Sanwa Home Australia Pty Ltd v Sanwa Home Inc

[1995] QSC 226

IN THE SUPREME COURT

OF QUEENSLAND

Brisbane

[Sanwa Home Australia Pty Ltd v. Sanwa Home Inc & Anor]

O.S. No. 942 of 1994

IN THE MATTER of the Land Title Act 1994

- and -

IN THE MATTER of a caveat lodged by SANWA HOME AUSTRALIA PTY LTD (Receiver Appointed) (A.C.N. 011 044 161)

- and -

IN THE MATTER of an application by ReESTA CORPORATION CO LIMITED (incorporated in Japan)

Action No. 92 of 1994

BETWEEN:

SANWA HOME AUSTRALIA PTY LTD (receiver appointed)
  (Plaintiff)

AND:

SANWA HOME INC
  (First Defendant)

AND:

ReESTA CORPORATION CO LIMITED
  (Second Defendant)

REASONS FOR JUDGMENT - MOYNIHAN J.

Judgment delivered   14/09/1995

Counsel:  Mr Sheahan for the applicant
  P. Keane QC and Mr O'Shea for the respondent

Solicitors:  Feez Ruthning for the applicant
  Corrs Chambers Westgarth for the respondent

Hearing date:               29 November 1994 and
  1 February 1995
IN THE SUPREME COURT

OF QUEENSLAND  

Brisbane

O.S. No. 942 of 1994

IN THE MATTER of the Land Title Act 1994

- and -

IN THE MATTER of a caveat lodged by SANWA HOME AUSTRALIA PTY LTD (Receiver Appointed) (A.C.N. 011 044 161)

- and -

IN THE MATTER of an application by ReESTA CORPORATION CO LIMITED (incorporated in Japan)

Action No. 92 of 1994

BETWEEN:

SANWA HOME AUSTRALIA PTY LTD (receiver appointed)
  (Plaintiff)

AND:

SANWA HOME INC
  (First Defendant)

AND:

ReESTA CORPORATION CO LIMITED
  (Second Defendant)

REASONS FOR JUDGMENT - MOYNIHAN J.

Judgment delivered 14/09/1995

I have for consideration a summons by which ReEsta Corporation Limited (ReEsta) calls on Sanwa Home Australia Pty Ltd (receiver appointed) (Sanwa Australia) to show cause why a caveat should not be removed.  Sanwa Australia, controlled by the receiver lodged the caveat against the registration of the transfer by Sanwa Home Inc (Sanwa Inc) to ReEsta of Sanwa Inc's interest as mortgagee in a registered mortgage given by Tidedale Pty Ltd (Tidedale) on land at the Gold Coast.  Sanwa Australia seeks an interlocutory injunction to restrain the registration of the transfer.  The motion for injunction no doubt reflects an apprehension that Sanwa Australia may not have a caveatable interest. 
           The Registrar of Titles agreed to abide the outcome of the proceedings without the necessity of being joined.
           Sanwa Australia has an unsatisfied judgment of a little over $35 million against Sanwa Inc.  The judgment has been perfected and there is a writ of execution authorising the Sheriff to levy on the property of Sanwa Inc to meet the judgment debt.  The judgment debt is the consequence of a failure by Sanwa Inc to meet a call from Sanwa Australia (controlled by the receiver who was appointed for the purpose) for the unpaid capital in partially paid shares in Sanwa Australia issued to Sanwa Inc.  The funds so generated would be sufficient to meet Sanwa Australia's obligations in respect of specific performance which are subsequently mentioned.
           Sanwa Inc has effectively only one asset in Australia.  That is the registered mortgage over Tidedale's land.  On 13 August 1993 Sanwa Inc purported to transfer its interest in the mortgage to ReEsta.  It is to the completion of that transaction that the caveat and motion for interlocutory injunction are directed.  Sanwa Inc and ReEsta (there is an apparent connection between the two) are both companies registered in Japan but not in Australia.  The consideration for the transfer was paid or is payable in Japan.
           Sanwa Australia wants to execute against the mortgage for the judgment debt; the mortgagor is apparently in default and that will involve selling the land.  It appears that ReEsta for its part wants to sell the land and recover part of the mortgage debt.  Sanwa Australia has proposed an agreed sale of the property with the net proceeds of sale secured and invested pending the trial of the action, which it has commenced, but ReEsta has not responded to this offer.
           Sanwa Australia contends that the transfer of the mortgage by Sanwa Inc to ReEsta is voidable as having been made with the intent to defraud creditors.  Other considerations aside Sanwa Inc alleges that the fact that full value has been paid for the transfer is a complete answer to this particular aspect of Sanwa Australia's contentions.
           ReEsta contends that Sanwa Australia's position as an execution creditor is insufficient to constitute a caveatable interest; citing Bond v. Nclay 1903 St. R Qd. 1. It further submits that an entitlement to have Sanwa Inc's assignment of the mortgage to ReEsta set aside does not give Sanwa Australia any interest beyond that of an execution creditor. It is contended on Sanwa Australia's behalf that an entitlement to have the transaction set aside gives rise to a caveatable interest.
Common to both the caveat application (see Re Baumans Caveat [1994] 1 Qd.R. 123) and the application for an interlocutory injunction is the issue of whether there is a serious question to be tried that Sanwa is entitled to have the transfer of the mortgage set aside as a fraud on creditors. It is convenient to consider that issue first.
Section 228(1) of the Property Law Act 1974 provides:-

