given was at least as valuable as the market value of the property: s 121(4)(a);
(b)the transferee did not know, and could not reasonably have inferred, that the transferor’s main purpose in making the transfer was to prevent the transferred property from becoming divisible property among the transferor’s creditors or to hinder or delay the process of making property available among the transferor’s creditors: s 121(4)(b); and
(c)the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent: s 121(4)(c).
It was submitted that the consideration paid for the shares ($1) represented market value because the only activity of the company was that of a trustee company and the shares had no commercial value. I am prepared to accept that submission. However, in view of my rejection of Mr Nazloomian’s evidence as to why he took the shares, I am not satisfied in the circumstances that Mr Nazloomian was a purchaser in good faith without notice of the intention to defraud. Therefore, Mr Nazloomian has not made out any of the elements of s 37A(3) of the Conveyancing Act. Likewise I do not accept that the requirements of s 121(4)(b) and (c) were met. Mr Nazloomian knew that Mr El Ali was being sued by the Royals, knew or had reason to suspect that Mr El Ali was in financial difficulty because he was owed money by him and his companies and, having rejected Mr Nazloomian’s explanation as to why he took the shares, it can reasonably be inferred that Mr Nazloomian knew that Mr El Ali’s purpose in effecting the transfer was to prevent the shares from becoming divisible amongst his creditors.
WAS THE KOGARAH UNIT 2 PROPERTY TRANSFERRED TO MR STOJANOVSKI WITH INTENT TO DEFRAUD CREDITORS?
I have rejected Mr El Ali’s and Mr Stojanovski’s explanations for the transfer of the Kogarah Unit 2 property from Ottoman to Mr Stojanovski and found that notwithstanding the disposition and purported appointment of Mr Stojanovski as the trustee of the Ottoman Investments Unit Trust, the property (and affairs of the trust) both remained under the effective control of Mr El Ali. The effect of that transfer was also to put that property beyond the reach of Mr El Ali’s creditors. Given the timing of the transfer and absence of a credible explanation as to why the property was transferred to Mr Stojanovski, I find that Mr El Ali made the transfer at that time for nominal consideration with the intent to defraud his creditors within the meaning of s 37A of the Conveyancing Act. I also find that the Royals, as creditors of Mr El Ali, were prejudiced by the transfer by reason of the divestiture of an asset belonging to a company of which Mr El Ali was the sole shareholder at the time.
Mr Stojanovski relied upon the defence under s 37A(3) of the Conveyancing Act. In view of the rejection of his evidence that the Kogarah Unit 2 property was transferred to him as security for a loan of $1 million to Ottoman and the rejection of his evidence that he advanced that sum to Ottoman, Mr Stojanovski has not made out the elements of the statutory defence. In so concluding I have taken into consideration the alternative argument put in final submissions on behalf of Mr Stojanovski following the concession by counsel for Mr Stojanovski that the Deeds of Retirement and Appointment were ineffective to appoint Mr Stojanovski as trustee of the Ottoman Investments Unit Trust. It was submitted that the evidence supported the finding that it was the intention of the parties that Mr Stojanovski hold the property, and that the property is held by him, as trustee by way of security for his loan of $1 million to Ottoman. Argument ensued as to whether the alternative claim was covered by the extant defence or whether an amendment was required. For the avoidance of doubt counsel for Mr Stojanovski sought the leave of the Court to amend the defence to add the allegation in answer to the allegation that the property was transferred to Mr Stojanovski for $1, as follows:
… the transfer of [Kogarah Unit 2] was from [Ottoman]:
(i)as retiring trustee for the Ottoman Investments Unit Trust to [Mr Stojanovski] as the new trustee; or alternatively
(ii)to [Mr Stojanovski] as trustee for [Ottoman], either as trustee for the Ottoman Investments Unit Trust or otherwise;
in consideration for and/or as security for the [Mr Stojanovski] loaning the sum of $1,000,000 to [Ottoman], as Trustee for the Ottoman Investments Unit Trust, to facilitate it purchasing property at 5 Stonny Batter Road, Minto, NSW (the “Minto Property”) and
The proposed amendment was objected to and leave to amend should be refused on the basis that the proposed amendment in (ii) is embarrassing. Even if the amendment was allowed, it would not assist Mr Stojanovski having regard to the findings of fact made.
WAS THE TAREN POINT PROPERTY TRANSFERRED TO MR ZREIKA WITH INTENT TO DEFRAUD CREDITORS?
It was alleged against Mr El Ali and Mr Zreika that the transfer of the Taren Point property from Ottoman to Mr Zreika on 21 April 2011 constituted an alienation of property for the purposes of s 37A of the Conveyancing Act. It was submitted for Mr El Ali and Mr Zreika that no “property” was alienated because as at the time of the signing and stamping of the transfer from Ottoman to Mr Zreika on 21 April 2011, the sale of the property to Ottoman had not completed (which did not occur until 29 April 2011) and accordingly, the argument went, the only rights that Ottoman had as at 21 April 2011 in relation to the property were “mere contractual rights” as the purchaser of an uncompleted contract, and not a proprietary interest in the property.
The fact that the purchase had not been completed as at the time the transfer was executed does not gainsay the application of s 37A for the following reasons.
First, the term “property” for the purposes of s 37A has an expansive definition (see s 7 of the Conveyancing Act) as follows:
“Property” includes real and personal property, and any estate or interest in any property real or personal, and any debt, any thing in action, and any other right or interest.
The definition is sufficiently broad to include Ottoman’s rights as purchaser under an uncompleted contract for sale of land.
Secondly, and more particularly, it is highly relevant to the intent of Mr El Ali at the time of the transfer that Mr El Ali was, at the time, procuring the finance to complete the purchase of the property by Ottoman, which occurred on 29 April 2011. As mentioned, it was not explained in the evidence why a transfer was signed and stamped before the completion of the purchase, but it must have been in anticipation of Ottoman completing the purchase and becoming registered proprietor of the property. On the evidence, the intent of Mr El Ali was that the title would be transferred to Mr Zreika on completion of the purchase. As the facts show, following completion of the contract, Ottoman was registered as owner on the title followed by Mr Zreika, both on 5 May 2011. The present case is distinguishable from the facts of Cannane on which counsel for Mr Zreika relied for the proposition that there was no relevant intent in relation to the property “then existing”. The plain intention of Mr El Ali, as borne out by the sequence of events, was that Ottoman would complete the purchase of the Taren Point property. The effect of the transfer (which could not be operative until Ottoman had title to the property to transfer) was to alienate that property by ultimately resulting in the registration of title in Mr Zreika’s name and thereby putting that property beyond the reach of Mr El Ali’s creditors.
Given the timing of the transfer and absence of a credible explanation as to why the property was transferred to Mr Zreika, I find that Mr El Ali made the transfer at that time for nominal consideration with the intent to defraud his creditors within the meaning of s 37A of the Conveyancing Act. I also find that the Royals, as creditors of Mr El Ali, were prejudiced by the transfer by reason of the divestiture of an asset belonging to a company of which Mr El Ali was at the time the sole shareholder.
WERE THE SHARES IN SARACEN, OTTOMAN AND EASYCHOICE TRANSFERRED TO MAHMOUD EL ALI WITH INTENT TO DEFRAUD CREDITORS?
I have rejected Mr El Ali’s and Mahmoud El Ali’s explanations for each of the share transfers and found that notwithstanding the share transfers, and despite Mr El Ali’s resignation as the sole director of Saracen and Ottoman, Mr El Ali remained in effective control of those companies and was the person directing their affairs. However, the effect of each of the transfers was to put those shares beyond the reach of Mr El Ali’s creditors. Given the absence of a credible explanation for any of the share transfers, I find that Mr El Ali made each of the transfers for nominal consideration with the intent to defraud his creditors within the meaning of s 37A of the Conveyancing Act and his main purpose in making the transfers “was to prevent the [shares] from becoming divisible among [his] creditors” and/or “to hinder or delay the process of making property available for division among [his] creditors” within the meaning of s 121(1) of the Bankruptcy Act. I also find that the Royals, as creditors of Mr El Ali, were prejudiced by the transfer by reason of the divestiture of an asset that otherwise would have vested in the Trustee upon Mr El Ali’s bankruptcy.
WAS THE VOYAGER POINT PROPERTY TRANSFERRED TO MR ZREIKA WITH INTENT TO DEFRAUD CREDITORS?
I have rejected Mr El Ali’s and Mr Zreika’s explanations for the transfer of the Voyager Point property from Saracen to Mr Zreika and found that notwithstanding the disposition and purported appointment of Mr Zreika as the trustee of the Voyager Point Unit Trust, the property (and affairs of the trust) both remained under the effective control of Mr El Ali. The effect of that transfer was also to put that property beyond the reach of Mr El Ali’s creditors. Given the timing of the transfer and absence of a credible explanation as to why the property was transferred to Mr Zreika, I find that Mr El Ali effected the transfer at that time for nominal consideration with the intent to defraud his creditors within the meaning of s 37A of the Conveyancing Act. I also find that the Royals, as creditors of Mr El Ali, were prejudiced by the transfer by reason of the divestiture of an asset belonging to a company of which Mr El Ali remained the effective controller at all relevant times: Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 3, [64] (Heydon J), cited with approval in Deputy Commissioner of Taxation v Haritos (2014) 287 FLR 136; [2014] VSC 379, [223].
WAS THE POTTS POINT PROPERTY TRANSFERRED TO MR NAZLOOMIAN WITH INTENT TO DEFRAUD CREDITORS?
I have already found that Saracen remained under the control and direction of Mr El Ali despite the purported transfer of ownership and control to Mahmoud. It is also noteworthy, and I have found, that the consideration given by Mr Nazloomian for the property (in the sum of $30,000) was credited against the amount that Mr El Ali owed Mr Nazloomian, not Saracen’s debt. This is another example of Mr El Ali treating the assets as if they were his own to deal with as he saw fit. At the time of the transfer, Mr El Ali was bankrupt and the effect of that transfer was also to put that property beyond the reach of Mr El Ali’s creditors.
It was submitted that there was no alienation of property with intent to defraud as Mr Nazloomian paid valuable consideration for the property. However, Mr Nazloomian knew at the time that Mr El Ali was bankrupt. Mr Nazloomian was plainly aware and had actual knowledge of Mr El Ali’s insolvency when the property was conveyed to him: cf Coghlan v Alexander (1905) 5 SR NSW 441. I do not accept that Mr Nazloomian was a purchaser in good faith.
I find that Mr El Ali made the transfer at that time with the intent to defraud his creditors within the meaning of s 37A of the Conveyancing Act. I also find that the Royals, as creditors of Mr El Ali, were prejudiced by the transfer by reason that the property was put beyond the reach of Mr El Ali’s creditors and I reject Mr Nazloomian’s defence under s 37A of the Conveyancing Act.
DEEDS OF RETIREMENT AND APPOINTMENT OF TRUSTEE
It was conceded that the Deed of Retirement and Appointment appointing Mr Stojanovski as trustee of the Ottoman Investments Unit Trust and the Deed of Retirement and Appointment appointing Mr Zreika trustee of the Voyager Point Unit Trust were not effective. It is therefore unnecessary to make any finding with respect to whether those transactions are voidable pursuant to s 37A of the Conveyancing Act.
Counsel for Mr Zreika maintained that the Deed of Retirement and Appointment appointing Mr Zreika as trustee of the Ottoman Investments Unit Trust was effective. If effective, that transaction is also voidable pursuant to s 37A of the Conveyancing Act as part of the steps by which Mr El Ali alienated the Taren Point property with intent to defraud his creditors within the meaning of s 37A of the Conveyancing Act.
CONCLUSION
The applicants are entitled to the relief sought against the respondents. The parties are directed to provide minutes of proposed orders giving effect to these reasons within seven days.
I certify that the preceding two hundred and thirty-four (234) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies. Associate:
Dated: 5 July 2016
SCHEDULE OF PARTIES
NSD 1731 of 2013 Applicants
First Applicant:
PETER PAUL ROYAL
Second Applicant:
JUDITH LOUISE ROYAL
Third Applicant:
MICHAEL GREGORY JONES IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF NATHAN EL ALI
Respondents
First Respondent:
NATHAN EL ALI
Second Respondent:
MAHMOUD EL ALI
Third Respondent:
MAHMOUD ZREIKA
Fourth Respondent:
SARACEN HOLDINGS PTY LIMITED
Fifth Respondent:
OTTOMAN INVESTMENTS PTY LIMITED
Sixth Respondent:
OTSI STOJANOVSKI
NSD 771 of 2014 Applicant
Applicant:
MICHAEL GREGORY JONES IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF NATHAN EL ALI
Respondents
First Respondent:
NATHAN EL ALI
Second Respondent:
MAHMOUD EL ALI
Third Respondent:
JOHN RENE NAZLOOMIAN
Fourth Respondent:
SARACEN HOLDINGS PTY LIMITED
Fifth Respondent:
ISAAC & JACOB PTY LIMITED
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