Singh v Kaur Bal
[2011] WASC 303
•11 NOVEMBER 2011
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: SINGH -v- KAUR BAL [2011] WASC 303
CORAM: BEECH J
HEARD: 714 SEPTEMBER 2011
DELIVERED : 11 NOVEMBER 2011
FILE NO/S: CIV 1009 of 2005
BETWEEN: SARDUL SINGH
Plaintiff
AND
TEESHALDIP KAUR BAL
First DefendantMAN MAHAN SINGH
Second DefendantINDERJIT KAUR HARBHAJAN SINGH
Third DefendantSATWANT KAUR BAL
Fourth Defendant
Catchwords:
Bankruptcy and insolvency - Alienation of property with intent to defraud creditors - Whether alienation prejudiced plaintiff or creditors generally - Whether alienation voidable under Property Law Act 1969 (WA) s 89 - Relevance of consideration provided by transferee of alienated property to moulding of appropriate relief - Whether relief available and appropriate when transferee of alienated property has disposed of the property - Whether relief available in respect of substitute property
Torts - Tort of conspiracy - Whether conspiracy proved - Turns on own facts
Legislation:
Property Law Act 1969 (WA), s 89
Result:
Relief granted in respect of one property; claim otherwise dismissed
Category: B
Representation:
Counsel:
Plaintiff: Mr E Carlose
First Defendant : Mr G D Cobby
Second Defendant : Mr G D Cobby
Third Defendant : Mr G D Cobby
Fourth Defendant : Mr G D Cobby
Solicitors:
Plaintiff: Eapon Carlose
First Defendant : S S Sandhu
Second Defendant : S S Sandhu
Third Defendant : S S Sandhu
Fourth Defendant : S S Sandhu
Case(s) referred to in judgment(s):
Abela v Public Trustee [1983] 1 NSWLR 308
Ainsworth v Criminal Justice Commission (1992) 175 CLR 564
Brady v Stapleton (1952) 88 CLR 322
Briginshaw v Briginshaw (1938) 60 CLR 336
Cannane v J Cannane Pty Ltd (in liq) [1998] HCA 26; (1998) 192 CLR 557
Chen v Marcolongo [2009] NSWCA 326
El Zakhem v Tadros [2010] NSWSC 159
Fatima Pty Ltd v Bryant [2002] NSWSC 750
First Industry Corp v Goh [2002] WASC 111
Huynh v Helleh Holdings Pty Ltd [2001] NSWSC 1162
In re Allingham [1932] VLR 469
Kang v Kwan [2002] NSWSC 1187
Langdon v Gruber [2001] NSWSC 276
Maguire v Makaronis (1997) 188 CLR 449
Marcolongo v Chen [2011] HCA 3
Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372
Public Trustee v Pfeiffle [1991] 1 VR 19
Saleeba v Wilke [2007] QSC 298
Sanwa Home Australia Pty Ltd v Sanwa Home Inc (Unreported, QSC, No 942 of 1994, 14 September 1995)
Scott v Scott [2009] NSWSC 567
Silvera v Savic [1999] NSWSC 83; (1999) 46 NSWLR 124
Singh v Kaur Bal [No 2] [2010] WASC 69
Singh v Singh [2009] WASCA 53
The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] (2008) 39 WAR 1
The Trustees of the Property of John Daniel Cummins, A Bankrupt v Cummins [2006] HCA 6; (2006) 227 CLR 278
Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102
BEECH J:
Introduction
The plaintiff and the second defendant are brothers. In 2004, the plaintiff obtained judgment in the District Court against his brother in a sum just under $175,000. The judgment remains unsatisfied. In this action, the plaintiff claims that two alienations of property in 2003 by his brother are voidable because they were made with intent to defraud creditors. The plaintiff also alleges that his brother conspired with other defendants in this action to defraud the prospective judgment creditor in the District Court action by alienating the second defendant's properties.
I will begin with the background to the District Court action and then explain the result of that action. I next identify the alienations of property that give rise to the plaintiff's claims in this action, and outline those claims, before turning to the issues.
For the reasons that follow, I would grant relief in respect of one of the alienations, and otherwise dismiss the plaintiff's claim.
The parties
Because of the familial relationships between the various parties, it is convenient to refer to the parties by their first names for ease of reference.
As I have said, the plaintiff (Sardul) and the second defendant (Man Mahan) are brothers. The fourth defendant (Satwant) is Man Mahan's wife. The first defendant (Teeshaldip) is one of Man Mahan's and Satwant's daughters. The third defendant (Inderjit) is Satwant's sister.
The background to the District Court action
In 1998, Man Mahan applied to migrate to Australia on a business skills visa. His application stated that he had agreed in May 1998 with Keprim Pty Ltd (Keprim) to purchase a 75% interest in a restaurant business, Taj Tandoor, for $150,000.
Keprim was associated with or controlled by Sardul. It was the trustee of a discretionary family trust.
In July 1999, Man Mahan was granted a visa to enter Australia. He and Satwant and their daughters, including Teeshaldip, came to Australia at about that time.
Man Mahan and Satwant bought a property in Russell Avenue, Kinross (the Kinross Property). They were registered owners as joint tenants. There was a mortgage on the property, securing their debt to Bankwest. They built a house on the Kinross Property.
Sardul claimed in the District Court action, and it was so found in that action, that in about July 2001, Man Mahan and Satwant ceased conducting the Taj Tandoor restaurant business without having paid the balance of the purchase price owing to Keprim, and some other sums.
In August 2001, Man Mahan purchased three shares in Moving Time Pty Ltd (Moving Time), which commenced a restaurant business called D'Tandoor in Oxford Street Leederville. For some years after that, Man Mahan derived substantially all his income from that business.
The District Court action
On 13 September 2001, Keprim went into liquidation.
In January 2002, Keprim, by its liquidator, commenced District Court action CIV 5 of 2002 (the District Court action) against Man Mahan. Keprim claimed the sum of $128,500 said to be due under the agreement already referred to, and damages.
In September 2003, Keprim, by its liquidator, assigned its rights the subject of the District Court action to Sardul and, by consent, Sardul was substituted as the plaintiff in the District Court action.
The property assigned was 'the Debt', defined as Keprim's claim in the District Court action.
The District Court action was tried over six days in 2004: three days from 25 ‑ 27 February and a further three days from 19 ‑ 21 July. On 29 October 2004, Sardul was awarded judgment against Man Mahan in the sum of $173,349 plus interest and costs (the District Court judgment).
The District Court judgment is unsatisfied.
The alienations
The foundation of Sardul's claims in this action are two alienations of property by Man Mahan. Those alienations occurred in the period between when the District Court action was commenced, and when the District Court judgment was given.
In July 2003, Man Mahan and Satwant transferred the Kinross Property to Teeshaldip (the Kinross Transfer).
On 1 December 2003, Man Mahan transferred one of his shares in Moving Time to his sister‑in‑law, Inderjit (the Share Transfer). That transfer is the subject of a claim in this action. By a separate transfer document dated the same date, Man Mahan transferred his other two shares in Moving Time to another person. Sardul makes no claim in this action in relation to that latter transfer.
Sardul's claims about the alienations
Sardul claims that each of the Kinross Transfer and the Share Transfer was made within intent to defraud creditors and is thus voidable under s 89 of the Property Law Act1969 (WA) at the instance of Sardul as a person thereby prejudiced. Sardul pleads that any transaction by which consideration was paid by Teeshaldip for the Kinross Property was a sham transaction (see particular (b) of [14] of the statement of claim). Sardul also pleads that Inderjit did not provide any consideration or act in good faith in relation to the share in Moving Time.
There is no pleaded claim about any proceeds of sale of the Kinross Property. I will return to this point.
Sardul also makes two claims of the tort of conspiracy. First, he alleges that Man Mahan, Satwant and Teeshaldip agreed sometime between January 2002 and June 2003 to alienate Man Mahan's properties, including the Kinross Property, to put them beyond reach of the prospective judgment creditor in the District Court action, or to delay or hinder the property being available to satisfy the judgment debt in the District Court action. Sardul claims this was done with the purpose of causing damage to the prospective judgment creditor in the District Court action. Secondly, Sardul alleges that between January 2002 and June 2003, Man Mahan, Inderjit and Satwant agreed and conspired to alienate one of Man Mahan's shares in Moving Time to put it beyond the reach of the prospective judgment creditor in the District Court action, or to prevent or delay it being available to satisfy the judgment debt in that action. Sardul claims this was done with the intent of causing damage to and defrauding the prospective judgment creditor in the District Court action.
Sardul claims that the Kinross Transfer was done in furtherance of the first of these conspiracies, and the Share Transfer in furtherance of the second.
Sardul pleads that he is prejudiced and has suffered loss by the acts carried out in furtherance of the conspiracies. In particular, he pleads that, but for the alienations, Man Mahan's interest in the Kinross Property and the share in Moving Time would have been available to satisfy the District Court judgment. Thus he says he has been deprived of the opportunity of having those assets available to satisfy the judgment debt.
However, he does not claim compensatory damages in that respect for his conspiracy claims. For his conspiracy claim, Sardul claims only exemplary damages; see the plaintiff's schedule of damages dated November 2010 and ts 170 ‑ 172.
The defendants' case and the issues
The issues in the action respecting the s 89 claims were substantially reduced by admissions made on the morning of the commencement of the trial (ts 127 ‑ 129; see also ts 142). Counsel for the defendants:
(a)conceded that in alienating his interest in the Kinross Property, Man Mahan had an intent to defraud his creditors within the meaning of s 89 of the Property Law Act;
(b)stated that Teeshaldip did not rely on the defence in s 89(3);
(c)said that Teeshaldip did not rely on her registered title to the Kinross Property as a defence to the claim;
(d)stated that, consequently, the only issue regarding liability for the s 89 claim about the Kinross Transfer was whether the plaintiff was prejudiced by the alienation; and
(e)conceded that Man Mahan had an intent to defraud creditors in transferring one of his shares in Moving Time to Inderjit.
The critical issues in the trial may be summarised in the following way.
(1)On the s 89 claim about the Kinross Transfer, the primary issue is whether Sardul was prejudiced by that transfer.
(2)If he was, there are issues about the appropriate relief.
(3)On the s 89 claim about the Share Transfer, the first issue is whether Inderjit acquired the share in good faith and for valuable consideration. If she did, that claim fails under s 89(3).
(4)If s 89(3) does not apply, there is a question of what, if any, relief can be granted in the circumstance that Inderjit no longer owns the share.
(5)There are many issues in respect of the conspiracy claims:
(a)the defendants deny that there was any conspiracy and say, further, that even if all of their evidence were rejected, the matters relied upon by Sardul are insufficient to sustain a finding of the conspiracies alleged;
(b)in circumstances where, at the time of the alienations, the plaintiff in the District Court action was Keprim, not Sardul, the defendants deny that any conspiracy would have been made with the object of injuring Sardul, as distinct from Keprim; and
(c)further, the defendants say that the conspiracy claim as regards the Kinross Property is statute barred given that that claim was added in October 2009 and the Kinross Transfer was July 2003, more than six years earlier.
I will deal with these five issues in turn although, as I will explain, I do not think it is necessary to resolve all of them. Moreover, many contested matters of fact emerged from the defendants' witness statements and their evidence in cross‑examination. These matters ranged across numerous events, some of which have been the subject of various other actions between Sardul and some of the defendants in this action. In my view, in determining the issues in this action, it is unnecessary to resolve all of the disputed factual matters in the defendants' evidence.
I begin with some legal principles on s 89 of the Property Law Act.
Section 89 of the Property Law Act: legal principles
Section 89 of the Property Law Act provides as follows:
89. Voluntary conveyances to defraud creditors voidable
(1)Except as provided in this section, every alienation of property made, whether before or after the coming into operation of this Act, with intent to defraud creditors is 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 for valuable consideration and in good faith or upon good consideration and in good faith to any person not having, at the time of the alienation, notice of the intent to defraud creditors.
The section should be given a liberal construction in effecting its purpose of suppressing fraud: Marcolongo v Chen [2011] HCA 3 [20], [58].
An alienation is not restricted to a transfer of property by a conveyance: Singh v Singh [2009] WASCA 53 [59].
An intent to defraud includes an intent to delay, hinder or otherwise defraud creditors: Marcolongo v Chen [19]; First Industry Corp v Goh [2002] WASC 111 [30].
There is no separate requirement of dishonesty or fraud or of an intent to cause loss to the creditors. What is required is the intention to bring about the proscribed prejudice to creditors, in other words, the intention to hinder, delay or defeat creditors: Marcolongo v Chen [29] ‑ [32], [57].
The finding of intent relates to actual intent; it is not a presumed or deemed intent: Marcolongo v Chen [26], [34]; Singh v Singh [66]; The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] (2008) 39 WAR 1 [9146].
It is not necessary that the alienation affects all creditors as a general class. It is sufficient if some of them are affected. The protection afforded by the section is not limited to those to whom a debt is presently owing; it also includes contingent creditors: The Trustees of the Property of John Daniel Cummins,A Bankrupt v Cummins [2006] HCA 6; (2006) 227 CLR 278, 290 ‑ 291; The Bell Group [No 9] [9146]; First Industry Corp v Goh [31]; Kang v Kwan [2002] NSWSC 1187 [187] ‑ [188].
In The Bell Group [No 9] [9146], Owen J stated that the essence of the concept of defrauding creditors lies in a disposition that subtracts from the property, which is the proper fund for the payment of the debts, an amount without which the debts cannot be paid. In my view, that is the paradigm example of the concept of a transaction that defrauds creditors. See Cannane v J Cannane Pty Ltd (in liq) [1998] HCA 26; (1998) 192 CLR 557 [12] ‑ [13]. That is not to say that such a subtraction is a necessary condition of finding a relevant intent. But, as Brennan CJ and McHugh J pointed out in Cannane [13], if property is sold at a price reflecting the true value of the property and that price is received, the creditors have an undepleted fund against which to prove their debts. As I will explain, the defendants submit that that is what happened in the transaction involving the Kinross Transfer.
There may be a question about whether the registered title of a transferee of land through a transfer that is voidable under s 89 is defeasible by the claim under s 89, under the in personam exception to indefeasibility; see Marcolongo v Chen [21], Singh v Singh [67]. It is not necessary to deal with that because Teeshaldip does not rely on her registered title as a defence.
Was Sardul prejudiced by the Kinross Transfer?
The issue about whether the Kinross Transfer prejudiced Sardul as a prospective creditor arises in the following way.
It is common ground that the Kinross Property was worth $250,000 in July 2003. It is also common ground that Teeshaldip paid the sum of $200,000, from funds lent to her by the ANZ Bank, to her parents in exchange for the Kinross Property. Of that sum, almost $82,000 was paid to discharge her parents' secured debt to Bankwest, with the balance being paid into their joint account with Bankwest (exhibit C14).
The defendants' case is that:
(a)it was agreed between Man Mahan, Satwant and Teeshaldip that the purchase price was $250,000, but Satwant gifted $50,000 from her share of the proceeds to Teeshaldip, so that in effect only $200,000 need be paid at settlement;
(b)consequently, the result of the transaction was that Man Mahan received $125,000;
(c)that $125,000 reflects the full value of what the defendants characterise as Man Mahan's half share in the Kinross Property; and
(d)sale by debtor of an asset or interest for its full value does not prejudice creditors, and so the sale of Man Mahan's joint interest for $125,000 did not prejudice Sardul or prejudice creditors generally.
In response, Sardul submits that this approach to the identification of prejudice would defeat the purpose of s 89. Sardul submits that the defendants' position on prejudice is, in effect:
(a)the alienation of the Kinross Property with intent to defraud creditors does not give rise to prejudice if full market value is received; and
(b)this will be so even if the debtor 'immediately gives the proceeds of sale to his relatives', leaving creditors with no assets against which to execute (Sardul's closing submissions pars 13.6, 13.11).
In my view, the defendants' contentions involve the first proposition, but not the second. The defendants submit, and I accept, that the second element does not arise on Sardul's pleaded case. Sardul's pleaded case does not impugn any alienation by Man Mahan of the proceeds of sale of the Kinross Property.
Sardul's closing submissions (pars 13.11, 14 ‑ 16) may involve the following contention. Creditors are prejudiced because the alienation of the Kinross Property, even if for full value, facilitates the defeating of creditors by converting the Kinross Property into funds with the purpose and effect of permitting Man Mahan to dispose of those funds. If that is Sardul's contention, in my opinion it is not part of Sardul's pleaded case and it would be unfair to the defendants to permit Sardul to run that case. I turn to explain why that is so.
The statement of claim fixes on the alienation of the Kinross Property and the share in Moving Time (see [11] ‑ [13]). Particular (b) of [14] asserts that any transaction by which consideration was purportedly paid by Teeshaldip for the Kinross Property was a sham transaction. If anything, the implication from that is that there were no proceeds of sale of the property. In any event, the pleading does not mention, much less focus on, the proceeds of sale. Paragraph 17A pleads acts said to have been done in furtherance of the pleaded conspiracies. There is no mention of the proceeds of sale of the Kinross Property. Finally, [19(i)] pleads that Man Mahan transferred all or virtually all of the funds he had in Bankwest between 16 July and 5 August 2003. There is no plea that those funds constituted the proceeds of sale of the Kinross Property. Nor is there a plea that Man Mahan alienated the Kinross Property with the intent to disburse the proceeds of sale.
In written submissions dated 31 August 2011, filed before the commencement of the trial, the defendants contended that Sardul's pleaded case does not include any claim that he was prejudiced by Man Mahan's distribution of the proceeds of sale. At a directions hearing the day before the trial commenced, counsel for Sardul accepted that that was so (ts 115). That confirmation was evidently a factor in decisions made by counsel for the defendants about what witnesses would and would not be called (ts 113 ‑ 117). Moreover, counsel for Sardul said nothing in his opening at trial to put the defendants on notice that the plaintiff's case involved any contention to the effect I outlined in [45] above.
In Huynh v Helleh Holdings Pty Ltd [2001] NSWSC 1162, in assessing whether creditors were prejudiced, Hamilton J focused on the sale transaction impugned in the pleadings, not on what occurred with the proceeds of sale: [34] ‑ [37]. I take a similar approach in this case.
For these reasons, I reject Sardul's submission, summarised above, in relation to prejudice.
That brings me to the merits of the defendants' contentions about prejudice. I begin by making some factual findings.
I find that:
(a)at least in dealings with Teeshaldip's bank, ANZ, the purchase price for the Kinross Property was treated as $250,000;
(b)the ANZ Bank lent Teeshaldip $200,000 to fund her acquisition of the Kinross Property;
(c)Teeshaldip and Satwant agreed that Satwant would treat $50,000 as a gift by Satwant to Teeshaldip from what was described as Satwant's half share of the proceeds; and
(d)it was agreed between Teeshaldip and her parents that Teeshaldip would pay them the sum of $200,000, not $250,000, in return for the Kinross Property.
As to (c), neither Man Mahan nor Satwant gave evidence that Man Mahan was present when Teeshaldip and Satwant agreed as set out in (c). Rather, their evidence was that it was a matter agreed between Teeshaldip and Satwant and then reported to Man Mahan: exhibit 7A [83] and exhibit 2A [58].
There might have been room for doubt about some of these factual findings. For example, the transfer instrument stated that consideration was $200,000, not $250,000. Further, stamp duty was paid on the sum of $210,000, not $250,000. Moreover, there is room for questioning whether elements of the defendants' evidence accord with the objective probabilities. There were also some significant unsatisfactory features to the defendants' evidence in cross‑examination. However, I make the findings set out above taking into account exhibit C15 and exhibit C40. These documents are letters to and from the ANZ Bank in 2003 and 2005. There was no challenge in cross‑examination of the defendants as to the genuineness of these letters. The ANZ Bank files were not subpoenaed. Consequently, I accept the genuineness of these letters.
It can be seen from my summary in [42] that it is an element of the defendants' case on prejudice that Man Mahan was entitled to $125,000 of the proceeds of sale, and not more. For the reasons that follow, I do not accept that proposition. In my opinion, Man Mahan was jointly entitled with Satwant to the whole of the proceeds of sale of the Kinross Property. In short, that is because they were joint tenants of the land, the joint tenancy was not severed and so they became joint tenants of the proceeds of sale. I turn to explain that conclusion.
The starting point is that Man Mahan and Satwant were joint tenants of the Kinross Property. A sale by joint tenants of property does not, of itself, sever the joint tenancy. A conduct of sale by the joint tenants converts the joint interest in the land to a joint interest in the proceeds of sale: In re Allingham [1932] VLR 469; Abela v Public Trustee [1983] 1 NSWLR 308, 314; Scott v Scott [2009] NSWSC 567 [61].
The defendants submit that the joint tenancy was severed by the agreement between Man Mahan and Satwant that each of them would be entitled to half of the proceeds of sale (subject to the $50,000 gift by Satwant) (ts 525, 528).
I accept the proposition that, generally speaking at least, an agreement by joint tenants to sell the land and to divide the proceeds of sale equally between them, or in some other way, severs the joint tenancy: Public Trustee v Pfeiffle [1991] 1 VR 19, 24 ‑ 29; Abela v Public Trustee (315 ‑ 316); Saleeba v Wilke [2007] QSC 298 [19] ‑ [26].
However, I am not satisfied that Man Mahan and Satwant agreed that each of them would be entitled to half of the proceeds of sale. Taken at its highest (from the defendants' perspective) the evidence of each of them involved an assumption or assertion that each was entitled to a half share of the proceeds. They did not give evidence of an agreement between them to that effect. This can be seen in Man Mahan's evidence in his witness statements (exhibit 7A [83], [85] and exhibit 7B [7]) and in his oral evidence (ts 463). The same is true in relation to Satwant's evidence: see exhibit 2A [58] ‑ [59]; exhibit 2B [3] ‑ [4], [6]; her letter that is exhibit C15; and see also her oral evidence ts 296 ‑ 297, 323 ‑ 324. For example, Satwant said that although the property was in both names, she 'was entitled to half share of ... the sale of the property' (ts 296). Similarly, in my view her evidence at ts 323 ‑ 324 reflects an assumption that she was entitled to half; I do not think it evidences an agreement with her husband to that effect. Further, I refer to what I said in [52]. For these reasons, I am not satisfied that Man Mahan and Satwant agreed that each of them would be entitled to a half share of the proceeds of sale of the Kinross Property.
A joint tenancy can be severed in ways other than agreement. For example, a joint tenancy may be severed by a course of conduct manifesting a common intention of the parties inconsistent with the continuation of the joint tenancy. Some cases have held that an illustration of this is provided when the joint tenants cause the proceeds of sale to be paid into their respective separate accounts. That did not occur in this case. Rather the proceeds of sale were used to discharge their joint liability under the mortgage over the property, with the balance being paid into their joint account.
For these reasons, I find that Man Mahan and Satwant were jointly entitled to the proceeds of sale of the Kinross Property.
Thus the effect of the Kinross Transfer was to reduce Man Mahan's assets. Before the transfer, he was jointly entitled with Satwant to the Kinross Property worth $250,000. After the transfer, he was jointly entitled with Satwant to the proceeds of sale of that property in the amount of $200,000. (I repeat that Sardul makes no claim that the disbursement of those proceeds was voidable under s 89.)
A reduction in the assets of a debtor prejudices creditors at least if the reduced assets are or may be insufficient to meet the debtors' debts. On Man Mahan's evidence, his assets in July 2003 were well and truly insufficient to meet his debts, including the prospective debt to the judgment creditor in the District Court action. If Man Mahan's evidence about his financial position is rejected, the position is less clear, but I am satisfied that his assets were or may have been insufficient to meet his debts, including his contingent debt to the prospective judgment creditor in the District Court action.
Thus I find that the sale of the Kinross Property for $50,000 less than its true value prejudiced Man Mahan's creditors by reducing the pool of his assets available to meet his debts.
Like Hamilton J in Huynh v Helleh Holdings [34] ‑ [37], I think creditors are prejudiced by a transfer at an undervalue to the extent of the undervalue, not to the extent of the whole value of the property alienated. Thus, the prejudice to creditors lies in the difference between the value of the property alienated and what was received in exchange for it.
It follows from this finding that the elements of Sardul's claim under s 89 of the Property Law Act have been made out.
That brings me to the question of remedy.
The Kinross Transfer: the appropriate remedy to avoid the transfer
The primary remedy sought in respect of the Kinross Transfer is a declaration that Teeshaldip holds a half share of the Kinross Property on constructive trust for the plaintiff.
Given that Man Mahan and Satwant were joint tenants of the Kinross Property, and given my finding that that joint tenancy was not severed, there may have been a question whether Teeshaldip holds the whole of the Kinross Property on constructive trust. However, the matter was not pleaded or argued on that basis and I say no more about it.
Two major issues arise in relation to the constructive trust claimed by Sardul:
(1)If a constructive trust were to be imposed, for whom does Teeshaldip hold the property on constructive trust: Sardul or the official trustee in bankruptcy?
(2)How does the payment by Teeshaldip of $200,000 in exchange for the Kinross Property affect the appropriate relief?
I will deal with these issues in turn. Then I will deal with Sardul's additional claims in relation to the Kinross Property.
Constructive trust for whom: Sardul or the Official Trustee?
Sardul submits that a constructive trust should be imposed in his favour. The defendants submit that any trust or other remedy should be in favour of the Official Trustee, as trustee in bankruptcy of Man Mahan's bankrupt estate. For the reasons that follow, I accept the defendants' submission.
In determining the appropriate remedy, the starting point is the language of s 89. The section renders alienations made with the proscribed intent 'voidable'. The concept of avoiding a transaction involves undoing or reversing the transaction. To my mind, a natural starting point when a transaction is found to be voidable under s 89 is to reverse the transaction by ordering a re‑transfer to the alienating party, or by declaring a trust in favour of that party. The latter was the effect of the primary judge's order in Chen vMarcolongo [2009] NSWCA 326 [314]. Another order to substantially the same effect would be that the interest be held on trust for the transferor's creditors. That was the form of order contemplated by Pullin J in First IndustryCorp v Goh [36].
A claim under s 89 does not create any security interest over the property the subject of the alienation: Chen vMarcolongo [315]. Nor, in my opinion, does it create any priority for the debt owed to the plaintiff in the s 89 claim over other creditors of the alienating debtor. That seems to me to be consistent with the approach taken in Langdon v Gruber [2001] NSWSC 276 [79] ‑ [87], although a contrary approach appears to have been taken in Sanwa Home Australia Pty Ltd v Sanwa Home Inc (Unreported, QSC, No 942 of 1994, 14 September 1995).
Sardul submits, correctly, that Hasluck J made an order in CIV 1264 of 2006 that Teeshaldip and Satwant hold other property, in Malaysia, on constructive trust for Sardul. That action concerned property at No 2 Jalan Lim Swee Aun (No 2). Hasluck J gave judgment in default in favour of Sardul: Singh v Kaur Bal [No 2] [2010] WASC 69. The judgment declared that:
(1)the transfer by Man Mahan of No 2 to Teeshaldip and Satwant was an alienation with intent to defraud his creditors within the meaning of s 89 of the Property Law Act;
(2)Teeshaldip and Satwant had notice of Man Mahan's intent to defraud;
(3)the transfer was void against Sardul; and
(4)Teeshaldip and Satwant hold the property on trust for Sardul.
I will say more about this judgment in dealing with the conspiracy claims. For present purposes, Sardul emphasises that the constructive trust declared by Hasluck J was in favour of Sardul; it was not in favour of the Official Trustee. I note that the proceedings before Hasluck J were in default of appearance or defence. Thus his Honour did not have the benefit of argument on the question of remedy. For the reasons I have already explained, I take the view that any trust should be declared in favour of the Official Trustee in bankruptcy, not in favour of Sardul.
There is a further consideration that fortifies the conclusion I have stated. It was a condition of the grant of leave to Sardul under s 58(3) of the Bankruptcy Act 1966 (Cth) that he undertake to hold any property received in this action on behalf of Man Mahan's trustee in bankruptcy. There seems to be no utility in declaring a trust in favour of Sardul in respect of property in circumstances when Sardul in turn would hold his interest on trust for the Official Trustee. I note that the defendants do not object to relief in favour of the Official Trustee in circumstances where the Official Trustee is not a party to the action (ts 545).
The relevance of the $200,000 paid by Teeshaldip to the appropriate remedy
Again, I begin with the statutory language. Section 89 makes an alienation voidable. That confers a broad power on the court to avoid an alienation. When an alienation is made for consideration, my starting point is that the alienation should not be avoided without also reversing the payment of the consideration by the transferee. That is consistent with the approach taken to rescission in equity, where the court does what is practically just to restore both parties to their respective positions before the transaction to be rescinded was made: see, for example, Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102, 112 ‑ 114; Maguire v Makaronis (1997) 188 CLR 449, 474 ‑ 475. Generally, at least, a party should not be left with 'the fruits of the transaction of which [it] complains': Maguire v Makaronis (475). So, for example, generally, a vendor who seeks to set aside a contract of sale is obliged, as a condition of avoiding the sale, to repay the purchase price with interest: Maguire v Makaronis (476).
I think a similar approach should be taken in granting relief under s 89. If the debtor received consideration for the property alienated then, generally at least, in avoiding the alienation, the consideration should be reversed, or otherwise accounted for. If not, the debtor's assets are increased by the retention of the consideration and the return of the alienated property. I do not think it would be a proper exercise of the power to avoid a transaction to bring about an increase in the debtor's assets, compared to the position before the impugned transaction. The object of avoidance is to restore the creditors' position before the alienation, thereby avoiding prejudice to them, not to improve on it.
Sardul seeks to avoid the Kinross Transfer. The Kinross Transfer was in exchange for the payment of $200,000. The settlement of the sale and purchase of the Kinross Property was, in substance, one transaction. To my mind, in avoiding the alienation of the Kinross Property by the Kinross Transfer, the court should not ignore the $200,000 payment that was the other side of the transaction. More particularly, in my view, the Kinross Transfer should not be avoided without also avoiding, in some sense, the payment by Teeshaldip of $200,000. The Official Trustee, and thereby Man Mahan's creditors, should not be left with the $200,000 that is the fruits of the alienation which Sardul seeks, on their behalf, to avoid. (That is so notwithstanding that the proceeds of sale have been disposed of, in circumstances where that disposal is not impugned.)
Sardul submits that Teeshaldip should be seen as a wrongdoer, who does not have 'clean hands', and that a court exercising power under s 89 should consequently not be concerned to protect her rights and interests. Rather, she should be left to pursue separately any claim she might have against Man Mahan respecting the $200,000 she paid for the Kinross Property: see ts 136, 160 ‑ 162; and par 8.1 of Sardul's written closing submissions. In my view, those submissions do not reflect a proper approach to the exercise of power under s 89. To my mind, a conclusion that a transferee had notice of the fraudulent intent of the transferor does not justify avoiding the transfer without reversing, or otherwise taking into account, the payment made in consideration of the property transferred. As I have said, in my view, it would not be a proper exercise of the power to avoid a transaction under s 89 for a court to deliberately bring about an increase in the debtor's assets as compared to the position before the impugned transaction.
For these reasons I reject Sardul's claim to a constructive trust over a half interest in the Kinross Property without reference to the $200,000.
The court's powers under s 89 are broad. As was said by Hodgson CJ in Equity in Silvera v Savic [1999] NSWSC 83; (1999) 46 NSWLR 124 [72], the court can achieve the effect of avoiding the alienation by such measures as seem appropriate in the particular case. On the breadth of the court's remedial powers under s 89, see also Singh v Singh [64].
The flexibility of the court's power in avoiding a transaction is illustrated by El Zakhem v Tadros [2010] NSWSC 159 [69] ‑ [73]. In that case, Smart AJ considered an order that the recipient of property alienated with intent to defraud creditors pay a sum of money reflecting the prejudice to creditors.
For the reasons I have given, I think that any relief under s 89 should be moulded with the object of avoiding the Kinross Transfer and the payment in consideration of it. One way of achieving this object is by fashioning the remedy from the prejudice to creditors arising from the impugned alienation. As I have said, in my view the prejudice lies in the difference between the value of the property alienated and what was received in exchange for it. There are various ways in which a remedy might be framed to achieve these objects.
One approach might be as follows. On my analysis, the effect of the Kinross Transfer was to prejudice Man Mahan's creditors to the extent of $50,000. That reflected one‑fifth of the value of the Kinross Property. A constructive trust might be imposed over a one‑fifth share of the Kinross Property. Further, an order for the transfer of that share to the Official Trustee might be made.
This approach would seem likely to lead to practical difficulties. Entitlement to a one‑fifth share would not give the Official Trustee an ability to force a sale of the Kinross Property. Consequently, realisation of that interest would seem likely to be problematic.
Another, and I think preferable, approach is along the lines suggested by the defendants (ts 542), to order payment of a sum to reflect and remedy the prejudice, but with some modification.
On my findings, the Kinross Transfer caused prejudice to the creditors of Man Mahan by reducing the value of his assets by $50,000. That occurred over eight years ago, in July 2003. An order to reverse that prejudice should take account of the effluxion of that lengthy period. That can be done by ordering the payment of interest on the sum of $50,000. I would order the payment of interest at 6% from 16 July 2003 on the sum of $50,000. Calculated up to 11 November 2011, interest totals around $25,000. Thus I would order that Teeshaldip pay $75,000 to the Official Trustee.
I would also order that the Kinross Property be charged with payment by Teeshaldip of the sum of $75,000. In my view, that is appropriate given that she acquired the property by an alienation voidable under s 89, and given that the payment of the $75,000 is the means I have chosen of remedying the prejudice to creditors flowing from that alienation.
Sardul's other claims regarding the Kinross Property
Sardul also claims further relief against Teeshaldip. He pleads that, with intent to prevent the Kinross Property or other properties being available to satisfy judgment in the District Court action:
(a)in March 2005, Teeshaldip 'eroded the equity' in the Kinross Property by using it as security to obtain funds to pay for the purchase and improvements of a property at 8 Hird Road Success (the Success Property);
(b)in August 2005, Teeshaldip further eroded the equity in the Kinross Property and the Success Property by using them or one of them as security to obtain funds to purchase, jointly with her husband, property at 4 Sunbury Link, Wellard (the Wellard Property); and
(c)in January 2009, Teeshaldip used the Kinross Property and/or the Success Property and/or the Wellard Property as security to obtain further loans to purchase an additional property known as the East Perth Property (statement of claim [17A]).
Sardul claims a declaration that Teeshaldip holds as constructive trustee for him all sums received by her from using the Kinross Property, or the Success Property or the Wellard Property as security for the purchase price of any of the properties, and an order that Teeshaldip account to Sardul for those sums.
For a number of reasons, I would not grant this claimed relief.
First, Sardul has not proved that Teeshaldip had the intent alleged in [17A]. Nor has that intent been admitted.
Secondly, in any event, Sardul's claim in this regard is founded on his primary claim for a constructive trust over a half share in Teeshaldip's ownership interest in the Kinross Property. It seems that the asserted constructive trust over the Kinross Property is said to be the springboard for tracing into funds Teeshaldip obtained by using the Kinross Property. For the reasons I have explained, I would not declare any constructive trust.
Thirdly, and in any event, in my view the claim is inconsistent with authority. I will explain the position in more detail in relation to the Moving Time share. In my view, the decision in Brady v Stapleton (1952) 88 CLR 322, 332 ‑ 335 supports the following propositions. Following the Kinross Transfer, Teeshaldip was the owner of the Kinross Property. Unless and until the Kinross Transfer was avoided, she was entitled to deal with that property. She has no personal liability to account for sums received from selling or disposing of that property, or an interest in the property, prior to any steps being taken to set aside the Kinross Transfer. See also Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372, 426; Singh v Singh [61] ‑ [63].
Finally, Sardul's statement of claim also claimed damages. In opening, counsel for Sardul said that damages were claimed under s 89. The damages claim was not mentioned in Sardul's detailed written closing submissions. In any event, the relief I have identified - payment of $75,000 - means that there is no additional separate damage recoverable (assuming damages are available under s 89).
The Share Transfer: is any substantive relief available?
As I have explained, one of the alienations the subject of Sardul's claim is the Share Transfer - the transfer by Man Mahan of one of his shares in Moving Time to Inderjit. The defendants admit that Man Mahan transferred the share with intent to defraud his creditors. Inderjit claims that she received the share in good faith and for valuable consideration. In my view, it is not necessary to decide whether that is so. That is because Inderjit no longer owns the share and Sardul has failed to prove that Inderjit holds any property that is the proceeds of sale of the share, or the identifiable substitute for the proceeds of sale. In my opinion, that means that no substantive relief is available in respect of the Share Transfer. I will deal with whether a bare declaration should be granted later in these reasons.
In order to explain why no substantive relief is available, it is convenient to begin by outlining some relevant legal principles.
In Brady v Stapleton, a debtor, later made bankrupt, disposed of property with intent to defraud creditors. Before proceedings were commenced, the recipient of the property sold it. The proceeds of sale could not be identified in the hands of the original recipient. The High Court held that the original recipient was not liable to account for the property or for its proceeds of sale. An alienation by a debtor is effective until a creditor seeks to avoid it. Prior to an election by a person entitled to avoid the alienation, the recipient is entitled to deal with the property as owner and is not required to account for the proceeds of any sale if those proceeds are not still identifiable in the hands of the original recipient (331 ‑ 334). The recipient is not liable to pay to the defrauded creditors the amount of the proceeds of a sale made by him before steps were taken to set the alienation aside. See also Official Trustee v Alvaro (426); Singh v Singh [61] ‑ [63].
Where there has been an alienation of property with the proscribed intent to defraud creditors, and the recipient of that property has not retained it, but has transformed it into other identifiable property which it continues to hold, a court will allow a remedy against the identified specific property: Brady v Stapleton (332 ‑ 333), Official Trustee v Alvaro (427); First Industry Corp v Goh [35]. If the recipient does not continue to hold the property substituted for the original property, or any identifiable further substitutes, there is no property in respect of which relief can be given. See, by way of illustration, First Industry Corp v Goh [40] ‑ [41].
Regrettably, it would appear that Sardul's claim in relation to the Share Transfer was pleaded and advanced without regard for these principles.
The statement of claim appeared to accept or assume that Inderjit had sold her Moving Time share. Sardul pleaded in [20] that by reason of the matters pleaded in the statement of claim, Inderjit held the share in Moving Time and all sums received by her from the sale of that share as constructive trustee for Sardul and that Inderjit was liable to account to Sardul for all sums received by her from the sale of the Moving Time share. The prayer for relief claims, against Inderjit, the following relief:
(i)a declaration that the transfer of the share in Moving Time Pty Ltd to [Inderjit] was an alienation of property with intent to defraud [Sardul] and void pursuant to s 89 of Act 1969,
(ii)a declaration that [Inderjit] held the share in Moving Time Pty Ltd and all sums received by her from the sale by her of the share as constructive trustee for [Sardul],
(iii)an order that [Inderjit] account to [Sardul] for all such sums and
(iv)an order that [Inderjit] pay [Sardul] a sum equivalent to the value of the share.
In his closing submissions, Sardul sought an order that Inderjit pay Sardul $25,000 instead of orders (ii) ‑ (iv). That sum represents both the amount Inderjit received for the share, and what was said to be its value.
It can be seen, therefore, that Sardul claims Inderjit has a personal liability to pay him an amount equal to the value of the share or an amount equal to the sums received by her from the sale of that share. The authorities I have referred to establish that such claims are not available.
Sardul submits that because Inderjit was not a purchaser for value and without notice she is not 'protected' by the principle in Brady v Stapleton (Sardul's closing submissions par 12.12). That reveals a misunderstanding of what was relevantly decided in Brady v Stapleton. In that case, the recipient was not a good faith purchaser, but sold the property to such a purchaser. The same applies here, to the sale by Inderjit of her share. Sardul does not impugn that sale (closing submissions par 12.10).
As I have explained, a claim would be available in respect of any proceeds of sale of the Moving Time share, or any substitute property exchanged for those proceeds, if the proceeds are or substitute is still identifiable in the hands of Inderjit. However, Sardul has not established that Inderjit retained, at the time of trial, any of the proceeds of sale of the Moving Time share, or any property exchanged for the proceeds of sale.
Inderjit's evidence (exhibit 5A [24] ‑ [26]; ts 386 ‑ 387) is, in summary, that:
(a)in about October 2004, she agreed to sell her share in Moving Time for $25,000;
(b)the $25,000 was paid in two instalments;
(c)in November 2004, she received $10,796, which she used to buy furniture and white goods for the house she had recently acquired; and
(d)on 6 April 2005, she received the balance of $14,204.
There is no evidence as to whether and to what extent Inderjit retained, at the time of commencement of the action or at trial, any of the white goods or furniture bought in 2004 or the funds received in April 2005.
One possibility (countenanced in the defendants' closing submissions ts 548 ‑ 549), might be to order an inquiry into whether and to what extent Inderjit retains any of the white goods, furniture or funds received. In my opinion, in the circumstances of this litigation, that would not be an appropriate course. It was for Sardul to establish the facts relevant to any relief that he sought. He has failed to do so. Moreover, the defendants' written submissions, filed in advance of the commencement of the trial, asserted that, because Inderjit had disposed of the Moving Time share, 'no order can be made against her under s 89, unless the plaintiff identifies what property is still in her hands': defendants' outline of submissions, 31 August 2011, par 28. Sardul was thus on notice of the potential relevance of identifying what property was still in Inderjit's hands. Counsel for Sardul did not ask any questions on this topic.
For these reasons, I would not grant any substantive relief in respect of the Share Transfer.
For the sake of completeness, I set out my findings on whether Inderjit received the Moving Time share in good faith and for valuable consideration.
Did Inderjit receive the share in good faith and for valuable consideration?
The defendants accepted that they bear the onus of proving that the share was received in good faith and for valuable consideration (ts 177). I proceed on that basis.
The effect of Inderjit's evidence is that she agreed with Man Mahan to receive the share in partial discharge of his debt to her. In more detail, her evidence was to the following effect:
(a)at his request, she lent the following sums of money to Man Mahan:
(i)April 2000 - $20,000;
(ii)September 2000 - $39,818.55;
(iii)January 2002 - $40,000;
(b)they agreed that the loans would be repayable when Man Mahan and his family obtained permanent residence in Australia;
(c)that meant that the loan became repayable in about March 2003;
(d)in August 2003, she asked him for repayment of $39,818; and
(e)in November 2003, Man Mahan told her that he did not have any cash but that he could transfer a share in Moving Time to her. When she asked, he said that his share was worth about $25,000 and that she could redeem the amount owing by selling the share back to Moving Time or its shareholders at any time.
See Inderjit's witness statement exhibit 5A [8] ‑ [12], [14], [17] ‑ [19]. Man Mahan's witness statement contained evidence broadly to the same effect: exhibit 7A [45], [46], [63], [76], [78], [88] ‑ [90].
