Zreika v Royal
[2019] FCAFC 82
•23 May 2019
FEDERAL COURT OF AUSTRALIA
Zreika v Royal [2019] FCAFC 82
Appeal from: Royal v El Ali [2016] FCA 782
Royal v El Ali (No 2) [2016] FCA 1156
Royal v El Ali (No 3) [2016] FCA 1573
Royal v El Ali (No 4) [2017] FCA 299
File numbers: NSD 1793 of 2016
NSD 1794 of 2016
NSD 1798 of 2016
NSD 1799 of 2016
NSD 1801 of 2016
NSD 29 of 2017Judges: BESANKO, FARRELL AND O'CALLAGHAN JJ Date of judgment: 23 May 2019 Catchwords: BANKRUPTCY AND INSOLVENCY — six appeals from orders of a judge of the Federal Court of Australia — where the first, second and third respondents sought relief before the primary judge under s 37A of the Conveyancing Act 1919 (NSW) and s 121 of the Bankruptcy Act 1966 (Cth) in relation to transfers of shares in various companies and dispositions of various properties — where the respondents concede that the declarations made by the primary judge in relation to the dispositions of various properties could only be made under s 37A of the Conveyancing Act
CONVEYANCING — whether the primary judge erred in finding that dispositions of various properties were made for nominal consideration with the intent to defraud the creditors of the appellant in NSD 1798 of 2016 for the purposes of s 37A of the Conveyancing Act — where the primary judge made adverse credit findings against the appellants — where the appellants did not directly challenge the primary judge’s adverse credit findings on appeal — whether the primary judge erred in distinguishing Cannane v J Cannane Pty Ltd (in liq) (1998) CLR 357
PRACTICE AND PROCEDURE — whether the appellant in NSD 1801 of 2016 is entitled to raise a new defence relying on Brady v Stapleton (1953) 88 CLR 322 on appeal — whether the appellant is raising a new legal issue on appeal or appealing against an order on the basis that the primary judge’s decision was wrong for want of jurisdiction
CONVEYANCING — whether Brady v Stapleton is authority for the proposition that a finding pursuant to s 37A(3) of the Conveyancing Act in favour of a bona fide purchaser for value extends not only for the benefit of that purchaser but also for the benefit of the assignee of the fraudulent debtor — whether Brady v Stapleton is authority for the proposition that, once a property has been on-sold, no personal liability can lie against the assignee by the assignor because the assignment was valid at the time it occurred, even where the assignee had full knowledge of the fraudulent intent
CORPORATIONS — where the primary judge refused to approve a deed pursuant to s 477(2A) of the Corporations Act 2001 (Cth) — whether the order by the primary judge refusing approval of the deed was an interlocutory order — whether the primary judge’s refusal to approve the deed is attended with sufficient doubt to warrant it being reconsidered
COSTS — whether the primary judge erred in exercising a discretion to make a lump sum order for costs on a joint and several basis — whether the primary judge erred in rejecting the submission that the respondents were not legally obliged to pay any legal costs to their solicitors — consideration of the indemnity principle — where the primary judge found that the respondents’ obligation to pay costs was a contingent liability
Legislation: Bankruptcy Act 1966 (Cth) ss 30, 58, 109, 116, 121
Corporations Act 2001 (Cth) s 477
Federal Court of Australia Act 1976 (Cth) ss 5, 23, 37M
Conveyancing Act 1919 (NSW) s 37A
Duties Act 1977 (NSW) s 54
Mercantile Acts 1867 (Qld) ss 46, 47, 48
Federal Court Rules 2011 (Cth) r 39.05
Cases cited: Agusta v Provident Capital [2012] NSWCA 26; (2012) 16 BPR 30,397
Aldi Foods Pty Ltd v Moroccanoil Israel Ltd [2018] FCAFC 93
Armour v Mason [2002] NSWSC 464
B v U [2012] NSWSC 1416
Beneficial Insurance Co Ltd v Hamilton (1985) 73 FLR 347
Brady v Stapleton [1952] HCA 62; (1953) 88 CLR 322
Branir Pty Ltd v Owston Nominees Pty Ltd (No 2) [2001] FCA 1833; (2001) 117 FCR 424
Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336
Cannane v J Cannane Pty Ltd (in liquidation) [1998] HCA 26; (1998) 192 CLR 557
Capital Finance Australia Ltd v Tolcher [2007] FCAFC 185; (2007) 164 FCR 83
Capital One Securities Pty Ltd v Soda Kids Holdings Pty Ltd [2014] VSC 168
Carr v Finance Corporation of Australia [1981] HCA 20; (1981) 147 CLR 246
Chilton v London Corporation (1878) 7 Ch D 562
Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission [2000] HCA 47; (2000) 203 CLR 194
Coghlan v Alexander (1905) 5 SR NSW 441
Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1
Craig v State of South Australia [1995] HCA 58; (1995) 184 CLR
Cummings v Claremont Petroleum NL [1996] HCA 19; (1996) 185 CLR 124
D’Agostino v Zandata Pty Ltd [2018] VSC 115
Décor Corporation Pty Ltd v Dart Industries Inc [1991] FCA 844; (1991) 33 FCR 397
Deputy Commissioner of Taxation v Leaver [2016] FCA 1028
Fox v Percy [2003] HCA 22; (2003) 214 CLR 118
Freeman v Pope (1870) 5 Ch App 538
Glegg v Bromley [1912] 3 KB 474
Griffiths v Civil Aviation Authority [1996] FCA 397
Hall v Poolman [2007] NSWSC 1330; (2007) 215 FLR 243
House v The King (1936) 55 CLR 499
Huynh v Helleh Holdings Pty Ltd [2001] NSWSC 1162; (2001) 10 BPR 19,333
Ingram v Y Twelve Pty Ltd 12 [2013] NSWSC 1777
In the Matter of 246 Arabella Investments Pty Ltd (In Liq) [2012] NSWSC 1212
In the matter of One.Tel Limited [2014] NSWSC 457; (2014) 32 ACLC 14-017
John v Neiman Holdings Pty Ltd (1986) 84 FLR 84
Mainieri v Cirillo [2014] VSCA 227; (2014) VR 127
Marcolongo v Chen [2011] HCA 3; (2011) 242 CLR 546
Maria Bechara v Theodoros Haratsaris [2013] NSWSC 577
Michael v Thompson (1894) 20 VLR 548
Minister for Immigration, Local Government and Ethnic Affairs v Hamsher [1992] FCA 233; (1992) 35 FCR 359
Nguyen v Corbett [2017] NSWSC 1689
Obnova Concrete Pty Ltd (in liq) v Windlock Pty Ltd [2015] NSWSC 181
Official Trustee in Bankruptcy v Mitchell (1992) 38 FCR 364
Paciocco v Australia and New Zealand Banking Group Ltd (No 2) [2017] FCAFC 146; (2017) 253 FCR 403
Peldan v Anderson [2006] HCA 48; (2006) 227 CLR 471
Pintarich v Deputy Commissioner of Taxation [2018] FCAFC 79
PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515
Re Fasey; Ex parte Trustees (1923) 2 Ch 1
Re HIH Insurance Ltd [2004] NSWSC 5
Re Mineral Securities (Australia) Ltd [1973] 2 NSWLR 207
Re Spedley Securities Ltd (1992) 9 ACSR 83
Rickus v Motor Trades Association of Australia Superannuation Fund Pty Ltd [2010] FCAFC 16; (2010) 265 ALR 112
Robinson Helicopter v McDermott [2016] HCA 22; (2016) 331 ALR 550
Royal v El Ali, in the matter of the bankrupt estate of El Ali [2013] FCA 923
Shannon v Commonwealth Bank of Australia [2013] NSWSC 596
Starkey on behalf of the Kokatha People v State of South Australia [2018] FCAFC 36
State Rail Authority (NSW) v Earthline Constructions Pty Ltd (in liq) [1999] HCA 3; (1999) 73 ALJR 306
Stern v McArthur [1988] HCA 51; (1988) 165 CLR 489
Tenser v Quigley [2016] FCAFC 178
Universal Film Manufacturing Co (Australasia) Ltd v New South Wales [1927] HCA 50; (1927) 40 CLR 333
Wansley (trustee of the bankrupt estate of Edwards) v Edwards (1996) 68 FCR 555
Warren v Coombes [1979] HCA 9; (1979) 142 CLR 531
Wentworth v Rogers [2004] NSWCA 430
Westpac Banking Corporation v The Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1
Young v Smith [2015] NSWSC 400
Dates of hearing: 12 & 13 June 2018 Date of last submissions: 4 July 2018 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 367 Counsel for the Appellants in NSD 1793 of 2016 and NSD 1794 of 2016 Mr A Fernon with Mr M Keene Counsel for the Appellants in NSD 1798 of 2016 and NSD 1799 of 2016 Mr D Massey Solicitor for the Appellants in NSD 1798 of 2016 and NSD 1799 of 2016 Daniel Massey Counsel for the Appellants in NSD 1801 of 2016 and NSD 29 of 2017 and for the Fourth Respondent in NSD 1793 of 2016 Mr M Ashhurst SC with Mr D Barlin Solicitor for the Appellants in NSD 1801 of 2016 and NSD 29 of 2017 and for the Fourth Respondent in NSD 1793 of 2016 Roberts & Partners Lawyers
Counsel for the First, Fifth and Sixth Respondents in NSD 1793 of 2016 and for the First‑Third Respondents in NSD 1794 of 2016, NSD 1798 of 2016, NSD 1799 of 2016, NSD 1801 of 2016 and NSD 29 of 2017 Dr C Birch SC with Ms P Thew Solicitor for the First, Fifth and Sixth Respondents in NSD 1793 of 2016 and for the First‑Third Respondents in NSD 1794 of 2016, NSD 1798 of 2016, NSD 1799 of 2016, NSD 1801 of 2016 and NSD 29 of 2017 Watson Mangioni Lawyers Pty Ltd Counsel for the Second and Third Respondents in NSD 1793 of 2016 The Second and Third Respondents did not appear Counsel for the Fourth Respondent in NSD 1794 of 2016 and NSD 1801 of 2016 Mr C Harris SC Solicitor for the Fourth Respondent in NSD 1794 of 2016 and NSD 1801 of 2016 Colin Biggers & Paisley Lawyers Counsel for the Fifth Respondent in NSD 1801 of 2016 The Fifth Respondent did not appear ORDERS
NSD 1801 of 2016 BETWEEN: MAHMOUD ZREIKA
Appellant
AND: PETER PAUL ROYAL
First Respondent
JUDITH LOUISE ROYAL
Second RespondentMICHAEL GREGORY JONES IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF NATHAN EL ALI
Third Respondent (and others named in the Schedule)
JUDGES:
BESANKO, FARRELL AND O’CALLAGHAN JJ
DATE OF ORDER:
23 MAY 2019
THE COURT ORDERS THAT:
1.The respondents file and serve draft minutes of order reflecting the conclusions in these reasons within fourteen days.
2.The appellant indicate within seven days thereafter whether he consents to the orders proposed by the respondents.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ORDERS
NSD 1793 of 2016 BETWEEN: JOHN RENE NAZLOOMIAN
Appellant
AND: MICHAEL GREGORY JONES IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF NATHAN EL ALI
First Respondent
SARACEN HOLDINGS PTY LIMITED (IN LIQUIDATION)
Second RespondentDAVID MANSFIELD AS LIQUIDATOR OF SARACEN HOLDINGS PTY LIMITED (IN LIQUIDATION)
Third Respondent (and other named in the Schedule)
NSD 1794 of 2016 BETWEEN: OTSI STOJANOVSKI
Appellant
AND: PETER PAUL ROYAL
First Respondent
JUDITH LOUISE ROYAL
Second RespondentMICHAEL GREGORY JONES IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF NATHAN EL ALI
Third Respondent (and another named in the Schedule)
NSD 1798 of 2016
NSD 1799 of 2016BETWEEN: NATHAN EL ALI
Appellant
AND: PETER PAUL ROYAL
First Respondent
JUDITH LOUISE ROYAL
Second RespondentMICHAEL GREGORY JONES IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF NATHAN EL ALI
Third Respondent
NSD 29 of 2017 BETWEEN: MAHMOUD EL ALI
Appellant
AND: PETER PAUL ROYAL
First Respondent
JUDITH LOUISE ROYAL
Second RespondentMICHAEL GREGORY JONES IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF NATHAN EL ALI
Third Respondent
JUDGES:
BESANKO, FARRELL AND O'CALLAGHAN JJ
DATE OF ORDER:
23 MAY 2019
THE COURT ORDERS THAT:
1.The respondents in each appeal file and serve draft minutes of order reflecting the conclusions in these reasons within fourteen days.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
THE COURT:
INTRODUCTION
There are six appeals before the Court which were heard together. They were brought by Mr Nathan El Ali (a bankrupt), his nephew Mr Mahmoud El Ali, Mr Mahmoud Zreika (Mr Zreika), Mr Otsi Stojanovski (Mr Stojanovski) and Mr John Rene Nazloomian (Mr Nazloomian). Mrs Judith Royal and Mr Peter Royal (the Royals) and Mr Michael Gregory Jones as trustee of the bankrupt estate of Mr Nathan El Ali (Mr Jones) are respondents in all of the appeals. Ottoman Investments Pty Ltd (in liq) (Ottoman) and Saracen Holdings Pty Ltd (in liq) (Saracen) are respondents to the appeal brought by Mr Zreika. Saracen is a respondent in the appeals brought by Mr Nazloomian and Mr Stojanovski.