"Subject to this section, every alienation of property, whether before or after the commencement of this Act, with intent to defraud creditors, shall be voidable, at the instance of any person prejudiced by the alienation of the properties."

The balance of the section provides that it does not affect the law of bankruptcy or extend to any estate or interest conveyed "for valuable consideration and in good faith to any person not having, at the time of the conveyance, notice of the intent to defraud creditors".
           There is little doubt that the transfer is an alienation of Sanwa's property in the mortgage.  Giving effect to the transfer will remove from Australia Sanwa Inc's only asset here, from which Sanwa Australia can obtain satisfaction from its debt.  I will return later to the implications of that.  Intent to defraud is a matter of fact which may be established by direct evidence or by inference:  Lloyd's Bank Ltd v. Markan [1973] 1 W.L.R. 339 at 344. Re Trantwein;  Richardson v. Trantwein (1944) 14 A.B.C. 61. I turn to the consideration of further facts bearing on that issue.
           In October 1991 Sanwa Australia was ordered to specifically perform contracts by which it had contracted to purchase land on the Gold Coast for a purchase price somewhere in excess of $26 million.  The time for completion was fixed at 29 March 1991.  An appeal to the Full Court was dismissed on 11 December 1991 and further directions for the specific performance were subsequently given including fixing 3 February 1992 for completion.  The specific performance decree was not complied with despite further extensions and on 11 March 1992 further directions were given concerning the completion of the contracts in accordance with the decree.  Sanwa Australia resisted the making of the order and appealed, unsuccessfully, to the Court of Appeal.  On 10 April 1992 the High Court of Australia refused special leave to appeal from the order of the Court of Appeal. 
           In proceedings before a single judge of this court on 30 April and 8 May 1992 Sanwa Australia further resisted specific performance, raising fresh questions as well as issues that had been previously raised and rejected.  On 28 July 1992 Sanwa Australia's obligation for specific performance pursuant to the decree originally made in October 1991 was confirmed.
           In the meantime, on 15 May 1992, the court had appointed a receiver to Sanwa Australia with the authority to make calls on $32 million odd dollars outstanding on partially paid shares issued to Sanwa Inc or which that corporation had agreed to take up.  The demand not having been met the receiver, in the name of Sanwa Australia, sued Sanwa Inc and applied for summary judgment.  Sanwa Inc then raised an issue that the letter by which it was said to have agreed to take up the shares was a forgery and commenced an action in the Federal Court on 11 March 1993 (the same day upon which Sanwa Australia's application for summary judgment came before this court) against Sanwa Australia and others.  The pleadings, among other things, put in issue the transaction by which Sanwa Inc became obliged to take up the Sanwa Australia shares.  The Federal Court proceedings were dismissed on 7 April 1994 and Sanwa Inc was ordered to pay the costs. 
           After a further adjournment of the summary judgment application Sanwa Inc was given leave to defend it conditional on its paying into court an initial sum of $3 million odd-dollars into court by 2 June 1993 with specified monthly instalments paid into court to follow.  On the day upon which the obligation to pay the $3 million odd-dollars  was to be performed, Sanwa Inc sought an interlocutory injunction to restrain Sanwa Australia from proceeding in the matter.  This was dismissed.  On 3 June 1993 the judgment which Sanwa Australia seeks to enforce was entered for non-compliance with the conditions of the granting of leave.
           On 23 June 1993 Thomas J. dismissed a motion by Sanwa Inc to discharge the receiver.  Thomas J. found that Sanwa Australia was a wholly owned subsidiary of Sanwa Inc and that the companies had common directors for a number of years.  He concluded that Sanwa Australia and Sanwa Inc were in collusion to take every step possible to avoid the consequences of injecting money in Sanwa Australia that would enable it to comply with the specific performance decrees and that the evidence showed an extremely long and persistent series of attempts to avoid the consequence of the court's decrees and orders.  Those conclusions and the continuation of that state of affairs are amply supported by the evidence before me.  The evidence sustains a conclusion that the position found by Thomas J has since been actively pursued by Sanwa Inc and that ReEsta has become implicated in those endeavours.           
           The evidence founds a conclusion of a close connection between ReEsta and Sanwa Inc.  There are common or overlapping influences and controls by way of directorships and shareholdings across Sanwa Australia, Sanwa Inc, ReEsta and various holding companies and subsidiaries.  This is illustrated by the following:-