I do not accept this evidence. The reasons for that include the following.
First, Inderjit sent the moneys said to be the loan funds to Satwant, not to Man Mahan. She gave evidence that that was because she did not know what name to put on the form for Man Mahan, whether to use that name or his nickname, Mony (ts 345 ‑ 347). I find that to be inherently unlikely and I do not accept it.
Second, her evidence was that she and Man Mahan agreed that the loans would be repaid when he and his family became permanent residents. It does not seem to me to make sense that she would agree to that term about repayment. She understood that obtaining permanent residence would not have any significant immediate effect on Man Mahan's financial position. She had no reasonable expectation that he otherwise would be in a position to repay the loan when he obtained permanent residence. In cross‑examination on this topic, she said that in effect the loan was payable when able (ts 339).
Man Mahan was asked questions on this topic on a number of occasions (ts 464 ‑ 467). To my mind, his evidence in response was unsatisfactory. After he had been asked the question several times, he eventually said that he expected to fund repayment of the loans when he got his permanent residence by selling the Kinross Property. I do not accept that evidence. I find that it was an afterthought. In any event, neither Man Mahan or Inderjit gave evidence that he had said to her that he would sell the Kinross Property to repay his loan.
Third, Inderjit's evidence was that in August 2003 she requested repayment of the sum of $39,818. In my view, while there had been a loan for that amount, a request for repayment of that specific sum does not ring true in circumstances where there had been a subsequent loan of $40,000, and where a total of almost $100,000 was owed. I found her evidence as to why she asked for the sum of $39,818, and not the whole amount (ts 369 ‑ 370), to be not credible. Further, this evidence of Inderjit is inconsistent with the evidence of Man Mahan. His evidence was that she asked for repayment of the whole amount owing.
Fourth, Inderjit's evidence was that when Man Mahan offered the share, he said that she could redeem it at any time: exhibit 5A [19]. Her evidence was that she wanted cash, in order to buy some things for her home, and for that reason requested repayment (ts 335). On her version of events, there is no explanation for why she did not ask or demand that Man Mahan redeem the share himself and give her the cash, given that he had told her that she could redeem it at any time.
Fifth, on her evidence, she accepted that the share was worth $25,000 with very little foundation, based only on an unsubstantiated oral assertion to that effect. See ts 337, 374, 377. I found that evidence unconvincing.
Sixth, she signed the Share Transfer that stated the consideration for the transfer was $1. Her attempts to explain this (ts 336 ‑ 337, 375 ‑ 377) were unsatisfactory, and I do not accept them.
Seventh, I do not accept her evidence about why, after the share was transferred to her, she accepted that she could not convert the share to cash for such a long time (ts 372 ‑ 373).
Eighth, large parts of Man Mahan's evidence about this topic were, in my view, unsatisfactory. See, for example, ts 491 ‑ 493. Further, his evidence about the other two Moving Time shares was equally unsatisfactory. See ts 444 ‑ 445, 449 ‑ 450, 515 ‑ 516.
Ninth, generally I formed an unfavourable impression of the reliability of the evidence of both Man Mahan and Inderjit, from much of their evidence and from the way they gave their evidence.
The Share Transfer: a declaration?
In Brady v Stapleton, the trial judge made declarations that certain transactions were made with intent to defraud creditors, but determined that no declaration of voidness, or other consequential relief, should be granted (330). The making of the bare declaration was not the subject of the appeal and was not commented on in the High Court.
In this case, the fact that the Share Transfer was made with intent to defraud was admitted. Thus there was no controversy about it, so, for that reason, a declaration of that (admitted) fact would be inappropriate. Further, a declaration that the Share Transfer was made with intent to defraud would, in light of my decision that substantive relief is unavailable, 'produce no foreseeable consequences for the parties': Ainsworth v Criminal Justice Commission (1992) 175 CLR 564, 582. For that additional reason, a declaration to that effect should not be made.
For these reasons, I would not grant any relief in relation to the Moving Time Share.
The conspiracy claims
In my view, the crucial question on the conspiracy claim is whether the court can infer, as a fact, the conspiracies alleged by Sardul.
Sardul submits that there may be such a concurrence of time, character, direction and result of events as to lead naturally to the inference that separate acts of different people with the outcome of preconcert or with the manifestations of mutual consent to carry out a common purpose: Fatima Pty Ltd v Bryant [2002] NSWSC 750 [107]. I accept that proposition. The question is whether the facts support an inference of this kind. That invites particular attention to the facts said to support an inference that the other alleged conspirators agreed to join with Man Mahan in attempting to defraud the prospective judgment creditor in the District Court action.
Conspiracy is a serious allegation that engages the principles in Briginshaw v Briginshaw (1938) 60 CLR 336.
It is convenient to begin with consideration of the second conspiracy alleged by Sardul. That is the allegation that Man Mahan, Inderjit and Satwant conspired to alienate one of Man Mahan's shares in Moving Time to put it beyond the reach of prospective judgment creditor in the District Court action. Sardul's closing submissions deal only very briefly with this alleged conspiracy. Sardul submits that
if [Inderjit] is found having knowingly participating in the fraudulent alienation of the share, it also goes without saying that there was a combination or agreement between her and [Man Mahan] before the alienation was effected. There was the concurrence of time, character, direction and result (Sardul's closing submissions par 20).
I do not accept this submission.
First, Sardul's pleaded claim is a conspiracy between three persons (Man Mahan, Inderjit and Satwant), not just between Man Mahan and Inderjit.
Secondly, in any event, this submission proceeds on the premise that it has been 'found' that Inderjit knowingly participated in the fraudulent alienation of the share. I have not made, and do not make, a positive finding of that kind. I have found that Inderjit has failed to satisfy me that she was a purchaser in good faith and for valuable consideration for the purposes of s 89(3). My rejection of her evidence does not positively establish that she knew of Man Mahan's fraudulent intent. Still less does it establish that she agreed with him to assist in pursuing that intent.
In my view, there is no adequate or secure foundation to sustain an inference of the conspiracy alleged regarding the Moving Time share, whether between three defendants or between two defendants.
I turn to the other conspiracy claim made by Sardul. He alleges a conspiracy between Teeshaldip, Man Mahan and Satwant, sometime between January 2002 and June 2003, to alienate Man Mahan's properties, including the Kinross Property, to put them beyond reach of the prospective judgment creditor in the District Court action.
As I have said, Man Mahan admitted, by his counsel, his intent to defraud creditors in transferring his interest in the Kinross Property. The question is whether there is evidence to sustain an inference that the other two alleged co‑conspirators agreed with him in the terms alleged.
In that light, evidence that bears only upon Man Mahan's intent is of limited assistance. For example, there is evidence, which I accept, that Man Mahan said to Sardul, in effect, 'you will not get a cent', referring to the then pending District Court action. That bears on Man Mahan's intent; it does not provide evidence of any agreement involving the other alleged co‑conspirators.
The same is true about another matter that received considerable emphasis in cross‑examination and submissions by counsel for Sardul. Counsel for Sardul invites a conclusion that Man Mahan forged a trust deed relating to a Malaysian property. In my view, it is neither necessary nor appropriate to attempt to make findings about that. Even if such a finding were made, it would not be evidence of any agreement by Man Mahan's alleged co‑conspirators.
I would summarise the main matters relied on by Sardul in his closing submissions to sustain the inference of a conspiracy as follows.
(1)Sardul submits that Teeshaldip and Man Mahan have conceded that they had the common purpose of defrauding creditors (par 18.2).
(2)The Kinross Property was the family home, and after the transfer Man Mahan and Satwant continued to live there (par 18.3).
(3)It should be inferred that there must have been a family discussion about the purpose of the transfer of the Kinross Property, and it should be inferred that the other alleged co‑conspirators adopted Man Mahan's object of defrauding the judgment creditor in the District Court action (pars 18.9 ‑ 18.10).
(4)Three months later, in September 2003, Man Mahan transferred his interest in property at No 2 Jalan Lim in Malaysia to Satwant and Teeshaldip. That transfer was found by the judgment of Hasluck J to be with an intent to defraud his creditors. His Honour also found that Teeshaldip and Satwant had notice of that intent (exhibit C81) (par 18.4).
(5)The only plausible reason for the gift of $50,000 by deduction of the purchase price for the Kinross Property coming from Satwant alone, rather than from Satwant and Man Mahan jointly, is to put the unpaid $50,000 beyond reach of the prospective judgment creditor (pars 18.5 ‑ 18.7).
(6)Sardul relies on some other matters pertaining to these defendants' conduct regarding the Malaysian property at No 2 (par 18.8).