The appeals derive from two proceedings which were heard together: the proceedings brought by the Royals and Mr Jones in 2013 (NSD 1731 of 2013) (the 2013 proceedings) and the proceedings brought by Mr Jones in 2014 (NSD 771 of 2014) (the 2014 proceedings). In those proceedings, the Royals and Mr Jones sought relief under s 37A of the Conveyancing Act 1919 (NSW) (the Conveyancing Act) and s 121 of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act) in relation to dealings by Mr Nathan El Ali in shares in EasyChoice Home Loans Pty Ltd (EasyChoice), Isaac & Jacob Pty Ltd (Isaac & Jacob), Ottoman and Saracen (the Companies) and transfers of interests in the following properties:
(1)The transfer of the property situated at Unit 2, 4 Hogben Street, Kogarah, New South Wales, described in certificate of title folio identifier Lot 1 in Deposited Plan 80767 (Kogarah Unit 2 property or Unit 2) from Ottoman to Mr Stojanovski on or around 16 December 2010;
(2)The transfer of the property situated at 2 Woodlands Road, Taren Point, New South Wales, described in certificate of title folio identifier Lot 1 in Deposited Plan 847333 (the Taren Point property) from Ottoman to Mr Zreika on or around 21 April 2011;
(3)The transfer of the property situated at 1 Sirius Road, Voyager Point, New South Wales, described in certificate of title folio identifier Lot 72 in Deposited Plan 661069 (the Voyager Point property) from Saracen to Mr Zreika on or around 8 December 2011; and
(4)The transfer of the property situated at 1A McDonald Lane, Potts Point, New South Wales described in certificate of title folio identifier Lot 46 in Deposited Plan 2436 (the Potts Point Property) from Saracen to Mr Nazloomian on or around 22 November 2012.
There are four judgments appealed from: the Principal Decision (or PD) delivered on 5 July 2016 (Royal v El Ali [2016] FCA 782), the Orders Decision (or OD) delivered on 23 September 2016 (Royal v El Ali (No 2) [2016] FCA 1156), the Costs Decision (or CD) delivered on 22 December 2016 (Royal v El Ali (No 3) [2016] FCA 1573) and the Deed Decision (or DD) delivered on 23 March 2017 (Royal v El Ali (No 4) [2017] FCA 299).
All of the judgments are appealed by Mr Zreika and Mr Nazloomian. Mr Stojanovski appeals all but the Deed Decision. Mr Mahmoud El Ali appeals only the Costs Decision. Mr Nathan El Ali did file an appeal against the Principal Decision and the Costs Decision, but his appeal against the Principal Decision was dismissed by orders made on 21 July 2017 because, as a bankrupt, he was not competent to bring it. Saracen and Ottoman have filed no appeals.
The appeals by Mr Zreika, Mr Stojanovski and Mr Nazloomian relate to the primary judge’s findings in relation to the transfer of the properties to them and orders made as a consequence. None of the appellants appeal findings made by the primary judge that, contrary to claims made by the appellants:
(1)The Kogarah Unit 2 property, Voyager Point property and Taren Point property were not held on trust by either of Ottoman (on behalf of the Ottoman Investments Unit Trust) or Saracen (on behalf of the Voyager Point Unit Trust) (see PD[171]–[191]); and
(2)The transfer of shares in Isaac & Jacob from Mr Nathan El Ali to Mr Nazloomian and the transfer of shares in EasyChoice, Ottoman and Saracen from Mr Nathan El Ali to Mr Mahmoud El Ali were carried out with the requisite intent within the meaning of s 37A of the Conveyancing Act and s 121(1)(b) of the Bankruptcy Act at PD[216]–[218] and PD[227].
Although the primary judge made declarations in the Orders Decision under both s 121 of the Bankruptcy Act and s 37A of the Conveyancing Act, the respondents concede that the declarations in relation to the disposition of the properties could only be made under s 37A of the Conveyancing Act.
Notwithstanding those limitations on the matters which arise on the appeal, it is necessary to touch on matters relevant to the share transfers because they form part of the factual matrix forming the basis of the primary judge’s findings, including as to the credit of witnesses.
OVERVIEW DERIVED FROM THE PRINCIPAL DECISION
In March 2010, the Royals commenced proceedings against Mr Nathan El Ali in the Supreme Court of New South Wales seeking recovery of a debt in the sum of $925,000 plus interest (the debt proceedings) (see PD[4]).
On 1 October 2010, in the debt proceedings, the Royals obtained freezing orders restraining Mr Nathan El Ali from disposing of, dealing with, or diminishing the value of his assets to an unencumbered value of $925,000 (other than in paying for ordinary living expenses and in the ordinary course of his business) (the 2010 Freezing Orders). Saracen was similarly restrained with respect to its assets to an unencumbered value of $1,099,456.17. Mr Nathan El Ali was ordered to file and serve an affidavit as to his assets and liabilities within 14 days after the 2010 Freezing Orders were made (see PD[5]).
It was not in dispute before the primary judge that, when the 2010 Freezing Orders were made, shares in the Companies (all then held by Mr Nathan El Ali) and the real property owned by Ottoman and Saracen were covered by the 2010 Freezing Orders. When the 2010 Freezing Orders were made, Saracen was the registered proprietor of the Voyager Point property and the Potts Point property and Ottoman was the registered proprietor of the Kogarah Unit 2 property (as well as Units 1 and 3) and had entered into a contract to purchase the Taren Point property (see PD[6] and [7]).
At PD[8]–[11] and [13]–[16] the primary judge noted that:
8On 19 October 2010 Mr [Nathan] El Ali transferred his shares in Isaac & Jacob and Ottoman to Mr Nazloomian (who was described in evidence as a friend of Mr [Nathan] El Ali). The transfers were for nominal consideration and were purportedly effected as security for outstanding loans from Mr Nazloomian to Mr [Nathan] El Ali and his companies, including Ottoman. Mr Nazloomian also replaced Mr [Nathan] El Ali as the sole director of both companies. The applicants’ case (which was denied by Mr [Nathan] El Ali) was that Mr [Nathan] El Ali effected the transfer of the Isaac & Jacob shares in knowing breach of the freezing orders and with intent to defraud his creditors. The applicants have not sought to impugn the transfer of the Ottoman shares to Mr Nazloomian as the shares were later transferred back to Mr [Nathan] El Ali.
9On 22 November 2010 (after the share transfers and outside the time ordered) Mr [Nathan] El Ali affirmed his affidavit of assets and liabilities. He disclosed that he was the director and shareholder of Saracen and EasyChoice (as well as other companies that are not presently relevant). He listed in his assets and liabilities the Voyager Point and Potts Point properties, as well as a property at Helensburgh (“the Helensburgh property”) (also owned by Saracen), as follows:
Details
Extent of Interest
Value
Encumbrances/Liabilities
[Helensburgh property] Saracen $3.6 m NAB Mortgage
$1,540,000[Voyager Point property] Saracen $4.5 m CBA Mortgage $1,384,466.62
[Potts Point property]
Saracen
$700,000
Nil
10He also disclosed that until 19 October 2010 he had been a director of, and held shares in, Ottoman and Isaac & Jacob. He deposed that the reason he had resigned as director of those companies was:
… due to the credit defaults which have been recorded against me personally. This prevented me from borrowing funds to purchase real estate. The transfer of the shares … was part of the overall transaction replacing me as director of the companies referred to … above [which included Ottoman and Isaac & Jacob].
11He deposed that Ottoman was the registered proprietor of Kogarah Units 1, 2 and 3 which he valued at $670,000 each and that Units 1 and 3 (but not Unit 2) were mortgaged, each securing the amount of $545,000. He also deposed that Ottoman had entered into two contracts for the purchase of property as follows:
(a)on 23 July 2010, a contract to purchase a property at Lot 3, Stonny Batter Road, Minto (“the Minto property”) for the purchase price of $3.8 million, on which a deposit of $38,000 had been paid with completion due on 30 November 2010; and
(b)on 15 September 2010, a contract to purchase the Taren Point property for the purchase price of $2.025 million with a deposit paid of $50,625 and a completion date 130 days after the date of contract.
…
13On 26 November 2010, Mr Nazloomian resigned as the director of Ottoman and transferred the shares in Ottoman back to Mr [Nathan] El Ali, who was also re-appointed as sole director.
14On 15 December 2010 (or thereabouts) Ottoman purported to appoint Mr Stojanovski as the new trustee of the Ottoman Investments Unit Trust and on 16 December 2010, Ottoman transferred the Kogarah Unit 2 property to Mr Stojanovski for $1. The transfer was said to be effected as security for an advance of $1 million from Mr Stojanovski to Ottoman to fund the balance due on the purchase of the Minto property. The applicants’ case (which was denied by Mr [Nathan] El Ali) was that these transactions were effected by Mr [Nathan] El Ali in knowing breach of the freezing orders and with intent to defraud his creditors.
15The debt proceedings were heard by Macready AsJ on 11–13 April 2011 with the judgment reserved.
16On or around 21 April 2011 Ottoman purported to appoint Mr Zreika as the new trustee of the Ottoman Investments Unit Trust in place of Ottoman and a transfer form for the transfer of the Taren Point property from Ottoman to Mr Zreika for consideration of $1 was stamped at the Office of State Revenue (“OSR”). On 29 April 2011, the Ottoman purchase of the Taren Point property was completed. On 5 May 2011, Ottoman was registered as the owner on the title. On the same day, the transfer from Ottoman to Mr Zreika was also registered. The applicants’ case (which was denied by Mr [Nathan] El Ali) was that these transactions were effected by Mr [Nathan] El Ali in knowing breach of the freezing orders and with intent to defraud his creditors.
On 3 June 2011, judgment was delivered in the debt proceedings in favour of the Royals for $1,099,456.74 plus costs and on 23 June 2011, orders were entered giving effect to the judgment. The 2010 Freezing Orders were continued but were due to expire on 21 July 2011. They were extended (on an ex parte application by the Royals) on 18 July 2011 “until further order” (see PD[17]–[18]).
The primary judge said at PD[19]:
19On 13 August 2011 the Royals served a bankruptcy notice on Mr [Nathan] El Ali. On 22 August 2011, Mr [Nathan] El Ali resigned as the director of Ottoman and Saracen and transferred the shares in those companies for nominal consideration to his nephew, Mahmoud, who was also appointed the sole director of each company. On 7 September 2011, Mr [Nathan] El Ali also resigned as the director of EasyChoice and transferred the shares in that company to Mahmoud, who was also appointed the sole director of that company. The applicants’ case (which was denied by Mr [Nathan] El Ali) was that these transfers were made by Mr [Nathan] El Ali for nominal consideration in knowledge of the judgment against him and the extension of the freezing orders, and done with the intent of defrauding Mr [Nathan] El Ali’s creditors. Mr [Nathan] El Ali has denied that he knew about the extension of the orders at the time that the transfers were effected. He claimed that he did not become aware of the extension of the freezing orders until about 12 September 2011. He has also denied that the transfers were effected with the intent of defrauding his creditors, claiming that the shares in EasyChoice were transferred to Mahmoud because Mahmoud wanted to take over EasyChoice and recapitalise it, and that the shares in Saracen and Ottoman were transferred to Mahmoud because Mr [Nathan] El Ali did not consider that either Saracen or Ottoman had any value left in them.
The Royals filed a creditor’s petition against Mr Nathan El Ali on 20 September 2011 and it was served on him on 8 October 2011. It was originally listed for hearing on 3 November 2011 but, for reasons unexplained in the evidence before the primary judge, it was not heard until 16 December 2011 (see PD[21]–[23]). Following correspondence from the Royals’ solicitors concerning possible breach of the 2010 Freezing Orders, on 17 October 2011, shares in Saracen were transferred from Mr Mahmoud El Ali to Mr Nathan El Ali, but they were re-transferred to Mr Mahmoud El Ali on 1 November 2011 for consideration of $17,500. Despite demands from the Royals’ solicitors around this time for the shares in EasyChoice to be transferred back to Mr Nathan El Ali from Mr Mahmoud El Ali, that did not happen (see PD[24]–[28]).
In the Principal Decision at PD[28]–[32], the primary judge notes that
28… Mr [Nathan] El Ali had, on 1 November 2011, re-transferred the Saracen shares back to Mahmoud. Consideration of $17,500 was said to have been given. On 21 November 2011 Holman Webb sent another letter to Mr [Nathan] El Ali’s solicitors and to Mahmoud noting that subsequent to 17 October 2011, Mr [Nathan] El Ali had again transferred the shares in Saracen to Mahmoud. The applicants’ case (which was denied by Mr [Nathan] El Ali) was that the share transfer was made by Mr [Nathan] El Ali in knowledge of the judgment against him and the extension of the freezing orders and done with the intent of defrauding Mr [Nathan] El Ali’s creditors.