(a)One Takemura has, at all material times, been a director of Sanwa Australia, Sanwa Inc and ReEsta;

(b)Messrs Yamanaka and Matsui have, at all material times, been directors of Sanwa Australia and Sanwa Inc and Mr Yamanaka has been President of Sanwa Inc;

(c)at all material times Messrs Yamanaka and Takemura have been directors of ReEsta Corporation Australia Pty Ltd, a Queensland company;

(d)ReEsta has at all material times been the majority shareholder in ReEsta Corporation Australia Pty Ltd;

(e)Yamanaka's wife, Satomi Yamanaka, has, at all material times, been a director of ReEsta;

(f)ReEsta was formerly called Sanwa ReEsta Corporation Limited and its former address is the address of Sanwa Japan;

(g)80% of the shares in ReEsta are held by a company called Monpecks Co Ltd (a japanese company), and Yamanaka holds another 10% of ReEsta shares;

(h)Monpecks Co Ltd is a holding company of Mr Yamanaka's;

(i)Monpecks Co Ltd was formerly called Sanwa Homes Construction Co Ltd;

(j)Messrs Yamanaka and Matsui were both directors of Monpecks Co Ltd, and Mrs Yamanaka has been a director of Monpecks Co Ltd;

(k)Takemura certified the transfer of mortgage correct for the purposes of registration on behalf of ReEsta Japan.

I turn now to the circumstances surrounding the execution of the transfer of the mortgage.  It will be recalled that Sanwa Inc had commenced proceedings in the Federal Court on 11 March 1993 against Sanwa Australia and others, that judgment for Sanwa Australia was entered against Sanwa Inc on 3 June and on 30 July it failed to have the receiver discharged.
           On 30 July 1993, Sanwa Australia sought security for costs against Sanwa Inc in the Federal court, in the course of which deponents for Sanwa Japan stated:-

(i)that nothing had been received in reduction of the debt recovered by Tidedale's mortgage;

(ii)that the debt as at 29 July 1993 stood at just over $1.5 million, excluding interest;

(iii)that the then market value of the property was between $625,000 and $685,000; and

(iv)that Sanwa Japan wished to take advantage of its rights as mortgagee.

At this hearing Sanwa Australia's lawyers informed Sanwa Inc's lawyers that Sanwa Australia intended to execute the judgment against the mortgage;  the application for security for costs was adjourned and Sanwa Inc was given leave to amend its Statement of Claim.  On 13 August 1993 Sanwa Japan delivered its amended Statement of Claim in the Federal Court proceedings.  This was also the date of the transfer of its interest in the mortgage to ReEsta.  It is difficult to avoid regarding the timing of the transaction as significant and to avoid being cynical as to its purpose. 
           No notice of the transfer was given on until 14 September 1993.  Sanwa Australia lodged its caveat on 25 October 1993 and commenced its action to enforce it on 25 January 1994.
           On 28 October 1993, the solicitors for Sanwa Inc advised that they had no involvement in the transfer of the mortgage.  On 1 December 1993, Messrs Feez Ruthning wrote to the solicitors for Sanwa Australia advising that they were the solicitors for ReEsta Japan.  The reference number on that letter is the same as that on the form of the agreement to assign the mortgage;
           By the letter of 1 December 1993, ReEsta gave a 7 day deadline within which Sanwa Australia was to consent to the registration of the transfer or the removal of the caveat, failing which an application for removal would be brought.  For reasons not forthcoming to date no application was made until 24 November 1994.  On 16 February 1994, ReEsta lodged its own caveat, claiming an interest as transferee of a mortgage.
           On 22 March 1994, solicitors for Sanwa Australia enquired of Messrs Feez Ruthning as to whether they had instructions to accept service on behalf of ReEsta.  The response on 30 March 1994 was that Feez Ruthning did not have instructions to accept service.  It is pertinent to remark that Sanwa Inc and later ReEsta have displayed a pattern making service difficult, of waiting to the last day to take further steps to avoid the performance of obligations and of obscurification.
           I turn to consider Sanwa Inc's answer that it has paid full value for its interest in the mortgage.  There is evidence to the effect that the consideration for Sanwa Inc's transfer of its interest in the mortgage to ReEsta was expressed as the equivalent of A$1.5 million and that just over A$2 million was paid or payable in Japan.  The principle sum due under the mortgage was of the order of $1.5 million and the value of the property over which the mortgage was secured was then of the order of $650,000.  There is evidence that the value of the property has since increased but not to more than $1 million.  It seems that the mortgagor was in default at the time of the sale.  There are bare assertions on ReEsta's behalf in explanation of the transactions that it was interested in having an investment in Australia "so that it could promote itself as being an international company with international investments" and that it expected to make "a gain on the mortgage".
           The connection between Sanwa Inc and ReEsta, the history of attempts to obtain specific performance against Sanwa Australia and to procure payment by Sanwa Inc which I have outlined leads me to view the transfer with a cynical eye.  The transaction takes its place in the context of conduct on the part of Sanwa Inc which leaves me quite comfortable in inferring that it is determined to take every step possible to ensure that Sanwa Australia has no funds available, at least in this country, to meet its obligations to creditors notably Sanwa Australia.  The current state of the material gives rise to  serious doubt that the transaction was at arms length and that there has been full disclosure.  It also raises the prospect of ReEsta and Sanwa Inc acting in collusion to thwart Sanwa Australia's recovery of the money owing to it.          
           There is evidence that proceedings have been commenced by the receiver in the Tokyo District Court for recognition and enforcement in Japan of Sanwa Australia's judgment against Sanwa Inc.  For the reasons already canvassed it seems reasonable to anticipate that Sanwa Inc will do everything it can to thwart attempts to have the judgment enforced in Japan and to expect that ReEsta will assist it.  The material suggests that proceedings to enforce a judgment in Japan can in any event be expected to be protracted and expensive. 