I am not persuaded by these submissions, or generally, that I should infer the conspiracy alleged. Most fundamentally, having seen and heard the evidence of Teeshaldip, I am not satisfied that she was a party to any plan for Man Mahan to divest himself of his interest of the Kinross Property in order to defeat or delay the prospective judgment creditor in the District Court action, or his creditors generally.
I will make some observations on some of the matters on which Sardul relies.
In my view, Sardul's first point overstates the effect of the defendants' concessions. In defending the s 89 claim about the Kinross Property, Teeshaldip did not rely on receipt in good faith and valuable consideration under s 89(3). She rested her defence on her contentions about the absence of prejudice. The forensic choice to confine the issues on the s 89 claim does not, in my view, justify the conclusion that Teeshaldip admitted that she knew of Man Mahan's intent to defraud. Further, I note that Teeshaldip was not cross‑examined about the reasons for her decision not to defend the s 89 claim on s 89(3) grounds.
In circumstances where, I find, her parents paid rent to Teeshaldip after she moved out, the fact that she permitted them to reside in the Kinross Property is not evidence that she was a party to the conspiracy alleged.
I do not think it is safe to infer, as Sardul invites, that there must have been a family discussion between the three alleged co‑conspirators about Man Mahan's reasons for the transfer of the Kinross Property. Teeshaldip had her own reasons for wishing to acquire the Kinross Property. I think the facts are equally consistent, at least, with Teeshaldip being told by her parents that they wished to sell the Kinross Property and Teeshaldip deciding that she wished to buy it, particularly when it was available to her for $200,000.
Further, the fact that Teeshaldip was able to acquire the property for $50,000 less than its true price does not support any inference that she knew of Man Mahan's intent. The sale of a property by parents to their child for less than its full value does not give rise to any such inference.
I do not think there is any force in the fifth and sixth points as part of the foundation to infer the alleged conspiracy.
Given that I am not satisfied that any conspiracy has been established, it is not necessary to deal with the limitation issue or the question of whether the intended object of any conspiracy was Keprim, Sardul or the prospective judgment creditor in the District Court action.
Conclusion
For these reasons, I would:
(1)declare that the transfer of Man Mahan's interest in the Kinross Property was an alienation of property with intent to defraud his creditors and is voidable at the suit of Sardul under s 89 of the Property Law Act;
(2)order that Teeshaldip pay the sum of $75,000 to the Official Trustee, as trustee of the bankrupt estate of Man Mahan and that her interest in the Kinross Property be charged to secure payment of that sum; and
(3)otherwise dismiss the action.
I will hear from the parties as to the precise form of the appropriate orders, and as to costs.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: SINGH -v- KAUR BAL [2011] WASC 303 (S)
CORAM: BEECH J
HEARD: 714 SEPTEMBER 2011; 11 NOVEMBER 2011
DELIVERED : 11 NOVEMBER 2011
SUPPLEMENTARY
DECISION :15 NOVEMBER 2011
FILE NO/S: CIV 1009 of 2005
BETWEEN: SARDUL SINGH
Plaintiff
AND
TEESHALDIP KAUR BAL
First DefendantMAN MAHAN SINGH
Second DefendantINDERJIT KAUR HARBHAJAN SINGH
Third DefendantSATWANT KAUR BAL
Fourth Defendant
Catchwords:
Costs - Plaintiff partially successful against some defendants and unsuccessful against other defendants - Defendants represented by one set of lawyers - Costs of the action - Appropriate costs orders
Legislation:
Rules of the Supreme Court 1971 (WA) O 66 r 1, O 66 r 2
Result:
No order as to costs
Category: B
Representation:
Counsel:
Plaintiff: Mr E Carlose
First Defendant : Mr G D Cobby
Second Defendant : Mr G D Cobby
Third Defendant : Mr G D Cobby
Fourth Defendant : Mr G D Cobby
Solicitors:
Plaintiff: Eapon Carlose
First Defendant : S S Sandhu
Second Defendant : S S Sandhu
Third Defendant : S S Sandhu
Fourth Defendant : S S Sandhu
Case(s) referred to in judgment(s):
Bowen v Alsanto Nominees Pty Ltd [2011] WASCA 39 (S)
Cerini v The Minister for Transport [2001] WASC 309 (S)
Chen v Chan [2009] VSCA 233
Keet v Ward [2011] WASCA 139
Permanent Building Society v Wheeler (No 2) (1993) 10 WAR 569
Singh v Kaur Bal [2011] WASC 303
BEECH J:
Introduction
On 11 November 2011 I delivered my reasons on the trial of this action: Singh v Kaur Bal [2011] WASC 303.
Initially, the plaintiff sought costs orders in his favour. During submissions, his counsel was content not to oppose an order that there be no orders as to costs. The defendants seek an order that the plaintiff pay 80% of their costs of the action.
I will begin by summarising the claims made in the action, and the result of the trial. I will then outline the relevant legal principles before explaining why I consider that there should be no order as to costs.
The plaintiff's claim and the result of the action
In these reasons I will adopt the abbreviations and terminology used in my primary reasons.
In the action, the plaintiff (Sardul) made four claims, one of which was upheld. Sardul claimed that each of the Kinross Transfer and the Share Transfer was made with intent to defraud creditors and was voidable under s 89 of the Property Law Act 1969 (WA). He was successful in relation to the Kinross Transfer and unsuccessful in relation to the Share Transfer. Sardul also made two claims of the tort of conspiracy. The first was a conspiracy between Man Mahan, Satwant and Teeshaldip; the second a conspiracy between Man Mahan, Inderjit and Satwant. The conspiracy claims were dismissed.
Against Teeshaldip, Sardul claimed a variety of relief in relation to the Kinross Transfer. He claimed a declaration that Teeshaldip holds a half share of the Kinross Property on constructive trust for himself. He also claimed a declaration that she holds as constructive trustee for him all sums received by her from using the Kinross Property or the Success Property or the Wellard Property as security for the purchase price for any of the properties, and an order that Teeshaldip account to Sardul for those sums.
In the result, the relief I granted was an order that Teeshaldip pay $75,000 to the official trustee in bankruptcy, and that her interest in the Kinross Property be charged with payment of that sum.
General principles
The court's costs discretion under s 37 of the Supreme Court Act 1935 (WA) and O 66 of the Rules of the Supreme Court 1971 (WA) is broad.
Order 66 r 1(1), r 1(2) and r 1(3) are in the following terms:
1.General rules as to costs
(1)Subject to the express provisions of any statute and of these Rules the costs of and incidental to all proceedings including the administration of estates and trusts shall be in the discretion of the Court but, without limiting the general discretion conferred on the Court by the Act, and subject to this Order, the Court will generally order that the successful party to any action or matter recover his costs.
(2)If the Court is of opinion that the conduct of a party either before or after the commencement of the litigation or that a claim by a party for an unreasonably excessive amount has resulted in costs being unnecessarily or unreasonably incurred it may deprive that party of costs wholly or in part, and may further order him to pay the costs of an unsuccessful party either wholly or in part.
(3)Where a party though generally successful in an action has, by the introduction of some issue or issues on which he has failed, increased the costs the Court may order such party to pay the costs of such issue or issues.
In Bowen v Alsanto Nominees Pty Ltd [2011] WASCA 39 (S) [5] ‑ [8], the Court of Appeal said as follows:
It is clear that while the court has a broad discretion as to costs, generally costs will follow the event: Rules of the Supreme Court 1971 (WA), O 66 r 1(1). It is incumbent upon the unsuccessful party to satisfy the court that there are good reasons why it should not pay the other party's costs: Nikolaou v Papasavas, Phillips & Co (No 2) [1989] HCA 11; (1989) 166 CLR 394, 407.
The court may, in the exercise of its discretion, order that a successful party recover only a portion of its costs where that party has been unsuccessful in respect of certain discrete issues. But that should not be done as a matter of course. To embark as a general practice upon an analysis of which party was successful on each issue, or necessarily to deprive a successful party of some portion of its costs if it has lost on a particular issue, would be likely to add further uncertainty and complexity to the outcome of litigation, derogate from the prospect of settlement, and oblige the court to hear lengthy and frequent arguments in relation to costs as an additional burden on its resources and the costs of the parties: see MacKinnon v Petersen (Unreported, NSWSC, 19 April 1989) (Cole J); Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 [67] ‑ [68] (McHugh J). Litigation is time‑consuming, expensive and burdensome enough already.
In addition, while parties should be encouraged to consider carefully what matters they put in issue, justice may not be served if by too ready a resort to deciding questions of costs according to success on particular issues, parties are dissuaded by the risks of costs from canvassing all issues which might be material to the decision in the case: Doric Products Pty Ltd v Lockwood Security Products Pty Ltd [2002] FCA 282; NRMA Ltd v Morgan (No 3) [1999] NSWSC 768 [24].
