NSD 1793 of 2016 NSD 1794 of 2016 NSD 1798 of 2016 NSD 1799 of 2016 NSD 1801 of 2016 NSD 29 of 2017
Judges:
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…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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Details
AGLC
Zreika v Royal [2019] FCAFC 82
Case
[2019] FCAFC 82
Decision Date
CaseChat Overview and Summary
The appeals before the court concern orders made by a judge of the Federal Court of Australia in relation to transfers of shares in various companies and dispositions of various properties. The respondents sought relief under sections 37A of the Conveyancing Act 1919 (NSW) and 121 of the Bankruptcy Act 1966 (Cth). The court was required to decide whether the primary judge correctly found that dispositions of various properties were made for nominal consideration with the intent to defraud creditors, whether the appellant was entitled to raise a new defence on appeal, and whether the primary judge's refusal to approve a deed under the Corporations Act 2001 (Cth) was an interlocutory order. The court also considered whether the primary judge correctly exercised a discretion to make a lump sum order for costs on a joint and several basis.
The court found that the primary judge did not err in finding that dispositions of various properties were made for nominal consideration with the intent to defraud creditors. The court upheld the adverse credit findings against the appellants and held that the primary judge did not err in distinguishing a previous case. The court held that the appellant was not entitled to raise a new defence on appeal, and that the primary judge's refusal to approve the deed was not an interlocutory order. The court also found that the primary judge did not err in exercising a discretion to make a lump sum order for costs on a joint and several basis.
The final orders of the court were that the respondents in each appeal file and serve draft minutes of order reflecting the conclusions in these reasons within fourteen days. Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Orders
Orders of the court
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.
Background
Background to the litigation
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 PROVISIONSIt 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.…
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
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: