William Property Pty Ltd v Baserite Constructions Pty Ltd

[2023] NSWSC 1605

Supreme Court

New South Wales

Medium Neutral Citation:	William Property Pty Ltd v Baserite Constructions Pty Ltd [2023] NSWSC 1605
Hearing dates:	23 November 2023
Date of orders:	23 November 2023
Decision date:	23 November 2023
Jurisdiction:	Equity - Technology and Construction List
Before:	Rees J
Decision:	Refuse application to vary freezing orders and interlocutory injunction
Catchwords:	CIVIL PROCEDURE — Interim preservation — Freezing orders — Injunction — Variation of — Whether serious question to be tried — Where transfers made to family members while proceedings on foot — Where evidence of undervaluation — Serious question to be tried
Legislation Cited:	Conveyancing Act 1919 (NSW), s 37A
Category:	Procedural rulings
Parties:	William Property Pty Ltd (Plaintiff) Baserite Constructions Pty Ltd (First Defendant) Milad Ayoub (Second Defendant) Sharon Ayoub (Third Defendant) Joseph Ayoub (Sixth Defendant) Nicholas Ayoub (Seventh Defendant) Sarah Ayoub (Eighth Defendant)
Representation:	Counsel: Mr M Ashhurst SC/Mr MT Keene (Plaintiff) Mr D Ratnam (Defendants) Solicitors: BCP Lawyers & Consultants (Plaintiff) HWL Ebsworth Lawyers (Defendants)
File Number(s):	2021/290814

Ex tempore JUDGMENT

1. HER HONOUR: This is an application by defendants affected by a freezing order and interlocutory injunction to vary those orders.

Substantive proceedings

2. The plaintiff engaged the first defendant, Baserite Constructions Pty Ltd, to construct two developments: one in Beaconsfield and the other in Alexandria. Both developments are said to have building defects. These proceedings were commenced in October 2021. The plaintiff seeks judgment against Baserite Constructions for $2,194,500 on account of liquidated damages under the Alexandria construction contract.

3. The second defendant, Milad Ayoub, is the sole director and shareholder of Baserite Constructions. The third defendant, Sharon Ayoub, is the secretary of Baserite Constructions and the wife of Mr Ayoub. The plaintiff also seeks damages from Mr and Mrs Ayoub under a guarantee and indemnity given in respect of the Alexandria construction contract, together with damages against Mr Ayoub under a guarantee and indemnity given in respect of the Beaconsfield project.

4. Other contractors were joined as the fourth and fifth defendants, but are not relevant for present purposes. In this judgment, I will refer to the first to third defendants as “the defendants”. The claim against these defendants presently stands at some $13 million.

5. In May 2022, the defendants filed a Technology and Construction List Response, together with various cross-claims. In June 2022, the defendants filed an Amended Technology and Construction List Response and a further cross-claim. In August 2022, directions were made for the defendants to file their evidence. In December 2022, directions were made for the plaintiff to file reply evidence.

6. On 7 March 2023, the defendants’ solicitors file notices of ceasing to act. The matter was listed for directions on 14 April 2023, 5 May 2023 and 2 June 2023. There was no appearance for the defendants.

Asset disposals

7. Mr and Mrs Ayoub owned three adjacent properties in Warwick Road, Merrylands subject to a mortgage in favour of the National Australia Bank. One of these properties is the family home. They also owned a property in Myall Street, Merrylands and commercial premises in Dursley Road, Yennora, the latter being, apparently, the offices of Baserite Constructions.

8. Mr and Mrs Ayoub have three children, Joseph, Sarah and Nicholas. On 18 June 2023, the children signed purchaser/transferee declarations for NSW Revenue, confirming that they had purchased one of the Warwick Road properties, the Myall Street property and the Dursley Road commercial property for nil dutiable value.

9. On 5 July 2023, the defendants obtained a valuation the Myall Street property “for stamp duty purposes only and … not to be used for mortgage purposes or court proceedings.” The property was valued at $1.15 million. The plaintiff has since obtained a valuation of the property as at 5 July 2023, in the amount of $2 million to $2.5 million.

10. On 5 July 2023, the defendants also obtained a valuation in like terms for the Warwick property for $1.65 million. A valuation since obtained by the plaintiff puts the figure at $1.95 million to $2 million.

11. On 14 July 2023, this matter was listed for directions. There was no appearance for the defendants.

12. On 17 July 2023, Mr Ayoub obtained an industrial stamp duty valuation report for the Dursley Road property, valuing it at $700,000 for stamp duty purposes. The plaintiff has since obtained a valuation of the property as at that date in the range of $1.05 million to $1.15 million.

13. On 18 July 2023, the bank wrote to Mr Ayoub confirming that the couple’s mortgage facility would be reduced from $2.718 million to $1.62 million. The bank agreed to release its security over the Warwick Road property, which was to be transferred to the children, and for the mortgage facility to be secured over the remaining two Warwick Road properties. Mr Ayoub said the amount secured against the remaining two Warwick Road properties exceeds the bank valuation. That is, there is no ‘equity’ in the two Warwick Road properties which remain in the parents’ names.

14. On 26 July 2023, Mr and Mrs Ayoub transferred the Myall Street property and one of the Warwick Road properties to their children. The parents acknowledged the receipt of consideration of $1.15 million and $1.65 million respectively. NSW Revenue issued notices of assessment for stamp duty accordingly, being $46,505 and $73,825 respectively. The bank wrote to the children, confirming that it had provided two home loans totalling $2.68 million to purchase the properties. Of this, some $120,000 was required for settlement (which roughly equates to the stamp duty assessed on these two properties). The surplus of some $2.146 million was paid to an account ending 7684, which was an account in the name of the parents. The level of indebtedness of that account was reduced accordingly.