           The considerations being those to which I have adverted there is, in my view, a serious question to be tried that the transfer of the mortgage from Sanwa Inc to ReEsta was made with intent to defraud Sanwa Inc's creditors, notably Sanwa Australia, that ReEsta is implicated in the transaction which was not at arms length, so as to impeach its good faith and fix it with knowledge of Sanwa Inc's interest.  The serious question to be tried, in my view, goes beyond Sanwa Inc (with the cooperation of ReEsta) acting to hinder or delay Sanwa Australia's recovery of the money owing to it as reflected in the judgment.  The material raises as a serious question that Sanwa Inc and ReEsta engaged in the transfer of the mortgage with the intent of defeating or defrauding Sanwa Inc's creditors (particularly Sanwa Australia) dishonestly in order to avoid the obligation reflected in the judgment and to avoid Sanwa Australia being put in funds to complete its obligations for specific performance; c.f. Grellman v. P. Garuda Indonesia (formerly known as Garuda Indonesian Airways) and Anor. (1991) 29 F.C.R. 26 at 33. The question raised to be tried has an element of dishonest intention if not of deceit; Lloyds Bank Ltd v. Marcan & Ors. [1973] 1 W.L.R. 1387 per Cairns L.J. at 1392.
           Other considerations for the moment aside the fact that ReEsta (assuming it to be the case) is knowingly involved in a transaction, the necessary effect of which is to defeat Sanwa Homes claim, raises serious doubts as to the transaction being in good faith;  Edmonds v. Edmonds (1904) P.362 at 375. The relationship between Sanwa Inc and ReEsta make it easier to infer the latter had notice of the nature of the transaction; Re Hearth; ex parte Trustee (1899) 1 Q.B. 612 at 620. The fraudulent intent contemplated by the statute may be in respect of a particular debtor; Grellman (ante).
           Once the requirements of s.228 are satisfied so as to render the transaction void the mortgage may arguably be held on a constructive trust and made directly available to discharge Sanwa Inc's indebtedness to Sanwa Australia.  Execution pursuant to the warrant of execution may be unnecessary cf. Ideal Bedding Company Limited v. Holland (1907) 2 Ch. 157. An order requiring the defendants to do what is necessary to make the mortgage available for satisfying Sanwa Australia's claim may be made; Ideal Bedding (ante) 172 and consequential orders may be made for the satisfaction of the particular debt;  Blinkinsop v. Blinkinsop (1852) 1 de G.M. and G. 495 Smith v. Hearst (1852) 10 Hare 30 at 46.
           Based on the considerations between those I have averted to Sanwa Australia arguably has a caveatable interest.  Its interest is not simply an interest in the proceeds of its sale by way of execution but a beneficial interest in the property and consequently in the proceeds of its sale c.f. Queensland Estates Pty Ltd v. Collas (1971) Qd. R. 75 at 81 McMahon v. Marr 1979 V.R. 239, Plymouth Brothers v. St Mour (1906) 26 N.Z.L.R. 294 at 296.

           The balance of convenience favours Sanwa Australia.  On the view I have taken there is a serious question to be tried as to whether Sanwa Inc and ReEsta have colluded in a fraudulent transaction, to deprive Sanwa Australia of property to which it will otherwise be entitled so as to satisfy its debt and make funds available to discharge its outstanding obligations for specific performance.  The evidence does not make a particularly convincing case but ReEsta is disadvantaged by the property in the mortgage being frozen until the issues concerning the transaction are litigated.  There is moreover no particularly satisfactory explanation for the lapse of time since the caveat was lodged and the bringing of the application.  I should mention that the receiver offers his undertaking as to damages. 
           In conclusion therefore Sanwa Australia has shown cause against the removal of the caveat. 
           If I were of the view that Sanwa Australia did not have a caveatable interest, I would have granted the injunction sought in the notice of motion.
           Costs should follow the event, subject to submissions.