In Amaca Pty Ltd (formerly James Hardie & Co Pty Ltd) v Hannell [2007] WASCA 158 (S), the position was put as follows:
'[T]he power to adjust an order for costs by reference to particular issues upon which the generally successful party has failed, is properly exercised only where there are discrete and severable issues upon which the generally successful party has failed, and which have added to the cost of the proceedings in a significant and readily discernible way [7].'
Order 66 r 2(a) provides:
In the absence of any special order -
(a)where the statement of claim contains more than one cause of action and the plaintiff succeeds on one or more causes of action and the defendant succeeds on another or others, costs shall be allowed to the plaintiff on the cause or causes of action on which he succeeds and to the defendant on that or those on which he succeeds, in the same manner as if separate actions had been brought.
The effect of O 66 r 2(a) is that a defendant is prima facie entitled to its costs on causes of action on which the plaintiff fails. However, such an order is not made as of course. The court looks at the realities of the case and attempts to do justice. Where all causes of action arise out of the one course of dealings with the same facts, there would usually be one order for the general costs of the action, 'moulded as necessary to ensure that, however rough and ready it may be, substantial justice is done': Permanent Building Society v Wheeler (No 2) (1993) 10 WAR 569, 574 ‑ 575. That is the approach which I propose to take in relation to this action.
The following propositions, relevant to O 66 r 2(a), were stated by the Court of Appeal in Keet v Ward [2011] WASCA 139 [24]:
(a)the expression 'cause of action' in O 66 r 2(a) is a reference to a factual situation, the existence of which entitles the plaintiff to obtain a remedy: Letang v Cooper [1965] 1 QB 232, 242 (Diplock LJ); Permanent Building Society v Wheeler (No 2) (1993) 10 WAR 569, 572 (Anderson J);
(b)the rule does not provide an inflexible rule which prescribes a mandatory approach to the awarding of costs in cases where there are multiple causes of action. The opening words 'in the absence of any special order' indicate that the court retains the discretion to make a special order departing from the rule in O 66 r 2(a): Kimpura Pty Ltd v JWH Group Pty Ltd [2004] WASCA 134 [12] ‑ [15];
(c)however, where there are multiple causes of action and a party has succeeded on only one or some, the other party is prima facie entitled to costs on the others but the court will always attempt to do substantial justice in the circumstances: Permanent Building Society v Wheeler (No 2) (574 ‑ 575) (Anderson J);
(d)it may not be appropriate to make a costs order in accordance with O 66 r 2(a) where there is in substance one contest, that is, where the causes of action arise from the one course of dealings, the one transaction or the same facts: Permanent Building Society v Wheeler (No 2) (574 ‑ 575); R J Baker Nominees Pty Ltd v Parsons Management Group Pty Ltd [2009] WASC 206 (S); Witcombe v Talbot & Olivier [No 2] [2009] WASC 173 (S) (Beech J).
I also apply the following principles stated by the Victorian Court of Appeal in Chen v Chan [2009] VSCA 233 [10]:
(1)The general rule is that costs should follow the event. Absent disqualifying conduct, the successful party should recover its costs even where it has not succeeded on all heads of claim.
(2)The Rules of Court permit significant flexibility in determining questions of costs. In particular, the court is entitled to examine the realities of the case and will attempt to do 'substantial justice' as between the parties on matters of costs.
(3)Where there is a multiplicity of issues and mixed success has been enjoyed by the parties, a court may take a pragmatic approach in framing the order for costs, taking into consideration the success (or lack of success) of the parties on an issues basis. Generally, if such an order is made, it is reflected in the successful party being awarded a proportion of its costs but not the full amount.
(4)A court may, when fixing costs in a claim where there has been mixed success, take into account complications which it considers will arise in the taxation of costs, as part of its consideration of the overall interests of justice.
(5)Where a court determines to make an order apportioning costs, then it does so primarily as 'a matter of impression and evaluation', rather than with arithmetical precision, having considered the importance of the matters upon which the parties have been successful or unsuccessful, the time occupied and the ambit of the submissions made, as well as any other relevant matter.
(6)Where a number of parties have had the same representation, there is a 'rule of thumb' as to the apportionment of costs, namely that, where some of those parties have been successful and others have not, each successful party is only entitled to his or her proportion of the costs incurred on behalf of all, plus the costs, if any, incurred exclusively on his or her behalf. The primary issue for determination in such a case is that of fairness as between the parties, having regard to the manner in which the trial, or appeal, has been conducted. (footnotes omitted)
The proper exercise of the costs discretion
The defendants were, quite properly, represented by one set of lawyers. I apply the rule of thumb stated in Chen v Chan, set out above.
In my opinion, the four defendants should not be taken to share an equal proportion of the one set of costs incurred between them. In my view, Teeshaldip and Man Mahan were the major defendants, taking into account the various claims made, and the way those claims were defended. I consider that, together, they should be treated as having incurred two thirds of the defendants' costs, with Inderjit and Satwant together incurring the remaining one third. In other words, I would apportion the defendants' joint costs by allocating one third to Teeshaldip, one third to Man Mahan, one sixth to Inderjit and one sixth to Satwant.
Inderjit and Satwant were successful in the action. The starting point is that Sardul should pay their costs of the action. In my view, there is nothing to warrant a departure from that approach. In particular, I am not persuaded that the fact Inderjit was unsuccessful in advancing her s 89(3) claim warrants a departure from the usual approach. The case against her was fundamentally legally flawed from the outset, for the reasons explained in my primary reasons at [97] ‑ [110].
The position in relation to Teeshaldip and Man Mahan is less clear. In summary, I consider that Sardul had some success against them, but was by no means entirely successful. That takes into account the following matters.
First, the conspiracy claims against Man Mahan, and the conspiracy claim against Teeshaldip, were unsuccessful.
Secondly, Sardul claimed substantially greater relief against Teeshaldip than he obtained: see [7] ‑ [8] above. The relief granted was not relief of a kind claimed, or suggested in submissions, by Sardul.
Thirdly, nevertheless, the fact remains that Sardul succeeded in establishing his claim under s 89 in relation to the Kinross Transfer. Although Sardul did not succeed in obtaining the various forms of relief he claimed, he did obtain relief in relation to the Kinross Transfer. Teeshaldip and Man Mahan defended the claim on the basis that the Kinross Transfer had not caused prejudice to creditors. They failed in that contention. Sardul was granted relief in relation to the Kinross Transfer. There is no evidence that Teeshaldip ever offered anything to Sardul in satisfaction of his claim in relation to the Kinross Transfer.
Counsel for the defendants emphasised that, the day before the trial commenced, Man Mahan admitted that he made the Kinross Transfer with intent to defraud. He submits that, consequently, Man Mahan was in substance a defendant only in relation to the conspiracy claim, and was no more than a witness in relation to the s 89 claims.
I do not accept that contention. Man Mahan was a necessary and proper party to the s 89 claim. He denied that the alienation was voidable at the suit of Sardul in that he denied that the alienation prejudiced creditors. He was unsuccessful in that defence, and a declaration was made.
I also take into account that some of Sardul's costs relate to his unsuccessful claims against Inderjit and Satwant.
Taking into account the various claims made, the result of the action against all four defendants, and the conduct of the trial, I consider that Teeshaldip and Man Mahan should jointly pay one third of Sardul's costs of the action.
One way of giving effect to these conclusions would be to order that Teeshaldip and Man Mahan pay one third of Sardul's costs, and to order that Sardul pay one third of the defendants' costs.
That order would result in the potential for the taxation of two sets of costs: the plaintiff's and the defendants'. Given the history between these parties, there is every reason to expect that agreement on costs would not be reached, and taxation would be necessary. Where there has been mixed success, the court can take into account the complications that are likely to arise in the taxation of costs as part of the consideration of the overall interests of justice. Against the background of the numerous acrimonious pieces of litigation between these parties, I consider that the interests of justice and the public interest favour avoiding the need for taxation if that is a course reasonably open. I note that a similar approach was taken by Parker J in Cerini v The Minister for Transport [2001] WASC 309 (S) [43] ‑ [44], although in rather different circumstances.
To treat the costs orders in each party's favour as effectively cancelling each other out obviously involves a 'rough and ready' approach, because the two sets of taxed costs of each party will not be the same. Further, I do not overlook that the defendants were unrepresented for a large part of the interlocutory period, and were represented by both solicitor and counsel at the trial. Nevertheless, in all the circumstances of this case, I think an order that there be no order as to costs accords with the justice of the case. In circumstances where the plaintiff and defendants each had one set of costs, and each side had some measure of success, I do not accept the defendants' submission that the result of the action calls for some proportion of the costs of the action to be paid by Sardul.
Conclusion
For these reasons, I order that there be no order as to the costs of the action.
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