29On 24 November 2011, Mr [Nathan] El Ali’s solicitors informed Holman Webb that the only asset of Saracen was the Potts Point property which currently had a value of $25,000, there was a caveat on the property supporting a loan of $22,500 in relation to the purchase of the property and Saracen was a “mere trustee” in respect of the Helensburgh and Voyager Point properties. They also stated that their instructions were that Mr [Nathan] El Ali had sold his shares in Saracen to Mahmoud for $17,500 which “appears to be at better than estimated market value” and that Mr [Nathan] El Ali required the funds to enable him to continue to fund his defence of the proceedings and believed that he was entitled to have sold his shares for that purpose.
30On 8 December 2011, Mahmoud, in his capacity as the sole director of Saracen, executed a Deed of Retirement and Appointment appointing Mr Zreika in place of Saracen as trustee of the Voyager Point Unit Trust. Also on 8 December 2011, Saracen transferred the Voyager Point property to Mr Zreika for $1. The applicants’ case (which was denied by Mr [Nathan] El Ali) was that these transactions were effected by Mr [Nathan] El Ali in knowing breach of the freezing orders and with intent to defraud his creditors.
31On 16 December 2011, a sequestration order was made against the estate of Mr [Nathan] El Ali.
32The remaining disposition that has been challenged by the applicants as a disposition with intent to defraud Mr [Nathan] El Ali’s creditors occurred in November 2012 when Saracen transferred the Potts Point property to Mr Nazloomian for $30,000, purportedly in reduction of the loan amounts then outstanding to Mr Nazloomian.
Section 37A of the Conveyancing Act
At PD[37], and relevantly to this appeal, the primary judge set out s 37A of the Conveyancing Act as follows:
(1)Save as provided in this section, every alienation of property, made whether before or after the commencement of the Conveyancing (Amendment) Act 1930, with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced.
(2)This section does not affect the law of bankruptcy for the time being in force.
(3)This section does not extend to any estate or interest in property alienated to a purchaser in good faith not having, at the time of alienation, notice of the intent to defraud creditors.
Defences
The primary defences were recorded by the primary judge at PD[40]–[44] as follows:
40 The four primary defences are that:
(a)there was no intent to defraud creditors;
(b)the real estate (save for the Potts Point property) was not property that would have been available to Mr [Nathan] El Ali’s creditors, if those properties had not been disposed of, because the properties were the trust property of the Ottoman Investments Unit Trust and the Voyager Point Unit Trust and Mr [Nathan] El Ali did not hold any beneficial estate or interest in those properties at any material time;
(c)in the alternative, if those properties do constitute property divisible amongst his creditors, the properties at the time of disposition were encumbered to such an extent that there was no relevant value in those properties at the time of disposition and, accordingly, the properties and the shares in Saracen and Ottoman were worthless and there was no diminution of the property available to creditors by reason of those dispositions;
(d)the shares in EasyChoice were also worthless at the time of disposition and there was no diminution of the property available to Mr [Nathan] El Ali’s creditors by reason of the transfer of those shares.
41Mr Stojanovski and Mr Nazloomian also relied on the defence under s 37A(3) of the Conveyancing Act.
42Mr Stojanovski contended that he acquired Kogarah Unit 2 by way of security for a loan that he made to Ottoman and entered into the transaction in good faith without notice of an intention to defraud creditors.
43Likewise Mr Nazloomian contended that he acquired the shares in Isaac & Jacob as security for loans that he made to Mr [Nathan] El Ali and/or his related companies and entered into the transaction in good faith without notice of an intention to defraud creditors. He contended also that he acquired the Potts Point property for valuable consideration and entered into the transaction in good faith without notice of an intention to defraud creditors. He also relied on the defence under s 121(4) of the Bankruptcy Act with respect to his acquisition of the shares in Isaac & Jacob, contending that he acquired the shares in Isaac & Jacob for value and did not know, or have reason to believe, at the time of the transfer that Mr [Nathan] El Ali was insolvent or about to become insolvent.
44An alternative defence was raised on behalf of Mr Stojanovski in closing submissions in relation to the transfer of the Kogarah Unit 2 property to him and leave of the Court is required to amend the defence. As the proposed amendment was opposed it is appropriate to deal with the question of leave when considering the other defences advanced by Mr Stojanovski.
The primary judge made specific findings that the transfer of each of the properties had occurred at Mr Nathan El Ali’s instigation and with intent to defraud his creditors within the meaning of s 37A and that the Royals, as creditors, were thereby prejudiced by reason of the divestiture of an asset belonging to a company of which Mr Nathan El Ali remained the effective controller at all relevant times and the property was put beyond the reach of Mr Nathan El Ali’s creditors (at PD[219], PD[221], PD[228] and PD[231]).
The primary judge also rejected defences under s 37A(3) by Mr Nazloomian (at PD[230]–[231]) and by Mr Stojanovski and leave was refused for Mr Stojanovski to amend his defence (at PD[44] and PD[220]).
Credit findings
Having regard to the nature of the claims made by the Royals and Mr Jones and the nature of the defence mounted by the appellants, it was necessary for the primary judge to consider the creditworthiness of the witnesses and this was done in careful detail.
The primary judge found the evidence of Mr Nathan El Ali and Mr Nazloomian in relation to the transfer of shares in Isaac & Jacob from Mr Nathan El Ali to Mr Nazloomian and the transfer and re-transfer of shares in Ottoman from Nathan El Ali to Mr Nazloomian and back to Mr Nathan El Ali to be “not candid” and “not credible” (at PD[56]). The primary judge found Mr Nazloomian’s evidence that he was put in a position to manage the trusts of which Saracen and Ottoman were said to be trustees so that he could monitor their assets and give him some security for his loans to those companies to be neither supported by evidence nor by his conduct. That conclusion was based on his lack of knowledge of the affairs of those companies including the transfer of the Voyager Point property and Taren Point property to Mr Zreika. This led to the inference that Mr Nazloomian’s role was essentially to do as instructed by Mr Nathan El Ali (at PD[57]–[58]). The primary judge also found that Mr Nazloomian’s “lack of candour in his evidence” impacted on his creditworthiness. This related to the fact that he did not, in his evidence in chief, explain his role in the transfer of shares in Ottoman to and from him or acknowledge that he knew of the litigation between the Royals and Mr Nathan El Ali and that he received regular updates about it or that he knew that Mr Nathan El Ali was under financial pressure from his creditors (at PD[59]).
The primary judge found that Mr Nathan El Ali was not candid in his evidence and “not a witness of truth” based on his failure to explain in his evidence-in-chief why he transferred shares in Isaac & Jacob and Ottoman to Mr Nazloomian, having “gone to great lengths” to explain the reasons for his resignation as a director (at PD[60]). His evidence concerning the effect of the 2010 Freezing Orders was “unconvincing and contrived” (at PD[61]). His evidence as to why he had asked Mr Nazloomian to take over Ottoman in October 2010 (that he was distracted by the litigation with the Royals) “was contradicted by his own conduct” in continuing to attend to the affairs of that company as if he was still the sole director and shareholder (at PD[62]). The primary judge did not find the timing of the share transfers to be coincidental, the 2010 Freezing Orders having been made on 1 October 2010 and the acquisition by Ottoman of the Kogarah Units (1, 2 and 3) having occurred in August 2010 (at PD[61] and [63]). His credibility was impacted by having engaged in transfers in breach of the 2010 Freezing Orders (at PD[137]). The primary judge found that, although Mr Mahmoud El Ali was the director of Saracen at the time of the transfer of the Potts Point property to Mr Nazloomian in late 2012, “it is clear on the evidence” that Nathan El Ali was “the initiator and directing mind and driving force” behind it (at PD[167]).
The primary judge also rejected the evidence of Mr Nathan El Ali and Mr Stojanovski in relation to why Mr Nathan El Ali caused the transfer of the Kogarah Unit 2 property from Ottoman to Mr Stojanovski for $1 and Mr Stojanovski’s purported loan of $1 million to Ottoman because “both witnesses were found not to be credible” (see PD[96] and also PD[219]). The Principal Decision at [86]–[95] sets out the 10 reasons for the finding (see PD[96]).
The primary judge found the evidence of Mr Zreika and Mr Nathan El Ali “unsatisfactory and unconvincing” concerning the circumstances of the transfer of the Taren Point property to Mr Zreika (at PD[113]). The primary judge did not accept Mr Zreika’s evidence that he had arranged funding because that evidence was “shown to be plainly incorrect in cross‑examination” and Mr Stojanovski and Mr Nazloomian gave consistent evidence that it had been Mr Nathan El Ali who had arranged loans from them (at PD[114]).
In the primary judge’s view, “Mr Zreika was shown generally to be an unreliable witness”; he was not “a person whose testimony could be relied upon”; and “[o]n his own evidence, Mr Zreika was prepared to mislead” and had been given a certificate under s 128 of the Evidence Act 1995 (Cth) in relation to a statutory declaration made in June 2012 in connection with obtaining finance from Gee Bee Airfreight Pty Ltd (Gee Bee Airfreight) for the Taren Point property (at PD[115]). Further, the evidence did not show that Mr Zreika carried out functions as a trustee of the Ottoman Investments Unit Trust and Mr Nathan El Ali’s responses concerning whether or not Mr Zreika had a plan as to what would happen with the Taren Point property were “evasive and contradicted by the evidence that he [Mr Nathan El Ali] had arranged the finance” (at PD[119]).
The primary judge also found the evidence of Mr Mahmoud El Ali and Mr Nathan El Ali concerning the reasons for the transfer of shares in Ottoman, Saracen and EasyChoice to Mr Mahmoud El Ali to be “not credible” and “wholly unconvincing” (at PD[136]). Among other reasons for this, the primary judge rejected Mr Mahmoud El Ali’s explanation for the transfer of shares in EasyChoice to him (so that he could run a credit business) as “implausible” for the reasons set out at PD[138] and found at PD[139] that carrying on that business did not explain why shares in Ottoman and Saracen would be transferred to him.
The primary judge made the following summary findings at PD[168]–[170]:
CONCLUSIONS ON CREDIT
168For the reasons given above I have concluded that none of the respondents was a witness of truth and I have largely not accepted the evidence of any of them. The testimony of each of them on key factual matters was contradicted on many occasions by their actual conduct which showed that their evidence-in-chief could not be accepted as credible, and I have not accepted their explanations for the transactions which are the subject of these proceedings.
169Mr [Nathan] El Ali, in particular, was a most unsatisfactory witness who showed himself prepared to colour the truth during the course of evidence to advance his own interests.
SUMMARY
170Based on the above analysis of the evidence in relation to each of the impugned transactions, I find that Mr [Nathan] El Ali remained at all times the controlling mind and directing force of Isaac & Jacob, Ottoman, Saracen and EasyChoice, notwithstanding the changes of directorships and share dispositions. I also find that it was Mr [Nathan] El Ali who procured each of the share and property transfers and that he did so in the knowledge of the proceedings against him by the Royals and the freezing orders made against Saracen and him (with the proviso in relation to the extension of the freezing orders on 18 July 2011 which I accept he did not learn about until mid-September 2011). Having rejected the explanations of the respondents for those transactions, I find that Mr [Nathan] El Ali procured those transactions to safeguard his assets from present or future creditors by placing them with friendly third parties.
MR ZREIKA’S APPEAL
Mr Zreika’s appeal relates to four matters:
(1)Order 1(d) and Order 8 made by the primary judge on 23 September 2016 in the Orders Decision in relation to the Voyager Point property;
(2)Order 1(e) and Order 11 made by the primary judge on 23 September 2016 in the Orders Decision in relation to the Taren Point property;
(3)Orders made by the primary judge on 22 December 2016 in the Costs Decision in relation to the costs of the proceedings; and
(4)Orders made by the primary judge on 23 March 2017 in the Deed Decision in relation to the deed of settlement and release between Mr Zreika, Mr Nazloomian and the liquidator of Saracen entered into on 2 November 2016 (the Deed).
In this section of our reasons, we deal with Mr Zreika’s appeal in relation to the Voyager Point property and the Taren Point property. We will deal with Mr Zreika’s appeal (and those of the other appellants) in relation to the costs of the proceedings and the Deed later in these reasons.
There were five respondents to Mr Zreika’s appeal. The Royals and Mr Jones appeared and made submissions. Ottoman did not make submissions. Counsel for Ottoman appeared at the beginning of the appeal, but sought and was granted leave to withdraw. Saracen was joined at the beginning of the hearing of the appeal, but did not make submissions.
The Voyager Point property
The respondents commenced their proceedings against Mr Zreika on 23 August 2013.
Before we outline the nature of the cases of the respective parties, we mention a freezing order made by a judge of this Court (not the primary judge) in September 2013. The importance of this order will become clear.
In September 2013, the respondents sought a limited freezing order against Mr Zreika in relation to the proceeds of sale of the Voyager Point property. A solicitor appeared for Mr Zreika on the hearing of the application. The solicitor advised the Court that his instructions were that the proceeds of sale had been disbursed, but that he had not been able to confirm that this was the case. The judge hearing the application made a freezing order in relation to the proceeds of sale (the 2013 Freezing Order).
In his reasons delivered on 11 September 2013 (Royal v El Ali, in the matter of the bankrupt estate of El Ali [2013] FCA 923), the judge outlined some of the history of the proceedings as follows (at [14]–[18]):
14In June 2013, the third applicant caused a search to be carried out with respect to the Voyager Point property. The search revealed that, on about 8 December 2011, in apparent breach of the freezing orders made by the Supreme Court, the fourth respondent transferred the Voyager Point property to the third respondent for $1.00. A further search carried out with respect to the Voyager Point property on 25 June 2013 revealed that it had been transferred to a company called Pronto Properties (NSW) Pty Ltd. The evidence currently before me indicates that the sale price was $1,700,000 and that the sale was made on 21 March 2013. The first and second applicants first became aware of this sale on 12 June 2013 when, having instructed valuers to undertake a valuation of the Voyager Point property, they were informed that the property had been sold.
15On 23 August 2013, the applicants commenced the present proceeding. It has been commenced on the first and second applicants’ initiative to recover shares in the fourth respondent so that they are placed in the third applicant’s ownership as trustee in bankruptcy of the first respondent’s bankrupt estate. It seems that the third applicant is without funds. He has consented to join in the proceeding on the basis that the first and second applicants indemnify him against any adverse costs order that might be made.
16In a letter dated 10 September 2013 from the solicitors for the second, third and fourth respondents to the solicitors for the applicants, the second, third and fourth respondents contended that the Voyager Point property had been held by the fourth respondent and then by the third respondent as a trustee. The details of this trust are not disclosed in the letter. Nevertheless, I have also been informed today that, in the course of the proceedings in the Supreme Court, the Voyager Point property was referred to as an asset of a discretionary trust.
17The applicants’ case is that there is reason to suspect that the first respondent has an interest in that trust and that the assets of the trust include the proceeds of sale of the Voyager Point property. As I presently understand it, that “reason to suspect” is based on the pattern and timing of the first respondent’s conduct in transferring his shares in the fourth respondent to the second respondent, and in the conduct of the fourth respondent and then the third respondent disposing of the Voyager Point property, in the face of the first respondent’s impending and actual bankruptcy, and in apparent breach of the Supreme Court’s freezing orders.
18The solicitor appearing for the third respondent today has informed me that he has been instructed that the proceeds of sale of the Voyager Point property have already been disbursed. He submits that, although the relief claimed in the proceeding as commenced includes a freezing order, the third respondent has been given inadequate notice that such an order would be sought today. He submits that the third respondent is prejudiced in not being able to put evidence before the Court or to mount, as it were, an informed defence to the present interlocutory application.
The order made by the judge was as follows:
4.The third respondent be restrained until 5.00 pm on 18 September 2013 from removing from Australia or, in any way, transferring or disposing of, dealing with or diminishing in value the proceeds of the sale of the property known as 1 Sirius Road, Voyager Point, New South Wales, being Lot 72 in Deposited Plan 661069.
We turn now to summarise the cases of the respective parties as pleaded. We will refer to the respondents to the appeals as the respondents, although it needs to be borne in mind that they were the applicants in the Court below.
The pleadings
In the respondents’ Amended Application issued on 15 August 2014 in the 2013 proceedings, they sought a declaration pursuant to s 30(1) of the Bankruptcy Act that the transfer of the Voyager Point property from Saracen to Mr Zreika on 8 December 2011 is void and/or voidable, pursuant to s 37A of the Conveyancing Act.
In their Amended Statement of Claim filed on 15 August 2014, the respondents alleged that the transfer of the Voyager Point property from Saracen to Mr Zreika constituted an alienation of property for the purposes of s 37A. They alleged that as at 8 December 2011, Mr Mahmoud El Ali was the sole director and shareholder of Saracen. The respondents alleged that by reason of letters from them to Mr Mahmoud El Ali dated 8 September 2011 and 10 October 2011 respectively, he knew, or could have reasonably inferred, that Mr Nathan El Ali was seeking to hinder or delay the process of making property available for division amongst Mr Nathan El Ali’s creditors. The respondents alleged that Mr Mahmoud El Ali’s intention in permitting Saracen to transfer the Voyager Point property was to assist Mr Nathan El Ali in defrauding creditors in that the intention was to delay, hinder or defeat the respondents’ ability to satisfy the judgment debt of the Royals. The respondents alleged that the Royals were persons prejudiced, for the purposes of s 37A of the Conveyancing Act, in that they were judgment creditors of Mr Nathan El Ali and the Voyager Point property was, until 8 December 2011, the property of Saracen, the shares in which fell within s 58(1) of the Bankruptcy Act whereby they are property divisible amongst Mr Nathan El Ali’s creditors. They alleged that, by reason of the shares in Saracen vesting in the trustee in bankruptcy of Mr Nathan El Ali pursuant to ss 58(1) and 116(1) of the Bankruptcy Act, the Voyager Point property once restored to Saracen would be within the control of the trustee.
The respondents alleged that the transfer of the Voyager Point property on 8 December 2011 was voidable within the meaning of s 37A of the Conveyancing Act. They alleged that the alienation was not in good faith by reason of the consideration for the property being in the amount of $1. That amount was less than market value in that an unrelated purchaser bidding in an open market on an ordinary commercial basis would have provided more substantial consideration for the kind of property which was the subject of the disposition. They referred to the fact that Mr Nathan El Ali affirmed an affidavit on 22 November 2010 in which he disclosed that the approximate net value of the Voyager Point property was $3 million.
The respondents alleged that the inference could be drawn that Mr Zreika had notice of Mr Nathan El Ali’s intent to defraud creditors as at the date of the alienation of the property by reason of the purchase price being $1 in the case of a property prima facie having a net value of $3 million. They alleged that Mr Zreika knew, or had reason to suspect, some preference contrary to the Bankruptcy Act, or that the effect of the disposition would be to disadvantage creditors. In the context of their pleas against Mr Zreika, the respondents pleaded that by reason of the above matters, the defence in s 37A(3) of the Conveyancing Act was not available. In addition to these pleas, the respondents pleaded that Mr Zreika transferred ownership in the Voyager Point property to Pronto Properties (NSW) Pty Limited (Pronto Properties) on 17 May 2013. Save for this allegation about the transfer of ownership, the respondents made no allegation about the transaction between Mr Zreika and Pronto Properties.
On 24 April 2015, the second to fifth respondents (Mr Mahmoud El Ali, Mr Zreika, Saracen and Ottoman) filed an Amended Defence (Defence). For present purposes, it is the pleas of Mr Zreika which are important.
In the Defence, Mr Zreika admitted that Saracen was the registered proprietor of the Voyager Point property, but alleged that at all material times up until on or about 8 December 2011, Saracen was the registered proprietor in its capacity as trustee of the Voyager Point Unit Trust. He alleged that Mr Nathan El Ali never had an interest, whether beneficially or otherwise, in the Voyager Point property. By reason of the fact that Saracen held the Voyager Point property as trustee of the Voyager Point Unit Trust, the value of the shares in Saracen never included the value of the Voyager Point property.
Mr Zreika alleged that on 25 January 2013, Mr Zreika acquired the Voyager Point property from Saracen for market value consideration. He paid $800,000 to procure the discharge of the mortgage registered by the Commonwealth Bank of Australia (CBA) over the Voyager Point property. The payment of $800,000 was supported as market price by a valuation provided by a Mr Danny Sukkar of Property Logic dated 15 January 2013.
Mr Zreika alleged that the Voyager Point property was never held, either directly or indirectly, by Mr Nathan El Ali personally and beneficially, and was not held by Saracen beneficially. Saracen held the Voyager Point property at all material times up until 25 January 2013 as trustee of the Voyager Point Unit Trust. On or about 25 January 2013, the Voyager Point property was transferred by Saracen to Mr Zreika for market value consideration, being the amount of $800,000. Mr Zreika paid to procure the discharge of the mortgage registered by the CBA over the Voyager Point property. Mr Zreika alleged that the transfer by Saracen to him could not have been for the purpose of hindering or delaying the process of making property available for division amongst Mr Nathan El Ali’s creditors because he, Mr Nathan El Ali, never had an interest, directly or indirectly, in the property.
Mr Zreika admitted the transfer of ownership in the Voyager Point property by him to Pronto Properties on 17 May 2013 and pleaded that the transfer was pursuant to a contract of the sale of land dated 21 March 2013. Mr Zreika did not plead any reliance by him or by Pronto Properties on s 37A(3) of the Conveyancing Act. As we have said, the primary judge delivered the Principal Decision on 5 July 2016.
The primary judge’s findings and conclusions
As we have outlined above at [20]–[27], the primary judge described Mr Zreika’s evidence on one topic as unsatisfactory and unconvincing (at PD[113]) and later said that he was shown generally to be an unreliable witness whose testimony could not be relied upon (at PD[115]). The primary judge found that none of the respondents was a witness of truth (at PD[168]). We note at this point that Mr Zreika did not challenge these conclusions on the appeal.
The primary judge found that the Voyager Point property was transferred from Saracen to Mr Zreika in December 2011 for $1 (at PD[143]). On 8 December 2011, a transfer of the Voyager Point property from Saracen to Mr Zreika for consideration expressed to be $1 was signed by Mr Mahmoud El Ali on behalf of Saracen and by Mr Zreika (Transfer of the Voyager Point property). In addition, a deed of appointment was executed appointing Mr Zreika as trustee of the Voyager Point Unit Trust (the 2011 Deed of Appointment). Mr Nathan El Ali lodged the documents with the Office of State Revenue (OSR) and nominal stamp duty of $50 pursuant to s 54(3) of the Duties Act 1997 (NSW) (Duties Act) was paid on the Transfer of the Voyager Point property. The Transfer of the Voyager Point property was not lodged for registration on the title of the Voyager Point property at that point.
The primary judge found that the transactions effected in December 2011 were at Mr Nathan El Ali’s initiative and direction, even though Mr Mahmoud El Ali was the director of Saracen at the time. The primary judge said that it was clear on the evidence that despite the 2011 Deed of Appointment purporting to appoint Mr Zreika as trustee, he did not take on the role of trustee.
The primary judge referred (at PD[148]) to the following evidence which her Honour noted that Mr Nathan El Ali and Mr Zreika claimed was “objective, unchallenged and un‑contradicted”:
(1)As at 8 December 2011, the Voyager Point property was subject to a mortgage in favour of the CBA securing a loan of $1,285,000 made to Saracen in May 2010;
(2)The CBA loan was in default from (at least) 3 February 2011;
(3)By August 2011, Saracen was indebted to the CBA for $1,490,531.22;
(4)On 15 January 2013, the property was valued at $900,000;
(5)In December 2012, Saracen’s dispute with the CBA was settled pursuant to a deed of settlement and release (CBA Deed);
(6)Under the CBA Deed, Saracen was required to pay $800,000 by 25 January 2013 to the CBA in return for which the CBA would discharge the mortgage over the property;
(7)Under the CBA Deed, if Saracen did not pay $800,000 by 25 January 2013, then default judgment would be given in favour of the CBA for $1,684,131.73 and the CBA would be entitled to costs on an indemnity basis; and
(8)Saracen sought to source the $800,000 before 25 January 2013.
The primary judge found that the Transfer of the Voyager Point property was registered on the title on or about 29 January 2013. Her Honour noted that Mr Zreika acknowledged in his affidavit that full stamp duty should have been paid on the Transfer of the Voyager Point property from Saracen to himself and he deposed that he undertook to pay the full amount of stamp duty plus interest plus penalties. The primary judge recorded the fact that despite Mr Zreika’s acknowledgement and undertaking, he had still failed to do so and her Honour concluded that this was another example of his preparedness to mislead. This circumstance, her Honour said, reflected adversely on his creditworthiness generally (at PD[152]).
The primary judge noted that Mr Zreika’s case at trial was that he paid the $800,000 due to the CBA under the CBA Deed pursuant to an arrangement he made with Mr Mahmoud El Ali on behalf of Saracen. Her Honour noted that there was evidence that on 25 January 2013, Mr Zreika entered into a loan agreement with Gee Bee Airfreight (a company from which Mr Zreika had obtained a loan in June 2012 to refinance the Taren Point property) under which the sum of $900,000 was advanced and Gee Bee Airfreight took a mortgage over the Voyager Point property. The primary judge said that Mr Nathan El Ali was also involved in obtaining the loan from Gee Bee Airfreight to pay out the CBA loan. The primary judge drew the inference that the funds obtained from Gee Bee Airfreight were used to pay out the CBA (at PD[153]).