15. On 11 August 2023 and 8 September 2023, this matter was listed for directions. There was no appearance by the defendants. On 3 October 2023, the plaintiff’s solicitor conducted title searches for property in the name of the parents and found that the Myall Street property and Warwick Road property were no longer in the parents’ names but were now in the children’s names.

16. On 10 October 2023, the plaintiff delivered letters to the defendants and their children, seeking documents and information in respect of the recent transfer of the Myall Street and Warwick Road properties to the children. An undertaking was sought not to further deal with or encumber any real property. A response was requested by 13 October 2023, failing which it was said that urgent injunctive relief may be sought.

17. On 12 October 2023, the transfer of the Dursley Road property to the children was completed. The children obtained a loan from the bank, the proceeds of which were paid to Baserite Constructions. Mr Ayoub says that Baserite Constructions’ overdraft account was then closed.

Freezing orders and interlocutory injunction

18. On 20 October 2023, Ball J made an ex parte freezing order and interlocutory injunctive orders. The freezing order was made against Mr and Mrs Ayoub. The interlocutory injunction was made against the children, who were joined to the proceedings. As final relief, the plaintiff sought to set aside the transfer of the three properties to the children under section 37A of the Conveyancing Act 1919 (NSW).

19. The interlocutory injunction has been extended from time to time. On 27 October 2023, the parents and children appointed the same solicitors to act for them in these proceedings, but only in respect of the notice of motion, that is, they remain unrepresented in the substantive proceedings.

20. Mr Ayoub has sought to sell another of the Warwick Road properties and has had a contract for sale prepared but not exchanged.

21. On 9 November 2023, a winding up application was filed against Baserite Constructions in the Federal Court of Australia, for failure to pay a judgment debt in the sum of $1.2 million.

Application to extend or vary

22. Today, the children seek a variation of the interlocutory injunction such that it be lifted in respect of the commercial property in Dursley Road, Yennora. This requires consideration of whether there is a serious issue to be tried and where the balance of convenience lies.

23. The plaintiff relied on the evidence of its solicitor, Marty Perry, and process server, Leila Bunguric, together with a valuation obtained in respect of the three properties recently transferred by the parents to their children.

24. The defendants relied on affidavits by each of the family members, together with an affidavit of their solicitor, David Vaughan, and valuations of the properties obtained in July 2023. In addition, the parties relied on a substantial amount of documents.

25. In short, while the parents concede that they transferred the properties to their children at an undervalue, they said this was to repay loans made by the children and in gratitude for not calling on the loans. The evidence to support these loans was scant, although this may not be surprising given the loan arrangements were oral and between family members. Mrs Ayoub’s sister was said to have given $300,000 to the children, paying the money into the parents’ loan account as a loan from the children. The only documentary evidence supporting this was a photograph of a bank cheque. The sister has since passed away. Mr Ayoub’s brother was also said to have paid monies owing to the children to the parents.

26. The parents decided to sell the properties to pay down debt. The children offered to buy the properties to avoid them being sold to strangers. The parents agreed to sell the properties to the children for whatever the bank would lend them. While the loan amount would be less than the value of the properties, the difference would be treated as repayment of the childrens’ loans.

27. The first question is whether there is a serious question to be tried. The defendants submitted that the property transfers were legitimate. Mr Ayoub was simply seeking to pay down debt where Baserite Constructions was in financial difficulty. The discount which the parents gave to their children when buying the properties was explicable, where the children had been providing loans to their parents for some years, said to total $453,000. Whilst the discount was more than what the children had lent, the parents were prepared to allow for it because the parents were grateful to the children because they did not charge interest or make demands over the years. Most, if not all, of the sale proceeds were paid to the bank, which was a secured creditor. The plaintiff’s ‘drive-by’ valuations should be approached with caution. The plaintiff’s prospects of success under section 37A of the Conveyancing Act were said to be slim. The defendants did not point to any particular prejudice if the interlocutory injunction was continued in its present form.

Conclusion

28. As I have endeavoured to explain, two of the properties were transferred to the children after these proceedings had been on foot for some time and also after Baserite Constructions and the parents ceased to take any active part in the proceedings or to defend them for practical purposes. The third property, the Dursley Road commercial property, was transferred after a letter was served by the plaintiff’s solicitor, raising concerns about the transfer of the previous two properties. The transfers were made to family members. There was no marketing and no auction. Given the valuations obtained by the plaintiff, there is a serious question to be tried as to whether the properties were transferred at an undervalue of some $1.9 million. I am satisfied that there is a serious question to be tried as to whether each of the property transfers by the parents were attempts to put those assets beyond the reach of their creditors, specifically, the plaintiff.

29. As to the balance of convenience, if the injunction is not continued against the children, then there is a prospect that they may further deal with that property. They would be at liberty to do so in the absence of an injunction. That would have the consequence that the relief sought by the plaintiff would prove nugatory. Against this, the defendants have not pointed to any prejudice which they may suffer if the injunction continues. They would be at liberty to lease the property or use it as they see fit.

30. For these reasons I am satisfied that the injunction should continue until final determination of these proceedings. If it be the case that some particular problem arises then, of course, the defendants are at liberty to seek to reagitate the matter. But I do not think that parties should otherwise be put to further costs of reagitating the merits of the interlocutory injunction between now and final determination of these proceedings.

31. The parents otherwise sought an increase in the carve-out from the freezing order against them for additional living expenses. However, no evidence was placed before the Court to substantiate that increase. The order was made on the basis of the evidence of Mr Ayoub in his first affidavit. I am not prepared to vary the order in the absence of further evidence. The same can be said for an application to permit legal bills to be paid in other legal proceedings.

32. For these reasons I dismiss the defendants’ application with costs.

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Decision last updated: 18 December 2023