The primary judge said that on 21 March 2013, Mr Zreika entered into a contract for sale between himself as vendor and Pronto Properties as purchaser for $1.7 million and that the sale was completed on 15 May 2013. The proceeds of sale were applied in part to paying out the loan owed to Gee Bee Airfreight secured over the Voyager Point property of $927,123.28 (at PD[155]).
The primary judge said that Pronto Properties was a company associated with Mr Peter Walker, who was a solicitor at Walker Hedges & Co. They were the solicitors acting for Gee Bee Airfreight. Mr Walker was also director of Gee Bee Airfreight at the time. The primary judge found that Mr Nathan El Ali was also involved in the deal involving Pronto Properties. Her Honour found, on the basis of Mr Zreika’s evidence, that Mr Nathan El Ali was the person who was involved completely in organising and arranging the sale to Pronto Properties (at PD[156]).
The primary judge said that her Honour found implausible Mr Zreika’s explanation as to why he was able to sell the property for $1.7 million in March 2013 when Mr Nathan El Ali had obtained a valuation of the Voyager Point property in January 2013 of $900,000.
The primary judge found that out of the proceeds of sale Mr Zreika used an amount of $600,000 to repay a loan outstanding to Gee Bee Airfreight which was secured by the Taren Point property (at PD[158]). The primary judge found that it was Mr Nathan El Ali who was the person making the decision concerning the payment of the amount of $600,000 to Gee Bee Airfreight. The primary judge said that there was no document in evidence that recorded Mr Zreika having lent an amount of $600,000 to the Ottoman Investments Unit Trust and that Mr Mahmoud El Ali had no idea what Mr Zreika did with the property. Her Honour accepted that Mr Mahmoud El Ali knew nothing about the sale of the Voyager Point property to Pronto Properties (at PD[160]).
There was a dispute about whether the primary judge actually found that an amount of $600,000 out of the proceeds of sale of the Voyager Point property was used to repay a loan from Gee Bee Airfreight in relation to the Taren Point property, or was simply recording evidence which had been given. We think that her Honour did make such a finding. For example, her Honour said (at PD[158]):
158Curiously and telling against Mr Zreika’s credibility is that he used the proceeds of sale not only to pay out the $900,000 Gee Bee Airfreight loan secured by the mortgage over the Voyager Point property but he also used $600,000 towards payment of the loan outstanding to Gee Bee Airfreight which was secured by the Taren Point property…
The primary judge rejected the contention that the sole intent of the December 2011 transactions was to deal with the CBA dispute and financing issue. Her Honour said that nothing at all happened for a further 12 months and, in the absence of evidence which explained why nothing happened, it was reasonable to infer that the timing of the transfer had everything to do with the impending sequestration order against Mr Nathan El Ali which was made only eight days after the transfer (i.e., on 16 December 2011). Furthermore, the evidence all pointed to Mr Nathan El Ali as the person continuing to “call the shots” in relation to the dealings with the Voyager Point property, with Mr Zreika and Mr Mahmoud El Ali simply acting at his behest and direction. The primary judge found that Mr Nathan El Ali remained in effective control of the Voyager Point Unit Trust and of the property and that he effected the transactions in December 2011, knowing at the time that the property was the subject of the 2010 Freezing Orders.
The primary judge rejected Mr Nathan El Ali’s and Mr Zreika’s explanation for the transfer of the Voyager Point property from Saracen to Mr Zreika. The primary judge found that Mr Nathan El Ali effected the transfer of the Voyager Point property from Saracen to Mr Zreika for nominal consideration with the intent to defraud his creditors within the meaning of s 37A of the Conveyancing Act. Her Honour found that the Royals, as creditors of Mr Nathan El Ali, were prejudiced by the transfer by reason of the divestiture of an asset belonging to a company of which Mr Nathan El Ali remained the effective controller at all relevant times (at PD[228]).
After the primary judge delivered the Principal Decision, her Honour adjourned the proceeding to give the parties the opportunity to address the final orders necessary to give effect to the Principal Decision.
The parties each filed written submissions in relation to the orders sought by the respondents.
The respondents sought a declaration and an order that the amount of $800,000 be payable to Saracen in relation to the Voyager Point property. In their written submissions, they referred to a number of the primary judge’s findings. They submitted as follows:
Upon this Declaration being made, the proceeds of sale of the Voyager Point property will vest in Saracen (in liquidation), with the question then being as to the quantum of the surplus of the proceeds of sale that is to be paid to the official liquidator of Saracen, considered below.
As to the proceeds of sale, the respondents referred to the primary judge’s findings and contended that Mr Zreika received $800,000 of the proceeds of sale of the Voyager Point property for his own benefit and, in effect, treated this money as his own. The respondents submitted that her Honour did not make a finding that Mr Zreika had paid an amount of $600,000 to Ottoman Investments Unit Trust.
In response, Mr Zreika contended that his maximum monetary liability was $200,000 and that the “monetary liability of Zreika with respect to Voyager Point should be $200,000”. He submitted that the primary judge made a finding that the amount of $600,000 was used to discharge a loan secured by a mortgage over the Taren Point property.
From what we can see, the issue between the parties was not whether a personal remedy could be granted against Mr Zreika, but rather the amount of the proceeds of sale which he had received for his own benefit. The amount in issue was $600,000.
For reasons which are not entirely clear, by the time the matter came back before her Honour, that issue seems to have receded and in the Orders Decision, her Honour referred to the relevant orders as being unopposed (at OD[3]).
On 23 September 2016, the primary judge made a declaration pursuant to s 121(1) of the Bankruptcy Act and s 37A of the Conveyancing Act that the transfer of the Voyager Point property from Saracen to Mr Zreika on 11 December 2011 was void. The respondents accept that the declaration should have been made, and only made, pursuant to s 37A of the Conveyancing Act. The primary judge also made an order (paragraph 8) that Mr Zreika “account for the value of the Voyager Point property in the sum of $800,000.00 by paying the said sum to the official liquidator of Saracen”.
The Further Amended Notice of Appeal and submissions
On 13 April 2017, Mr Zreika filed a Further Amended Notice of Appeal. As we have said, he complains of the primary judge’s orders with respect to the Voyager Point property. He contends that the primary judge erred in concluding that the Transfer of the Voyager Point property was done with the intention to defraud Mr Nathan El Ali’s creditors, that her Honour placed emphasis on the factual matrix of events that occurred at least 12 months after the execution of the transfer, and did not place sufficient weight on the untested and uncontradicted evidence that Saracen’s loan with the creditor which was secured over the Voyager Point property was in default as at 8 December 2011. Mr Zreika contends that the primary judge ought to have found that the transfer was not executed with the intent to defraud Mr Nathan El Ali’s creditors. Mr Zreika further contends that the primary judge ought to have found that given the interest which the secured creditor had with respect to the Voyager Point property as at 8 December 2011, the property was not put beyond the reach of Mr Nathan El Ali’s creditors by reason of the execution of the Transfer of the Voyager Point property on 8 December 2011. He further contends that the primary judge erred in finding that the respondents were prejudiced by the execution of the Transfer of the Voyager Point property and that her Honour ought to have found that they were not prejudiced by the execution of the Transfer of the Voyager Point property because, as at 8 December 2011, the interest of the secured creditor with respect to the Voyager Point property, would have taken priority over and “trumped” any entitlement of the respondents with respect to the property. Finally, Mr Zreika contends without any further elaboration, that the primary judge erred in ordering that Mr Zreika account for the value of the Voyager Point property in the sum of $800,000 by paying the said sum to the official liquidator of Saracen.
Mr Zreika filed an outline of written submissions in his appeal on 16 March 2018. In those submissions, he emphasised that the onus was on the respondents at trial to clearly prove the fraud which they alleged. Mr Zreika contends that the primary judge had changed the onus from the respondents to him. An example is set out in [70]–[71] below. We can say at this point that the primary judge did not make such an error. The primary judge said in the Principal Decision (at PD[45]):
CREDIT ISSUES
45Mr [Nathan] El Ali, Mahmoud, Mr Zreika, Mr Stojanovski and Mr Nazloomian each gave evidence-in-chief by way of affidavit and the credit of all of them was put into issue by the applicants. The applicants submitted that the Court should make adverse credit findings against each of them and should largely reject their evidence concerning the reasons for the transfers. Given the serious nature of the allegations, their evidence is to be tested by reference to the principles in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 and a very high level of satisfaction should be reached before making the findings urged by the applicants.
Mr Zreika submits that nothing happened for a further 12 months after the Transfer of the Voyager Point property was executed on 8 December 2011 and that that circumstance supports the proposition that there was no intention to defraud. The title did not move from Saracen to Mr Zreika until 29 January 2013 and, in those circumstances (so it was submitted), there cannot be a finding of an intention to defraud in the sense of “hindering and delay”. Mr Zreika submits that the facts indicate that the exact opposite occurred to that which was typical of “hindrance and delay situations”.
Next, Mr Zreika submits that there was no subtraction of assets or prejudice to Mr Nathan El Ali’s creditors by the Transfer of the Voyager Point property because there was no value in the Voyager Point property outside the secured creditor. Mr Zreika relies on her Honour’s “findings” in PD[148] (see [49] above). Mr Zreika points to the fact that the “closest” valuation evidence of the Voyager Point property adduced in evidence was that of a registered valuer dated 15 January 2013, and the valuation as at that date was $900,000. No evidence was adduced by the respondents as to the valuation of the Voyager Point property as at 8 December 2011. Her Honour referred to the valuation, but otherwise made no findings. Mr Zreika complains of what her Honour said in the Principal Decision at PD[157]:
157Mr Zreika’s explanation as to why he was able to sell the property for $1.7 million in March 2013, when Mr [Nathan] El Ali had obtained a valuation of the Voyager Point property in January 2013 which valued the property at $900,000, was that Mr Walker “personally wanted that property. It wasn’t valued at that price; he wanted it” and “we agreed”. I find that explanation implausible.
Mr Zreika submits that such a finding demonstrated that the primary judge caused the initial onus to rest with him when it was properly (initially) that of the respondents to demonstrate the “fraud” and/or that they were “thereby prejudiced”. As we have said, we do not think that the primary judge reversed the onus. Her Honour was entitled, indeed required, to assess the explanations which were advanced.
Mr Zreika contends that the absence of any evidence as to the value of the Voyager Point property as at 8 December 2011 means that the respondents have not discharged their onus to demonstrate that they were “thereby prejudiced” within s 37A of the Conveyancing Act, or that they were entitled to the Voyager Point property as at 8 December 2011. Mr Zreika again makes the point that the primary judge did not analyse what might have been available to unsecured creditors as at the date of transfer. In the absence of such evidence, it could not be established that the unsecured creditors were thereby prejudiced, or that there was a fraud.
On 28 May 2018, Mr Zreika filed additional submissions in chief with respect to the Voyager Point property. In those additional submissions, he submits that it was beyond the power of the Court to make the order in paragraph 8 because Mr Zreika had, by the time the orders were made, already completed the sale of the Voyager Point property to Pronto Properties. Mr Zreika pointed out that Pronto Properties was not a party to the proceeding and submits that no claim was made by the respondents that it was anything other than a bona fide purchaser for value. He submits that, in those circumstances, the defence of bona fide purchaser for value inures for the benefit of not only the purchaser, but also the vendor. He refers to the decision of the High Court in Brady v Stapleton [1952] HCA 62; (1953) 88 CLR 322 (Brady v Stapleton) at 333. He submits that he does not hold the proceeds of sale on trust for Saracen because the only circumstance in which that could be the case do not apply in that an ability to “trace” the proceeds has not been established. He raises a further point that the proceedings were not brought by the liquidator of Saracen, but instead by the respondents who have no standing to seek any other order than a declaration that the relevant transfer was void.
On 27 April 2018, the respondents filed their submissions in Mr Zreika’s appeal.
The respondents submit that the primary judge was entitled to examine events occurring in the 12 months following the date of transfer of the Voyager Point property from Saracen to Mr Zreika, given that the Transfer of the Voyager Point property was not registered on the title until 29 January 2013. They point to the fact that the Transfer of the Voyager Point property shows that consideration in the amount of $1 was paid. Mr Zreika’s evidence was that after on selling the Voyager Point property for $1.7 million in March 2013, from the proceeds of sale, $800,000 was available from which he paid himself $200,000. He gave evidence that “all of the rest of the money” was his and he got “all that money for $1”. The funds available to creditors were thereby diminished given that Saracen transferred the Voyager Point property to Mr Zreika cleared of encumbrances for $1 which was then immediately sold by Mr Zreika for $1.7 million.
The respondents submit that the Transfer of the Voyager Point property occurred at a critical point and in the teeth of litigation, given that the Royals had obtained a judgment for over $1 million against Mr Nathan El Ali in June 2011 in the Supreme Court of New South Wales, the sequestration orders were made against Mr Nathan El Ali on 16 December 2011, the CBA had commenced proceedings against Saracen resulting in a judgment debt of $312,289.67, the CBA had obtained specific performance against Saracen in respect of the Voyager Point property and, on 15 December 2011, Mr Nazloomian’s brother commenced proceedings against Mr Nathan El Ali and Saracen. Furthermore, the Transfer of the Voyager Point property to Mr Zreika on 8 December 2011, as well as registration on the title on 29 January 2013, occurred in prima facie breach of the 2010 Freezing Orders made by the Supreme Court of New South Wales. On 8 December 2011, Mr Mahmoud El Ali purported to appoint Mr Zreika as trustee of the Voyager Point Unit Trust in place of Saracen pursuant to which duty of $50 was paid on the transfer, notwithstanding the evidence of Mr Nathan El Ali and Mr Zreika that the appointment was not intended to take effect and that Mr Zreika did not intend to take the Voyager Point property on trust.
The respondents rely on the fact that the primary judge rejected the explanation of Mr Nathan El Ali and Mr Zreika that the lapse of 13 months had occurred so that Mr Zreika, as the new owner of the property, could obtain refinance, given that no steps were taken to effect a refinancing of the loan. They submit that the primary judge was entitled to conclude (as her Honour did) that nothing at all happened for a further 12 months and that, in the absence of evidence which explained why nothing did happen, “it is reasonable to infer that the timing of the transfer had everything to do with the impending sequestration order against Mr Nathan El Ali which was made on 16 December 2011, only 8 days after the transfer” (at PD[161]). The respondents submit that it is well-established that the existence of the requisite intent for the purposes of s 37A of the Conveyancing Act may be inferred from objective circumstances. The requisite intent is that of Mr Nathan El Ali, given that he was found to be the “controlling mind and driving force” of the transfer of the Voyager Point property. The respondents submit that, given that Mr Zreika curiously executed a transfer over 12 months before registration on the title, her Honour was entitled to examine that 12 month period.
The respondents submit that the primary judge was entitled to find the requisite intent (intent to defraud creditors) given the litigation involving Mr Nathan El Ali and Saracen, the financial difficulties of both, and the fact that the Transfer of the Voyager Point property occurred for no consideration and was to a friend. The primary judge rejected the evidence of Mr Zreika, Mr Nathan El Ali and Mr Mahmoud El Ali. Her Honour found, for example, that in relation to the stamp duty paid on the Transfer of the Voyager Point property of $50 and Mr Zreika’s evidence that he did not intend by using that transfer to hold the property as trustee of the Voyager Point Unit Trust and that he purchased the property from Saracen in his own right, he was “either deceitful in his action in relation to avoiding the duty payable on the transfer, knowing that he did not take the property as trustee, or he was lying to the Court about the reason for the use of that transfer” (at PD[152]).
With respect to the second ground raised by Mr Zreika that the primary judge erred in finding a “subtraction of assets” available to creditors or the requisite “prejudice”, the respondents submit that it is well-established that any interest of the secured creditor in the Voyager Point property as at the date of transfer on 8 December 2011, or registration on 29 January 2013, is not relevant to a finding as to whether it has been alienated with the intent of putting the property beyond the reach of Mr Nathan El Ali’s creditors. In support of that proposition, they refer to Ingram v Y Twelve Pty Ltd 12 [2013] NSWSC 1777 (Ingram v Y Twelve) per Stevenson J at [104]–[105] and [134]–[136].
The respondents point to the fact that the primary judge had dealt with this submission by Mr Zreika (and other respondents at the trial) under the heading “The ‘no value’ contention” at PD[214]–[215]. Her Honour described the submission as being that, in order for the Court to infer the relevant intent because the dispositions were for nominal consideration, the Court must be satisfied that the shares and properties in fact had value at the time of disposition and that Mr Nathan El Ali knew, or must have known, that to be the case. Her Honour said that that submission was contrary to Cannane v J Cannane Pty Ltd (in liquidation) [1998] HCA 26; (1998) 192 CLR 557 (Cannane) and Marcolongo v Chen [2011] HCA 3; (2011) 242 CLR 546 (Marcolongo v Chen). Her Honour said in any event, Mr Nathan El Ali, in his affidavit of assets and liabilities sworn in November 2010, valued Saracen’s net equity in the Voyager Point property at around $3.1 million, valued the Potts Point property (which was not encumbered) at $700,000, and valued the Kogarah Unit 2 property, also not subject to a mortgage, at $670,000. Her Honour noted that Mr Nathan El Ali agreed in cross-examination that as at December 2010, he considered that Saracen and Ottoman held “very substantial equity” in the parcels of real estate that they owned, albeit qualifying that answer “as trustee”. Her Honour concluded that the evidence showed that Mr Nathan El Ali thought at the time that those properties, and by inference the shares, did have value.
The respondents submit that it was to be noted that the Court made an order that pursuant to s 109(10) of the Bankruptcy Act, 100% of the net amount available for distribution to creditors after payments of the amounts required to be paid by s 109(1)(a) of the Bankruptcy Act from the bankrupt estate of Mr Nathan El Ali, be paid to the Royals in priority to all other creditors. This order was not opposed by Mr Zreika. The respondents submit that, in any event, the evidence given by Mr Zreika was that $800,000 was available to him from the proceeds of sale of the Voyager Point property. In those circumstances, Mr Nathan El Ali’s creditors were clearly prejudiced by the loss of the proceeds of sale of the property, given the proceeds of this sale were payable to Saracen, a company the shares in which vested in the registered trustee by the operation of s 58 of the Bankruptcy Act. The respondents submit that the only rational explanation for the entire transaction is that Mr Zreika is a good friend of Mr Nathan El Ali and was used by him to dispose of the very valuable property and keep the proceeds of sale from any creditors of Mr Nathan El Ali during the latter’s bankruptcy. The respondents submit that Mr Zreika’s submission concerning the valuation closest to the date of transfer ignores the on-market sale for $1.7 million two months after the valuation.
On 11 June 2018, the respondents provided further written submissions to the Court dealing with Mr Zreika’s additional submissions in chief dated 28 May 2018. They submit that Mr Zreika is not entitled to raise the “Brady v Stapleton defence” on the appeal. They further submit that, in any event, on the evidence which was before the primary judge, the defence cannot be made out. The respondents submit that had Mr Zreika relied on Brady v Stapleton at first instance, he would have had to plead and adduce evidence to prove that the sale to Pronto Properties was at arm’s length and to a bona fide purchaser. Furthermore, Mr Zreika would have needed to show that the principles in Brady v Stapleton (a case decided under ss 46–48 of the Mercantile Acts 1867 (Qld) (Mercantile Acts)) were entirely applicable to s 37A of the Conveyancing Act. Mr Zreika adduced no evidence in support of what he now claims and pleaded no such case. Had Mr Zreika done so, then the respondents could have taken steps to meet such a pleading, including possibly joining Pronto Properties to the proceedings, and adducing evidence by way of discovery to show that Pronto Properties was not bona fide and at arm’s length, including evidence that Pronto Properties at the relevant time shared a director with Gee Bee Airfreight. The respondents refer to the well-known cases dealing with a party’s entitlement to raise new grounds on appeal, including Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 (Coulton v Holcombe) at 7–8; Pintarich v Deputy Commissioner of Taxation [2018] FCAFC 79 at [158] per Moshinsky and Derrington JJ. The respondents submit that the facts relating to the sale to Pronto Properties are not admitted by them and are not beyond controversy. They submit that evidence in respect of those facts and issues was not adduced or tested at trial. On the face of it, there was a common director between Pronto Properties and Gee Bee Airfreight. Mr Zreika’s evidence in cross-examination at first instance was that he used $600,000 of the proceeds of the Pronto Properties sale to reduce two loans held by Gee Bee Airfreight, one over the Voyager Point property and one over another property, namely the Taren Point property.
Her Honour’s reasons for making the costs orders on a “joint and several” basis are at CD[53]–[55]. The parties below did not dispute the applicable legal principles, including the general principle that multiple respondents are to be made jointly and severally liable for the costs of the successful party because that party should not lose that entitlement if one of the parties against whom orders are made cannot, or will not, meet its share of the costs burden, “absent ‘special circumstances’” (at CD[53] and the authorities there cited).
Her Honour rejected the respondents’ submission that the general rule should not apply, reasoning as follows (at CD[54]–[55]):
54… It was submitted for the respondents that a joint and several costs order should not be made because there was no common substratum of fact but, rather, a clear distinction between the factual and legal matters as between the various respondents providing a “clear reason” why costs should not be joint and several. The submission that costs should not be on a joint and several basis is rejected for the following reasons.
55First, contrary to the respondents’ submissions, although each of the transactions which the applicants sought to be impugned was separate and distinct in the sense that the relevant issue for determination was whether that particular transaction was a voidable transaction under s 37A of the Conveyancing Act 1919 (NSW) and/or s 121 of the Bankruptcy Act 1966 (Cth), there was a significant commonality of evidence, issues and in the substratum of facts concerning the impugned transfers of shares and properties, particularly given that each of the individual respondents (excluding Mr Stojanovski) were directors of one or more of the respondent companies at various times, and borne out by the fact that the evidence of the individual respondents, including Mr Stojanovski, traverse not only the particular transactions involving them, but also the other transactions the subject matter of the proceeding. It is also noteworthy that the respondents did not conduct separate and distinct defences not attributable to joint conduct of the respondents in defending the claims against them. Furthermore, the applicants were successful against all of the respondents. In the circumstances, I am not persuaded that costs should not be joint and several as between the various respondents.
The appellants in both appeals submitted, for reasons set out in written submissions that in substance repeated the unsuccessful arguments below, that the primary judge erred in rejecting their submissions that no lump sum order should be made, and that they should not be jointly and severally liable. Leaving aside the Mainieri v Cirillo [2014] VSCA 227; (2014) VR 127 point, which involves in part a question of law, it is, of course, long established that an award of costs is discretionary and an appeal court will not interfere with such an order unless it can be shown that an error of the type identified by a majority of the High Court (Dixon, Evatt and McTiernan JJ) in House v The King (1936) 55 CLR 499 (House v The King) at 504–505 has been made. See, by way of example, Tenser v Quigley [2016] FCAFC 178 (Tenser v Quigley) at [28]–[30] (Nicholas, Katzmann and Markovic JJ); Rickus v Motor Trades Association of Australia Superannuation Fund Pty Ltd [2010] FCAFC 16; (2010) 265 ALR 112 at [113] (Jacobson, Siopis and Foster JJ).
Accordingly, “it must be shown that the primary judge made an error in exercising his or her discretion, either by acting on a wrong principle, taking into account extraneous or irrelevant matters, mistaking the facts or failing to take into account a material consideration. An error in the exercise of a discretion can also be inferred by an appellate court if the decision is, on the facts, plainly unjust or unreasonable” (see Tenser v Quigley at [29]).
No such error is even remotely made out here. On the contrary, the case for a lump sum, joint and several order was, if we may say so, an overwhelming one and it was well within the proper exercise of the primary judge’s discretion to make the orders.
As to the indemnity point, we would, with respect, adopt the reasoning of the primary judge in its entirety.
In summary, we consider that the primary judge made no error of principle and that the costs orders were appropriate in light of the findings her Honour made. All of the appellants, other than Mr Zreika, have been unsuccessful in their appeals. Mr Zreika has had partial success on a point not raised before the primary judge. In those circumstances, we see no reason to interfere with the primary judge’s orders as to the costs of the trial by reason of Mr Zreika’s partial success on his appeal.
THE DEED DECISION
In this section of our reasons, we deal with the appeals by Mr Zreika and Mr Nazloomian in relation to orders made by the primary judge on 23 March 2017 in the Deed Decision.
The facts
It will be recalled that Orders 8 and 9 made by the primary judge on 23 September 2016 in the Orders Decision were:
8.Mr Zreika account for the value of the Voyager Point property in the sum of $800,000.00 by paying the said sum to the official liquidator of Saracen.
9.The amount of $100,000 paid by Mr Stojanovski into Court, pursuant to the Orders made on 14 September 2015, in respect of the Kogarah Unit 2 property be paid to the official liquidators of Ottoman.
On 2 November 2016, Mr Zreika and Mr Nazloomian entered into the Deed with the liquidator of Saracen. The Deed relevantly provided:
RECITALS:
A.Zreika and Saracen are party to proceedings NSD 1731 of 2013 in the Federal Court of Australia (the 2013 Proceedings).
B.Saracen has the benefit of Order 8 in the 2013 Proceedings which requires that Zreika accounts for the value of 1 Sirius Road, Voyager Point, NSW, 2172 described in certificate of tile folio identifier Lot 72 in Deposited Plan 661069 in the sum of $800,000 by paying the said sum to the official liquidator of Saracen (Order 8).
C. Zreika and Saracen wish to compromise and resolve Order 8.
D.Nazloomian and Saracen are party to proceedings NSD 771 of 2014 in the Federal Court of Australia (the 2014 Proceedings).
E.Saracen has the benefit of Order 9 in the 2014 proceedings which requires that Mr Nazloomian account to the official liquidator of Saracen Holdings Pty Ltd (In Liquidation) in regard to the value of the Potts Point property by paying to the said liquidator the sum of $10,000 (Order 9).
F.Nazloomian and Saracen wish to compromise and resolve Order 9.
G.No final costs orders have yet been made in the 2013 or 2014 Proceedings. The hearing in respect of costs is listed for 11 November 2016. The most likely potential outcomes are that Saracen be ordered (jointly and severally with the other respondents) to pay the applicants’ costs or that the respondents other than Saracen be ordered to pay the applicants’ costs.
H.On 14 October 2016 Zreika lodged an appeal in respect to the 2013 Proceedings seeking, amongst other things, that Order 8 be set aside and that the respondents to the appeal including Saracen pay Zreika’s costs of the 2013 Proceedings and the appeal.
…
OPERATIVE PROVISIONS
It is agreed:
1.Zreika and Nazloomian together agree that they will pay to Saracen the sum of $70,000 in accordance with Operation Provision 9 below (Settlement Sum).
2.Saracen agrees that it will accept the Settlement Sum in full and final settlement of Order 8 subject to creditor approval of the Settlement Sum pursuant to section 477(2A) of the Corporations Act 2001.
3.Saracen agrees that it will accept the Settlement Sum in full and final settlement of Order 9 subject to creditor approval of the Settlement Sum pursuant to section 477(2A) of the Corporations Act 2001.
4.Saracen also agrees that, subject to creditor approval under section 477(2A) of the Corporations Act 2001, it will assign any rights it may have to commence proceedings against Michael Jones in his capacity as trustee in bankruptcy for Nathan Elali and Peter and Judith Royal to Nazloomian subject to creditor approval of Saracen (assignment).
…
6.The operation of this Deed is not contingent upon the assignment. For the avoidance of doubt if the creditors of Saracen do not cause a resolution to be passed in favour of the assignment only, the balance of this Deed will continue to operate without further regard to the assignment.
…
8.Zreika and Nazloomian acknowledge that the terms of this Deed are or may be subject to approval by the creditors of Saracen.
9.The Settlement Sum will be paid to the Trust Account of the liquidator of Saracen within seven business days after this Deed becomes binding, and may not be distributed to Saracen until the creditors meeting has resolved to approve the compromises provided for in this Deed...
…
12.Upon both the receipt of the Settlement Sum by the liquidator of Saracen in accordance with Operative Provision 9, and the approval by creditors of Saracen of the compromises contained in this deed ..., each party releases and discharges the other from all actions, suits, causes of action, claims, claims for retention and demands whatsoever both at law and at equity which it now has or at any time had, or at any time may have had but for the execution of this Deed, could or might have had against the other for and in respect of the enforcement of Order 8 and Order 9 ...
…
15.Zreika will discontinue the appeal against Order 8 within 7 days of the date of this Deed and neither he or Nazloomian will lodge any further appeal in relation to Order 8.
…
On 8 November 2016, Mr Zreika’s solicitors wrote to the solicitors for the Royals and Mr Jones (collectively, the respondents) telling them that Mr Zreika was withdrawing his appeal against Order 8 requiring him to pay Saracen $800,000. Presumably because, in the events that occurred, the Deed did not become effective, no one regarded the “withdrawal” of the appeal as amounting to anything.
On 11 November 2016 the liquidator of Saracen received a payment of $60,000. A further payment of $10,000 was made on 28 November 2016. Those moneys remain in the liquidator’s trust account.
Although the Deed was expressed in many of its various provisions to be “subject to creditor approval”, the liquidator of Saracen decided that it would be preferable for the court, not the creditors, to be asked to approve the compromise under s 477(2A) of the Corporations Act2001 (Cth) (the Corporations Act). As the liquidator explained in his affidavit dated 9 February 2017, “[t]his would have the additional benefit of putting the issue of the validity of [the Deed] and the liquidator’s power to compromise the order for payment of $800,000 squarely before the Court”.
The liquidator of Saracen also swore that Saracen had no material assets other than the orders made in the proceedings that it be paid $800,000 by Mr Zreika and $10,000 by Mr Nazloomian.
The liquidator of Saracen also swore that in deciding to enter into the Deed he took into account, among other things, the following:
(1)real property searches revealed that Mr Zreika was not the registered proprietor of any real estate in Australia;
(2)it was unlikely that Mr Zreika would be able to pay the $800,000;
(3)in light of his conduct described in the primary judge’s Principal Decision, “even if Mr Zreika did have funds to pay the $800,000, it was likely that he would seek to arrange his financial affairs to make recovery from him legally difficult”.
For those principal reasons (and inconsequential reasons which it is not necessary to detail here) the liquidator of Saracen concluded that he “formed the commercial view that it was in the company’s and the creditors’ interests to compromise the $800,000 payment in the manner set out in [the Deed]”.
It became apparent by the time the application for approval came on for hearing before the primary judge that the liquidator of Saracen had overlooked, presumably because he had never checked, that Mr Zreika was in fact the sole shareholder of two companies that owned real estate. As the primary judge recorded in the Deed Decision at DD[38]:
[T]here is evidence that [Mr Zreika] is the sole shareholder of two companies that … own real estate, namely a company called 37 York Road Pty Ltd and a company called Clutch 1 Pty Ltd. ASIC searches were tendered on behalf of the [respondents] evidencing Mr Zreika’s shareholding in both those companies and an “owner enquiry” of real property owned by 37 York Road Pty Ltd in New South Wales was tendered which showed that the company has an interest in a series of lots in strata plan 87058. It is uncontroversial that Clutch 1 Pty Ltd now owns the Taren Point property, being one of the properties the subject of the orders made in NSD 1731 of 2013 and, specifically the fact that Clutch 1 Pty Ltd now owns the Taren Point property…
The submissions made to the primary judge
The primary contention upon which the respondents relied below was “that the Deed cannot have the legal effect of releasing and discharging Mr Zreika from his obligation to comply with Order 8, without the order also being set aside. Mr Zreika has not applied to set aside the order, but if such an application were to be made, the [respondents] contend that the order could not be set aside in the absence of [their] consent as the order was made in their favour: see r 39.05(f) of the [Federal Court] Rules. Furthermore, the [respondents] say they would not consent to Order 8 being set aside”: (at DD[23]). (Rule 39.05(f) relevantly provides that the Court “may … set aside a judgment or order … if … (f) the party in whose favour it was made consents”).
Three other submissions were advanced on behalf of the respondents, which the primary judge described as follows (at DD[24]–[26]):
24Secondly, one of the matters taken into account by the liquidator in deciding to compromise the debt was that real property searches had revealed that Mr Zreika was not the registered proprietor of any real property in Australia. The [respondents] have furnished evidence to show that Mr Zreika, nonetheless, is the sole shareholder of various companies that do own real property.
25Thirdly, another reason given by the liquidator was his view that “even if Mr Zreika did have funds to pay the $800,000 it was likely that he would seek to arrange his financial affairs to make recovery from him legally difficult”. It was submitted that the apprehension that Mr Zreika would seek to frustrate the recovery and enforcement of the liability was not a proper reason for entering into a compromise with him.
26Fourthly, if the Deed is legally effective to release and discharge Mr Zreika from his obligation to comply with Order 8, the Deed deprives the [respondents] of the fruits of their litigation when there is some evidence to indicate a capacity to pay.
Mr Zreika submitted that r 39.05(f) was beside the point because he was not seeking to “vary or set aside a judgment or order” within the meaning of the Rule; that the effect of the Deed (subject to creditors’ approval) was that there would be an accord and satisfaction of the judgment debt; and that the benefit of Order 8 lay with Saracen, not the respondents. Written submissions filed on behalf of Mr Zreika also contended as follows: “In the event that the [respondents] have an issue as to the terms of the Deed, then it is for them to move the court for any appropriate relief, supported by evidence … Any dispute that the [respondents] have in relation to the deed should be directed to the Liquidator, and not Mr Zreika”.
Saracen also contended that the $800,000 that Mr Zreika was liable to pay pursuant to Order 8 did not constitute a “debt to the company” within the meaning of s 477(2A) of the Corporations Act.
The reasons of the primary judge
In the Deed Decision, the primary judge dismissed the liquidator’s application for approval of the Deed. First, the primary judge rejected the contention that Mr Zreika’s liability to pay the sum of $800,000 was not a debt to the company within the meaning of s 477(2A) of the Corporations Act. Neither Mr Zreika nor Mr Nazloomian advanced submissions on appeal challenging that finding.
Having earlier set out the principles governing a court’s power to authorise a liquidator to compromise a debt and having noted (at DD[21]) that the primary concern of a court in exercising the power to approve provided for in s 477(2A) is whether the compromise is a proper exercise of power and for the benefit of the creditors within the overall context of the liquidation, the primary judge explained her Honour’s reasons for not granting the approval as follows:
35First I accept the submission advanced on behalf of the [respondents] that the Deed cannot have the legal effect of releasing and discharging Mr Zreika from his obligation to comply with Order 8, without also having the order set aside: Deputy Commissioner of Taxation v Leaver [2016] FCA 1028 at [7]–[11]. Unless and until set aside, there is a subsisting order that is binding on Mr Zreika, requiring him to pay $800,000 to Saracen. The Court’s power to set aside an order is contained in r 39.05 of the Rules but, in the present case, it would require the [respondents’] consent…
36The only relevant provision is r 39.05(f). It is undoubted that Order 8 was made in favour of the [respondents] in order to give them an effective remedy under s 121 of the Bankruptcy Act 1966 (Cth) and s 37A of the Conveyancing Act 1919 (NSW) in respect of the disposition of the Voyager Point property by Saracen to Mr Zreika which the Court declared void under those provisions. It is a material and substantial consideration in determining whether to grant approval of the Deed that the [respondents], in whose favour the order was made, are not parties to that deed and do not give their consent to the order being set aside to give effect to the debt compromise. As Order 8 is not capable of compromise in the absence of the [respondents’] consent for it to be set aside under r 39.05(f), the Deed, in consequence, cannot operate to effect a compromise of the amount that Mr Zreika must pay Saracen pursuant to Order 8 or release and discharge Mr Zreika in respect of the enforcement of Order 8. Similarly Order 9 of proceeding NSD 771 of 2014 against Mr Nazloomian is not capable of compromise in the absence of the [respondents’] consent for it to be set aside under r 39.05(f). As the Deed cannot achieve its purpose, court approval of the debt compromise that the liquidator reached with Mr Zreika and Mr Nazloomian should not be given under s 477(2A) of the Corporations Act.
37I also reject the submission for Mr Zreika that the effect of the Deed, if approved by the Court, is that it will be an accord and satisfaction of the debt created by Order 8 as against the [respondents]. That cannot be so, as the [respondents], in whose favour the order was obtained, are not a party to that Deed, and have not contracted to release Mr Zreika from his obligation to pay Saracen the amount of $800,000.
38Secondly, whilst for the purposes of this application I am prepared to accept that Mr Zreika does not own any real property in his own name, there is evidence that he is the sole shareholder of two companies that do own real estate, namely a company called 37 York Road Pty Ltd and a company called Clutch 1 Pty Ltd. ASIC searches were tendered on behalf of the Applicants evidencing Mr Zreika’s shareholding in both those companies and an “owner enquiry” of real property owned by 37 York Road Pty Ltd in New South Wales was tendered which showed that the company has an interest in a series of lots in strata plan 87058. It is uncontroversial that Clutch 1 Pty Ltd now owns the Taren Point property, being one of the properties the subject of the orders made in NSD 1731 of 2013 and, specifically the fact that Clutch 1 Pty Ltd now owns the Taren Point property is the reason for Order 11 which is the subject of Mr Zreika’s stay application. It appears from the liquidator’s affidavit that he was not aware of these matters when he made the decision to compromise the $800,000 payment order for an amount of $70,000. These are matters that warrant further investigation by the liquidator in the interests of the creditors.
39Further, I accept the submission for the [respondents] that the liquidator’s apprehension that Mr Zreika would seek to frustrate the recovery and enforcement of the liability was not a proper reason for entering into a compromise with him.
40In all the circumstances, good reason has been shown as to why the Court should not grant its approval under s 477(2A) of the Corporations Act.
Submissions on appeal
Mr Zreika submitted that the primary judge erred in finding that: (i) it was necessary to set aside Order 8; (ii) Order 8 was not capable of compromise in the absence of the respondents’ consent for it to be set aside under r 39.05(f); and (iii) the Deed, in consequence, cannot operate to effect a compromise of the amount that Mr Zreika must pay Saracen pursuant to Order 8 or release and discharge Mr Zreika in respect of the enforcement of Order 8. Mr Nazloomian made submissions to similar effect about Order 9.
Mr Zreika and Mr Nazloomian also submitted that the authority relied upon by the primary judge for so concluding (Deputy Commissioner of Taxation v Leaver [2016] FCA 1028 (Leaver) at [7]–[11]) does not stand for the proposition that an agreement to compromise a judgment debt requires the original order to be set aside
It was further contended by Mr Zreika and Mr Nazloomian that the primary judge erred when her Honour found that “it is undoubted” that Orders 8 and 9 were made in favour of the respondents in order to give them an effective remedy under s 121 of the Bankruptcy Act and s 37A of the Conveyancing Act in respect of the disposition of the Voyager Point property by Saracen to Mr Zreika because (i) the Bankruptcy Act was irrelevant and, in any event, (ii) the order was made to give Saracen an effective remedy, not the respondents.
Mr Zreika, however, quite appropriately, conceded that Order 8 could properly be characterised as an order made for the indirect benefit of the respondents. He also, again appropriately, agreed that in the event that this court upheld his submission that the primary judge erred in holding that an agreement to compromise a judgment debt requires the original order to be set aside, then this Court should proceed to re-exercise the discretion whether to approve the deed or not. See House v The King at 505 per Dixon, Evatt and McTiernan JJ:
If the judge acts upon a wrong principal [when exercising a judicial discretion], if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so.
The respondents submitted that the primary judge’s reasoning on what had been their “primary contention” below was correct, but that even if it was not, the primary judge had ample evidence and grounds upon which to refuse to approve the compromise, namely:
(1)There was a plain deficiency by the liquidator of Saracen investigating the assets of Mr Zreika;
(2)The fact of the matter was that Mr Zreika controlled two companies of which he was the sole shareholder that owned very valuable parcels of real estate, which had simply not been considered by the liquidator;
(3)The liquidator’s assertion that one of the reasons he agreed to the compromise of the debt was (as senior counsel put it) “because I’m concerned that Mr Zreika is the sort of person who might seek to avoid the payments of his debts” was not a proper basis so to agree to the compromise because “people should not be rewarded by compromises because they were people of the sort who went out of their way to try to avoid the payment of their debts”.
Mr Zreika and Mr Nazloomian did not address the submission by the respondents that even if the primary judge was wrong in relation to their primary contention below, there were ample discretionary reasons supporting her refusal to approve the Deed in any event.
Analysis
The notices of appeal did not allude to the question of whether the primary judge’s order refusing approval of the Deed was an interlocutory order.
Accordingly, after the hearing of the appeal, the parties were asked to make submissions on the point.
No party advanced a reason why an order refusing approval of a deed under s 477(2A) of the Corporations Act is not an interlocutory order. It obviously is, because it is discretionary and it does not finally determine the rights of the parties, because the liquidator is not precluded from making another application (cf Carr v Finance Corporation of Australia [1981] HCA 20; (1981) 147 CLR 246).
Leave to appeal against the primary judge’s order that the liquidator’s application for approval be dismissed is therefore required. It follows that it is necessary for Mr Zreika and Mr Nazloomian to show that the decision of the primary judge was attended with sufficient doubt to warrant it being reconsidered and that substantial injustice would result if leave were refused: Décor Corporation Pty Ltd v Dart Industries Inc [1991] FCA 844; (1991) 33 FCR 397.
The power vested in courts pursuant to s 477(2A) of the Corporations Act to decide whether or not to approve a compromise is a discretionary one. As Gleeson CJ and Gaudron and Hayne JJ explained in Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission [2000] HCA 47; (2000) 203 CLR 194 at [19]:
‘discretion’ a notion that signifies a number of different legal concepts. In general terms, it refers to a decision-making process in which no one consideration and no combination of considerations is necessarily determinative of the result. Rather, the decision-maker is allowed some latitude as to the choice of the decision to be made. The latitude may be considerable as, for example, where the relevant considerations are confined only by the subject matter and object of the legislation which confers the discretion. On the other hand, it may be quite narrow where, for example, the decision-make is required to make a particular decision if he or she forms a particular opinion or value judgement.
(Citations and internal quotations omitted).
The discretion conferred by s 477(2A) is at large. The “approval of the Court” is not conditioned upon a court forming a particular opinion or a particular value judgment. The relevant considerations which a court may take into account are “confined only by the subject matter and object” of the provision. As Barrett J (as his Honour then was) said in Re HIH Insurance Ltd [2004] NSWSC 5 at [15], s 477(2A) is
concerned to ensure that the court exercises some oversight of the liquidator’s actions and, in effect, confers or completes the necessary power only where it sees that a case for the exercise of the power in the particular circumstances has been shown. The courts’ assessment must be made in light of the purposes for which liquidators’ powers exist. One overriding purpose is to serve the interests of those concerns in the winding up – here to creditors … The other is to do whatever needs to be done for the proper realisation of the assets of the company or to assist its winding up …
(Citations and internal quotations omitted).
The commercial judgment of a liquidator that a compromise of a debt is appropriate is to be afforded appropriate regard, and it is often said that the court will generally give its approval. But it will not do so if lack of good faith can be demonstrated, or if the liquidator has erred in law, or as a matter of principle, or if there are any other real or substantial grounds for doubting the reasonableness of the liquidator’s commercial judgment. See In the matter of One.Tel Limited [2014] NSWSC 457; (2014) 32 ACLC 14-017 at [28]; In the Matter of 246 Arabella Investments Pty Ltd (In Liq) [2012] NSWSC 1212; Re Spedley Securities Ltd (1992) 9 ACSR 83; Re Mineral Securities (Australia) Ltd [1973] 2 NSWLR 207 at 231–2.
We are not persuaded that the primary judge’s conclusion that it was necessary for the Royals to consent to the setting aside of Order 8 in order to effect the compromise of the obligation to pay the $800,000 contemplated by the Deed was attended with sufficient doubt to warrant the granting of leave to appeal.
It is true, as Mr Zreika submitted, that the decision in Leaver does not stand for the proposition that an agreement to compromise a judgment debt requires the original order to be set aside. The case has no bearing on the question. It was a case in which the issue for the judge to decide was whether the parties, by the fact of their agreement that a judgment should be set aside, were without more entitled to an order to that effect. It was held that although in many cases consent may be sufficient, the court retains a discretion not to set the judgment aside: Leaver at [10]–[11]. That is, we would have thought, an unremarkable proposition, but it has nothing to do with this case.
We also agree, if it matters, that s 121 of the Bankruptcy Act had no bearing on the matter (something that the respondents accepted).
Liquidators routinely compromise debts for good reasons. Inchoate debts are often the subject of genuine dispute. Judgment debts can be appealed, and the prospects of the success of such an appeal may be reasonable. In those, and myriad other routine circumstances, courts readily enough approve compromises of such debts, where it is in the interests of creditors to do so, in accordance with the principles referred to above. In circumstances where a judgment debt is involved, compromises are routinely entered into, subject to creditor or court approval where the debt exceeds $100,000, without the need to ask the court from which the judgment debt originated to expunge it from the record. That is because there is no need to do so. If the creditor ever sought to enforce the order, the debtor would only need to produce the agreement to which they were a party to prove that the order was no longer capable of being enforced, or could only be enforced in accordance with the terms of the agreement. There may be circumstances where a debtor has a commercial interest in wishing to have the existence of a judgment debt removed from the public record. Leaver may have been such a case. There the Deputy Commissioner had obtained judgment against Mr Leaver for over $25 million. Having paid a settlement sum, the compromise recorded that the Deputy Commissioner “agreed not to oppose Mr Leaver’s application to have the judgment against him set aside”: Leaver at [4]. But, as we have said, that has no relevance here. (Compare the position in the United States, where in some jurisdictions a creditor must file with the court a “satisfaction piece” when they receive satisfaction or partial satisfaction of a judgment. See, for example, in New York, NY Civil Practice Law & Rules § 5020 (2015)).
But in this case, neither the Royals nor Mr Jones were parties to the compromise agreement. The Deed did not even contemplate telling them about it. In such circumstances, given that the Royals were the indirect, but real, beneficiaries of Order 8 (an issue to which we return below), we are of the view that the primary judge did not err by taking into account the fact that the consent of the Royals had not been sought.
If we may say so, with respect, her Honour was not greatly assisted on the question whether it was necessary for the Royals to consent to the terms of the Deed by lengthy written and oral submissions from all parties, which were largely not to the point.
The critical question, which those submissions tended to obscure, was whether approval of the compromise contemplated by the Deed was in the best interests of the creditors. It is that central question to which the submissions of the parties ought to have been directed.
It is, of course, true that the Royals are not strictly speaking “creditors” of Saracen. But as Mr Zreika accepted, the Royals are the parties who stand to benefit from Order 8. They are the parties, after all, who brought the proceedings seeking a remedy to redress Mr Nathan El Ali’s (unsuccessful) efforts to keep his assets out of their reach in the first place. Their interest is self-evidently of critical importance and was something that the liquidator was bound to, but did not, take into account in assessing the reasonableness of a compromise that contemplated reducing the sum in which the Royals were ultimately to share from $800,000 to $70,000.
In approaching the question of whether to approve the Deed or not, as we have explained, the Court’s assessment must have as one overriding purpose whether it serves the interests of creditors, which, in a case such as this, must also be taken to extend to parties, like the Royals, who are the effective and only beneficiaries of the debt owed by Mr Zreika to Saracen. It would be a nonsense to suggest otherwise.
In circumstances where the liquidator sought to enter into a deed of compromise without reference to the Royals (or to Mr Jones), where he was mistaken about Mr Zreika’s real estate interests and therefore his capacity to pay the $800,000, and where he invoked as a virtue, rather than as a vice, that Mr Zreika was the sort of person who would arrange his affairs to ensure that he could avoid paying his debts and that, it must be assumed, he would avoid paying this one, and there being no other good reason suggested for the compromise, the case for refusing approval of the compromise of the debt contemplated by the Deed was, in our view, irresistible.
For those reasons the decision of the primary judge to refuse the liquidator’s application to approve the Deed is not attended with sufficient doubt to warrant it being reconsidered. Leave to appeal will therefore be refused.
CONCLUSIONS
For the reasons we have given, the appeals in NSD 1794 of 2016 (Mr Stojanovski), NSD 1793 of 2016 (Mr Nazloomian), NSD 29 of 2017 (Mr Mahmoud El Ali), NSD 1798 of 2016 and NSD 1799 of 2016 (Mr Nathan El Ali) should be dismissed and the appellant in each appeal should pay the respondents’ costs in that appeal. Unless there are any other orders sought by the respondents in those appeals, those are the orders which should be made.
The appeal in NSD 1801 of 2016 (Mr Zreika) has been partially successful. As we have said, the order in paragraph 8 of the orders made by the primary judge on 23 September 2016 should be set aside and in lieu thereof, there should be an order as follows:
The property and assets of the third respondent be charged to secure the payment of an amount of $200,000 to the official liquidator of Saracen.
The appellant’s partial success in that appeal raises the question of the costs of that appeal and it may be necessary for the Court to entertain further short submissions on the costs of the appeal.
We consider the appropriate course to be as follows. The respondents in each appeal should file and serve draft minutes of order within fourteen days. As we have said, unless there is a matter of which we are presently unaware, the appropriate orders in all of the appeals, other than NSD 1801 of 2016, are as we have indicated.
Mr Zreika should then indicate within seven days whether he agrees to the orders proposed by the respondents in his appeal. If he does not, then the Court will put in place a regime for the determination of the disputed matters.
Since preparing these reasons, the Court has been advised that Mr Nazloomian was made bankrupt on 6 May 2019. His counsel brought this to the attention of the Court and he referred to s 60(2) of the Bankruptcy Act. We asked the parties for submissions on whether this circumstance affected the Court’s ability to deliver reasons in all appeals, including the appeal involving Mr Nazloomian. The Official Trustee asked for a period of four weeks so that it could make an informed decision. None of the existing parties suggested that Mr Nazloomian’s bankruptcy affected the Court’s ability to deliver reasons. We do not think that it does. Indeed, it may well be that it does not affect our ability to make orders in his appeal (see Beneficial Insurance Co Ltd v Hamilton (1985) 73 FLR 347 (Holland J); John v Neiman Holdings Pty Ltd (1986) 84 FLR 84 (Young J); Griffiths v Civil Aviation Authority [1996] FCA 397 (Spender, Einfeld and Cooper JJ); Armour v Mason [2002] NSWSC 464 (Austin J); and Shannon v Commonwealth Bank of Australia [2013] NSWSC 596 (Campbell J)). In any event, as the Court is only delivering reasons at this stage, the matter can be debated if need be after the respondents formulate the orders they seek and before orders are made.
I certify that the preceding three hundred and sixty-seven (367) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Besanko, Farrell and O'Callaghan. Associate:
Dated: 23 May 2019
SCHEDULE OF PARTIES
NSD 1793 of 2016 Respondents
Fourth Respondent:
MAHMOUD ZREIKA
Fifth Respondent
PETER ROYAL
Sixth Respondent
JUDITH ROYAL
NSD 1794 of 2016 Respondents
Fourth Respondent:
OTTOMAN INVESTMENTS PTY LIMITED (IN LIQUIDATION)
NSD 1801 of 2016 Respondents
Fourth Respondent:
OTTOMAN INVESTMENTS PTY LIMITED (IN LIQUIDATION)
Fifth Respondent
SARACEN HOLDINGS PROPRIETARY LIMITED IN LIQUIDATION (ACN 126 493 552)
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